The other day I was speaking with a business owner about the process of selling his business. During the conversation, he mentioned that he’d also had a conversation with an out-of-state broker who specialized in the seller’s business type. He told me that broker proclaimed that sellers who engaged small local firms only had a 10% chance of selling.
When I asked what they said was the source of the 10% claim, its owner couldn’t remember that they’d provided any.
This is a common scare tactic
So, I thought it would be a good idea to talk about the likelihood of selling your business. When I first began working in the business intermediary/broker community (circa 2006), I heard a common statistic that 20% of businesses that were listed for sale actually sell. When I inquired, people told me this came from a study conducted long ago by an academic for the International Business Brokers Association, but I’ve never seen the study. My experience as a business lawyer and an intermediary, however, tells me that asking the question is like asking if your house or your car will sell. It can’t be answered without more information. By way of example, if you’re trying to sell a 1992 Yugo with 100,000 miles for $25,000, it’s going to be darn near impossible. But, if you’re trying to sell a just-out-of-the-showroom 2021 Ford pickup truck with 2,000 miles in today’s market (i.e., electronic component shortages), it’s going to be a snap.Businesses are the same
If you have a broken down business that doesn’t make a lot of profit or requires the owner to work 80 hours per week, it’s always going to be a tough sale. But if you have a good business or a business type that’s in demand (or both), you’re much more likely to sell. For example, accounting practices are in demand now and are selling at a premium to other businesses. One buyer we worked with put in bids on three accounting firms before getting one accepted. But I’ve also worked with accounting practice buyers who’ve turned down transactions where there were questions about clients and cash flow. So, while practices are in demand, the demand is for those that can demonstrate they make money. A good business isn’t going to sell or not sell based on statistics. Good businesses are in demand because there’s much less risk and they generate cash flow.What are the characteristics
- Excellent financial records and statements.
- Consistent and growing profitability and cash flow.
- Long term customer / client relationships.
- Written systems and processes for employees.
- An in place non-owner related team ready to continue servicing customers / clients.
- Sales and Marketing systems that don’t require the owner.
If you have many (or, hopefully, all) of these, you don’t have to worry about general statistics about business sales. You’ll sell based on the characteristics of your business. And if you don’t, have them, spending time interviewing brokers isn’t going to help you sell.
In the next article, I’ll talk about how the broker you engage affects selling your business and how to select the best broker for your business.
Of course, the above is general information and your situation may be different. Therefore, you should speak with an attorney before taking action on any of the above information. If you have any questions about your situation, please feel free to call me at 407-649-7777.
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