A Bit of Self Promotion

While I generally represent Sellers, I recently took on an assignment to help a Buyer find a company to purchase. Many of you may know that I only do this a couple of times a year as it takes a lot of my time and energy.

I charge for the service, $5,000, and offer a discounted Success Fee percentage...joke that I make about a dollar an hour. If I am lucky, I will get a viable listing from one of the businesses that the Search Client Buyer does not want to pursue, and that is where I earn most of my income--successful sales. But my first obligation is always to the Search Client.

This particular Buyer had already engaged the help of another broker, so we went forward with my list of prospects being pretty severely carved up because the other guy had already contacted them. I have always maintained that the way I contact businesses is my "secret sauce," but after some time, the Buyer said that the first broker had generated 2 responses...to date, I have generated SIXTEEN!!

Still not done. He asked me to contact the businesses that the first broker had already contacted. By now, they may be a bit leery, but we will give it a try. Standby for updates.

Five Reasons + Why a Business Doesn't Sell

Reprinted below, with permission, is a fine article by Ed Wilcox at Corporation4sale.com. I would be inclined to do business with someone, like Ed, who thoughtfully views the landscape of business brokerage. After each paragraph, I offer some of my personal observations based on over 20 years of experience (in italics).

Why don't businesses sell? Ed points out that over 80% don't, and while that is much higher than my personal experience, I believe it is the case nationally.

1. Setting the wrong price – Many business owners make the mistake of overvaluing their businesses. Most entrepreneurs know that building a business is pretty much like raising a child. You nurture it, take care of its every need, guide it until hopefully, one day, it stands on its own two feet. Considering how much time and effort it takes for an owner to build a thriving company, it is completely understandable that many sellers peg their company’s worth higher than its actual value. Understandable, but not completely reasonable. Truth is, a business is worth as much as whatever a serious buyer would be willing to pay. If you set a price too high, many buyers won’t take your offer seriously.

Everybody wants a million bucks. And if there are two owners, they each want a million bucks. I have been told that people in Hell want ice water, too! Round numbers are not an indication of what your company is worth, and a good valuation can give us a working number that doesn't discourage serious inquiry but achieves what is possible with the sale.

2. Lack of preparation. In many instances, company financials are crafted around minimizing taxes, rather than maximizing profits – which is great, until you decide to sell. A company that shows low profits on paper will likely lose value in the eyes of buyers. If your company is earning well, make sure you have documents to show it. A proper business valuation can help you accomplish this. Be ready with at least two years of your company’s financial data

Three years of financial data is often the base line in my experience, and I have worked with companies for several years to get the books squared away. When you sell your car, you wash it first. When you sell your house, you paint and mow the lawn. A valuation is essential in most cases, and if the financials are in poor repair, it may take some time.

3. Failure to find good buyer prospects. Many business owners try to sell their companies themselves. While there were many successes, many more lost money, lost sleep, lost patience, and lost deals. Those who failed, learned that selling is a full-time job in itself. Finding the time to search for prospects while running a business day-to-day could be very daunting. Some sellers also resort to cold-calling, which often proves to be counterproductive as it is ineffective and time-consuming.

That's why you hire a broker. Many of my clients have given me a list of x number of firms that will be the buyer. They "know" that they are the only ones who would have a chance or an interest. So far, and it is only a 20-year sample, none of the named buyers has succeeded. The buyers come out of the blue for a variety of reasons that I cannot predict. My job is to reach them, and that is what I have spent years training to do. And it happens.

4.  Lack of owner financing.  Many businesses for sale are often overlooked by serious buyers because they don’t come with an owner financing offer.

To a buyer, owner financing indicates confidence in the business. "If they won't finance part of it, how do you expect a bank (or me) to finance?" While this logic is not necessarily correct, accuracy is not an important factor when talking about perception. When a Buyer perceives that the Seller is "skipping out" or not confident in the ability of the business to persist, that belief becomes the basis for the decision, accurate or not. In my experience, particularly with the "Main Street" businesses, the amount financed by the Seller can often be a simple addition to the ultimate sale price--if the business could be sold for $400,000 without owner carry back, it might be sold for $450,000 if the owner carries back a note for $50,000.

5.  Unclear reason for selling. Buyers always want to get a logical and valid reason for selling. Without it, they will assume the worst. They might think you’re selling because your industry is facing decline, you have hidden liabilities or your competitor is getting ahead. Without a clear reason, they are likely to offer a lower price for your business, or simply walk away.

Advice to Seller: never say, "Everything's for sale for a price." Intentional or not, this leaves the impression that you will only sell for a price that is more than the business is worth. A close cousin of that phrase is, "Selling to pursue other interests." You better have a convincing story about what those might be.

There are good and justifiable reasons, health and retirement at the top of the list. I listed a business for a lady who rented party supplies, like inflatable bouncers and ball pits. Her husband had been transferred and she wanted to live where he lived. Sold!

I am going to suggest a sixth reason that a business doesn't sell--the Seller tries to negotiate directly with the Buyer. I know it is self-serving, but we all learn the value of intermediaries early-- "Listen, you have to clean your room before your dad gets home." It is so much easier to deal with a conflict through intermediaries. Emotions come into play early when negotiating face to face.

Besides, we have more practice: intermediaries do this all the time while our clients only buy or sell a business once or twice a lifetime.

I am convinced that my help is worth the money, I earn my success fee. Ed laid out a few reasons why.