Promoting a business is no easy business. Actually more often than we would like, a business available for sale gets all the way through escrow… only to fall out right toward the end, for a number of reasons. Sometimes the reasons are genuine; others times they are downright silly.
Here we will address the top issues that end a business from selling:
1 . A good overpriced business: This should be mainly because obvious as the morning sun, but it is the number one overarching reason businesses do not get sold. The sellers are asking more than the business is worth. An agent should be able to get a fairly accurate concept of what a business is worth based on the product sales, the expenses, the assets, and the market.
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But a lot of brokers either neglect to tell the seller the bad news, namely that “the business is not worth what you are asking”, or even they don’t really know how to find out and then let the seller determine the price, where higher is always assumed better. For whatever the reason, overpricing kills a sale. Purchasers either won’t offer on something they think is grossly overpriced – or – in reaction to an unrealistic price they make up by making an offensively low give.
2 . An unmotivated seller: If a seller really doesn’t care when the business sells or not, and is just throwing out a hook to find out if something bites, chances are the home or business is going to be a tough selling. People find ways to make issues happen when they are motivated; on the other hand, they will look for ways to avoid making things happen if they are not inspired. A seller of a business must WANT to sell a business.
3. Bad books and record keeping: Businesses for sale can look great on the commercials and attract a lot of interested purchasers, but if the books are messy or non-existent a buyer with a human brain probably will not want to lay down money on a measly promise. If a business claims to make money, the books better show it. If they don’t, why don’t they? It amazes me exactly how some business sellers think purchasers should simply believe them. Customers are no different than sellers, and need to see the numbers to make a brilliant decision.
4. Seller wants just about all cash: Here is another deal killer – the seller needs all money. No seller carry, and no loan. The problem here is pretty obvious: not too many people are sitting on tens in order to hundreds of thousands in cash, and ready to spend it. Usually those people are interested in ordering bigger businesses, and using their money as down payments. When retailers get demanding on terms, specially in these leans times, their company for sale doesn’t demand much attention.
5. The owner is primal towards the business: A lifestyle business that leans heavily (if not entirely) on the personality or connections or even skills of the owner, is going to be a hard sell. This reality may come out in due diligence, when buyers start to realize all the income is based on the girl selling the company, her skills and talents and attraction factors… plus they can’t duplicate her.
6. The item or service is obsolete: the vendor wants to sell because his marketplace is drying up. Of course. Really want to sell your business before you have to close up shop? Well, here again is how sellers need to think like customers. The Golden Rule applies in business as it does everywhere else. Do unto others… When a buyer investigates the market for the product or service and sees it is going the way of typewriters and video cassettes, he’s never going to shell out some big money merely to view it burn. He’ll walk, just like the seller would.
7. The business needs a license: many businesses necessitate license, especially in California, where someday you might need a permit just to use the toilet. The particular trades, the professional services, the particular selling of certain products, particular services… all require licenses and permits. There actually is a good aspect of licensing, in that they give some uniformity and standards to businesses. However the bad aspect of licensing is that they cost money, and… they can be exclusive. A developing license can’t just be paid for with money, it must be earned. A alcohol license has restrictions on who can take it over; a criminal record can ruin that possibility. So while some licenses represent a dollar amount, such as a franchise fee, others are further, and limit who can acquire it, and therefore limit who can acquire the business that makes use of it.