Did you know that over 50% of small businesses that are put on the market for sale don’t end up being sold? Price is an obvious one, but many other factors tied to additional risk translate into the price for the Buyer. Here is a Top Ten List. (There are many others)
- Unrealistic Price and Terms. The seller has an inflated view of what the price should be and/or the terms aren’t in step with the market. For example, in this summer of 2020, most small businesses are selling with some portion of the purchase price paid based on customer revenues sticking for a year or two after closing.
- High Seller Debt. By the time the Seller pays off all the debt, there is little dropping to the bottom line. (after taxes, fees, etc.)
- Unhappy Key Employees. No guarantee they won’t leave at or prior to closing. Huge risk to Buyer that will reduce price or eliminate offers.
Unhappy Key Customers. There is no “stickiness” in their contracts or relationships for recurring revenue. We know there are low barriers to entry in the landscaping business, so customers can easily substitute if they are unhappy. Changes to ownership are a good time for customers to “reevaluate”.
- Prices Too Low. For a buyer to bring in realistic pricing, customers will leave. I’ve even seen contracts priced too low that could only be terminated by the Buyer!
- No Infrastructure. Operations are haphazard, there are few processes defined and no computing tools to support the efficient operation of the business. Buyer would have to build it all, cost would be prohibitive.
- No Cultural Fit. A team-oriented buyer will work in a totally different way than a “command and control” company. Extremely difficult and unlikely to fit. Buyer faces replacing many employees.
- “Off the Books”. Tax returns and financial statements don’t line up. That Seller’s bookkeeper wouldn’t even talk about the additional revenue!
- Environmental Risks. Seller has not paid attention to potential environmental risks. Pesticides, motor oil or other hazardous material have not been handled appropriately. Have you heard the one about the crew that was draining old motor oil into the soil behind the garage?
- “Hidden” Issues. These are very sensitive matters that will be brought into the light through due diligence and will kill the sale. This could be related to discrimination, harassment, substance abuse or other sensitive issues. I’ve seen all of these pop up in my experience and if they were kept secret until due diligence killed every deal. On the other hand, without careful handling of these HR issues (call Steve Cesare!), the Seller could end up getting sued!
If you’d like to hear more about these Seller mistakes and others, join me for my free webinar on August 17th at 1:30 (EST). We’ll be talking about actual examples and how to handle them. If you’d like to have your questions answered during the call, please either send them to me ahead of time (while you are thinking of them) or on the day of. And, as always If you would like to discuss your situation on a confidential basis, call Alison at 224-688-8838 or email me at [email protected] We’re here to help you Harvest Your Potential.