The Only 2 Reasons a Business Wont Sell

Why Businesses Don’t Sell: The Two Biggest Mistakes Business Owners Make

After 20 years as a business broker, I’ve seen businesses succeed in finding a buyer and others struggle to sell. In my experience, when a business doesn’t sell, there are usually two main reasons. 

Getting these two things right can make a significant difference to how quickly your business sells, the quality of buyers you attract, and ultimately, the price you achieve.

Price

The first and most common reason a business doesn’t sell is that it’s overpriced.

Many business owners have a figure in mind for what their business is worth. Sometimes they’ve received advice from someone else. Other times, they’ve arrived at a number based on what they need financially from the sale.

Perhaps they want to pay off the mortgage, help the kids, buy a boat or fund their retirement. Those are all understandable goals, but they don’t determine the market value of a business.

Your business is worth what a willing buyer is prepared to pay, based on the business’s performance, its risks and the alternatives available to them.

Valuing a business isn’t like valuing a house or building.  These are relatively straightforward to compare. If several similar houses in the same street have sold for around $1 million, that gives you a reasonable starting point for valuing another house in that street.

Businesses are different. Two companies in the same industry with similar turnover can have very different values.

Profitability, growth prospects, customer concentration, staff, systems, reliance on the owner and the nature of the industry can all influence what a buyer is willing to pay.

That’s why setting an asking price based on guesswork can be a costly mistake.

How do you determine what your business is worth?

One of the most useful starting points is actual business sale statistics.

The brokerage I work with collects business sales data from successful sales.  This allows me to compare a business with relevant sales of similar businesses and assess what buyers have actually paid.

For example, if you own an importing business, I can look for comparable businesses with similar products, turnover and profitability. Those transactions can provide useful evidence of the price range the market may support.

Of course, no two businesses are exactly alike. The statistics provide a starting point, not an automatic valuation. Your business might deserve a premium because it has excellent systems, strong management and consistent profits. Alternatively, it might warrant a lower price because it depends heavily on you, has inconsistent earnings or faces other risks.

The important thing is to understand where the valuation comes from and be able to justify it.

What happens when you overprice your business?

An overpriced business can sit on the market for months without attracting serious interest.

Even if you eventually find a buyer willing to agree to your asking price, that doesn’t necessarily mean the deal will be completed.

Once the buyer involves their accountant, lawyer and bank, the proposed purchase price is likely to face closer scrutiny. These advisers may compare the price with industry benchmarks, historical earnings and comparable sales.

If the numbers don’t stack up, the buyer may be advised to renegotiate or walk away.

You can then find yourself back at square one, having lost valuable time and potentially missed other buyers who might have been interested at a realistic price.

Yes, occasionally someone will pay an unexpectedly high price for a business. But relying on finding that buyer is not a sensible sales strategy.

The goal isn’t simply to find someone who agrees to your asking price. It’s to find a qualified buyer who can justify the price, secure the necessary funding and complete the purchase.

Marketing

The second major reason businesses fail to sell is inadequate marketing.

It sounds obvious, but how can someone buy your business if they don’t know it’s for sale?

Selling a business requires more than putting together a basic advertisement and waiting for enquiries. You need a marketing campaign designed to reach the people most likely to buy your business, in the shortest practical timeframe, without wasting money.

That means developing a compelling marketing package, identifying the appropriate audience and using the right channels to reach potential buyers.

Confidentiality is also important. Many business owners don’t want employees, customers or competitors to discover that the business is for sale before the time is right. A good marketing strategy needs to balance reaching enough qualified buyers with protecting sensitive information.

Why good marketing can help you achieve a better price?

One of the main benefits of effective marketing is that it can bring several interested buyers into the process at the same time.

When buyers recognise that they’re competing for an attractive opportunity, they have a stronger incentive to act decisively and put forward their best offers.

Competition can improve your negotiating position and give you more choice when assessing the terms of an offer, the buyer’s financial position and their ability to complete the transaction.

By contrast, if only one buyer expresses interest, you have fewer alternatives and may have less negotiating power.

A well-planned marketing campaign aims to generate genuine interest from multiple qualified buyers rather than relying on a single enquiry.

Marketing is an investment in reducing time on the market

I often describe business marketing as an investment against time on the market.

Think about buying a house.

You view one property and ask the agent how long it has been available. They tell you it was listed last week and has already attracted plenty of interest. You may decide to put forward a strong offer because you don’t want to miss out.

Now imagine viewing a similar property that has been on the market for six months.

You might start wondering what’s wrong with it. Is it overpriced? Has another buyer discovered a problem? Is the owner becoming desperate to sell?

You may feel comfortable making a lower offer because you assume the seller has fewer options.

The same thinking can apply when someone is buying a business.

A business that attracts strong interest and receives offers early in the sales process can create a sense of competition. A business that has been advertised for months without much interest can raise questions and weaken the seller’s negotiating position.

Time on the market doesn’t automatically mean something is wrong with a business. Some businesses take longer to sell because of their size, complexity or the limited number of suitable buyers. However, a prolonged campaign can make negotiations more difficult, particularly if the asking price is unrealistic or the marketing isn’t reaching the right audience.

Good marketing helps you find the right buyers sooner, giving you a better chance of securing an offer while the opportunity is fresh.

How to Give Your Business the Best Chance of Selling

If you’re planning to sell your business, there are two fundamentals to get right.

First, establish a realistic asking price. Use relevant sales evidence, understand the strengths and weaknesses of your business, and make sure the price can be supported by its financial performance and prospects.

Second, invest in an effective marketing campaign. Your business needs to be presented professionally and reach enough qualified buyers to create genuine interest and, ideally, competition.

Getting either one wrong can undermine the entire sales process. Getting both right puts you in a much stronger position.

After nearly 20 years in business broking, my advice is simple: don’t guess what your business is worth, and don’t underestimate the importance of marketing it properly.

If you’re considering selling your business in New Zealand, talk to an experienced business broker (that will be me) before deciding on a price or putting it on the market. The right preparation and strategy can help you avoid costly mistakes and give you the best chance of achieving a successful sale.