80% of all businesses that are for sale never get sold. And the main reason why businesses fail to sell is, most business owners do not have the knowledge or experience of the sale process.
A lack of appropriate information means they are poorly prepared (i.e., not at all) and fall at one of the many stumbling blocks that they experience along the way. Most business owners only go through the sale process once. It’s often a very painful experience. It is emotionally draining and mentally demanding. The sale process distracts you from the day to day running of your business, which hits you hard if you are heavily involved in operations.
Getting though the sale process is just the first step. If you are involved in an earn-out or deferred consideration deal you need to think about what future success looks like. Many “mergers” do not add up to greater value.
Failure can happen at two key points in the process. Failure to get the deal across the line in the first place. And failure to create value and get the expected return from the deal after the acquisition. Let’s look briefly at both.
Failure pre-acquisitions – Getting across the line
There are some factors that guarantee failure on the sale process:
- Owner involvement (or lack of)
- Mis-aligned expectations
As you’ll read over and over again in this book, most business owners only sell one business – their own.
There are 7 big mistakes inexperienced sellers make:
- Taking their eye off the business during the process
- Not getting the right advisors involved early enough
- Not getting a professional valuation before going to sell
- Not being prepared enough for the sale process
- Only finding one buyer (or accepting an unsolicited offer at face value)
- Not being fully committed to selling
- Not having a post-exit plan (for themselves or their business)
Getting the right help at the various stages is key to achieving a successful sale BUT, and it’s a big but, you need to be involved. Selling your business is not a job to completely delegate to the advisors. There are times when you wonder why you are paying advisors because you are being bombarded with questions and demands for information.
Ducking out of the process is not an option and it is made a lot easier if you are prepared. It is also a lot less stressful and has a higher degree of success.
Leaving it to the advisors leaves a lot of capacity for key elements of the business to be left to interpretation. What might be common practice to advisors might not be what the seller is expecting and may even be a deal-breaker at the 11th hour. More owner involvement and engagement saves time and money.
When a valuation is based on just numbers, it can often lead to an initial offer in excess of the final negotiated price. The value of your business is far more than just the numbers that are presented in your statutory accounts and your forecasts. Undertaking a pre-due diligence assessment allows you to look at your business through the same lens as a potential acquirer and address the weaknesses inherent in the current structure of the business. This is likely to avoid price chipping or post-acquisition clawbacks or claims.
Often an acquirer is a larger organisation and they look at expansion as a way of creating value and getting a higher return on their investment. Are you are already working at capacity and cannot grow as fast as the new owner expected? This causes a misalignment of expectations.
If you are tied into an earnout or deferred consideration based on future performance this is going to cause frustration. It’s the same when integration costs start piling up because there was a poor understanding of the way the two parties work or due to major cultural differences.
The sale process has a lot of moving parts. Changes in the environment can bring a deal to its knees for reasons outside the buyer and seller’s control. The Global financial crisis and the global pandemic are cases in point. More than 50% of sales activity is never completes. It’s worth knowing at each stage when to proceed or stop rather than keep going on in the hope that something improves in the process.
Don’t rely on the sale process completing just because it started – have a Plan B if it falls through. Most importantly know what you want out of it and know when you are at the point you want to walk away. This helps you make the right decision for you earlier in the process.
Having answered the question of why businesses fail to sell. Ask yourself “are you ready to sell”? Click here to contact Christine by email alternatively you can book a call with the Business Mentor of the Year 2020, author and speaker. Who helps business founders get their businesses exit ready so they can enjoy a happier, richer future. She saves them THOUSANDS and increases the value of their businesses by MILLIONS.