“I have found the perfect house,” my wife said. “The agent says it’s cosy and has a low-maintenance garden, and is situated in a great catchment area.” All of that sounded lovely, until we went and had a look… it was cosy alright, barely enough room to swing a cat. The low-maintenance garden turned out to be equally small and wall-to-wall patio slabs. But it was in a great catchment area, just down the road from the best school in town which meant that we were the 5th viewing of the day and there were already enough offers to push the price well over the original asking price. Needless to say, we walked away. Anyone who has bought a house will be aware of the need to take estate agent descriptions with a pinch of salt and know that you need to look under the surface to be sure what you are buying. When it comes to selling a business, any acquirer worth their salt will also know that they need to look under the surface to make sure what they are buying is worth the investment.
So what about when it comes to selling a business?
I have met many business owners who have been trying to sell their business for years, and there is no shortage of statistics that will tell you only 2 in 10 business owners successfully sell their company. If you are wondering why they haven’t managed to sell then let me explain. A buyer will look at two things when deciding whether to pursue a deal or not. Initially they will be attracted by the green lights – performance, products, markets, synergies – things they can see from the outside. But when they start to work on the deal their focus will switch to looking for red lights, or reasons they should walk away or reduce the price offered. All of these red lights revolve around risk and there are potentially hundreds of things that can raise risk in the eyes of a buyer. The link below is a 12-minute podcast that introduces five of the most common issues. These include:
- Too many SPOFs or Single Points Of Failure: over-reliance on single suppliers, key staff or customers will make a buyer nervous
- Contracts that are non-existent, verbal only, or have change of ownership clauses could derail a deal
- Poor financial accounting will make a buyer question the numbers they are basing their valuation on
- Identifying and protecting intellectual property in the business will give a buyer more confidence in what they are taking on
- Dependence on the owner is the final of the five and can be a real issue – if the business falls apart without you in it, what are they buying?
Don’t give up…
If you are ready to sell, but you suspect your business is not then don’t give up. Entrepreneurs Hub are business brokers with a difference. We are not just interested in taking your business to market, we are interested in taking your business to market in the best shape possible and as a result maximising value. We work with business owners to prepare their business for sale, however long it takes. Why don’t you get in touch and we would be happy to meet with you, in strict confidence, to discuss your situation.