Thinking of selling your business this year? You may be surprised to learn that only 20 to 25% of small businesses are actually sold.
From unqualified buyers, to unenthusiastic employees, there are many issues that can affect your ability to sell a small business for a profit. Overcoming the odds requires you to anticipate roadblocks and make plans to present your company to buyers in the best possible light.
Here are some of the biggest obstacles to a successful business sale, as well as some tips for overcoming them.
1. Low Gross Margins
Gross profit is a measure of a company’s total revenue minus the price of goods. While exceptionally unique businesses may be sellable based solely on intellectual property, most companies are sold due to their profit potential. If you’re thinking of selling your business in the near future, it’s important that you take steps to boost gross profit margins going forward.
After securing a business valuation from an appraiser, business owners should identify ways of increasing overall profits. In some cases, it may be necessary to reorganize departments and even remove personnel. Additionally, you can cut costs by changing vendors, boosting prices and even ditching low-profit customers in favor of those who will generate more revenue.
2. Poor Accounting Systems
Are your company’s financial records lacking something important or even critical?
Not only do clear financial files help you run your business better, allowing you to identify threats and opportunities as they arise, but they also increase your odds of successfully selling your business down the line. On the other hand, when your books are disordered, buyers may assume you’re trying to hide something. By keeping detailed financial records and sharing all liabilities upfront, you can reduce uncertainty on the part of potential purchasers and boost your chances of selling at the price point you desire.
3. Overreliance on Owner
Are you proud of the fact that your business can’t function without you at the helm? If you’re planning to sell your company in the next few years, you may want to rethink that approach, as a business’ over-reliance on its owner can be a huge obstacle in securing a sale. After all, prospective buyers will want to know that the company can be a success without you there to direct operations.
Before putting your business on the market, take steps to extricate yourself from some of your daily responsibilities, and re-delegate those tasks to middle management. You may want to consider taking a vacation to see how the company operates without you there. Once you return, you can make the necessary changes to boost performance. The goal is to let buyers know that your company can be incredibly successful in your absence.
4. Unsupportive Employees
You probably know that your employees are the public face of the company, representing you and your business to both current and prospective clients. However, you may not realize that your employees can also present a powerful message to potential buyers. If you’re looking to sell in the next few months, you should take care in determining whom to trust with this information.
In some cases, sharing your intention to sell can be valuable, as current employees may pony up the cash to buy you out. On the other hand, your workers may jump ship if they think that their jobs are at risk, which can leave you short-staffed at a time when you need to present a strong image to sales prospects. There have even been cases in which employees tried to sabotage potential sales.
To boost your chances of securing that business sale, only tell those employees and managers whom you trust will protect your interests.
5. Lack of Scalability
If you’re interested in selling your small business, it’s important to first ensure the company is scalable. Scalability refers to the capacity of your business to grow and expand over time. In general, prospective buyers want to know that a business is scalable so they can capitalize on their investment, increasing the company’s value in the months and years to come.
While a big part of scalability is finding new customers for your products and services, it’s also important that you keep your existing clientele satisfied so they continue to use you in the future. If you do strive to increase your customer base before a business sale, don’t forget to scale your production and customer service teams in response. After all, you don’t want to lose your new sales prospects because you can’t keep up with customer demand.
Give Your Business a Competitive Edge
The truth is that most roadblocks to a successful sale are actually just elements of the business that potential buyers consider too risky. By finding ways to bypass these roadblocks, business owners can minimize perceived risk and raise their odds of making a successful sale.