When You Can’t Sell-Selling Your Business

Last week I discussed some of the outside factors that can lead to obtaining a premium price for a business. Today let’s look at the uglier side of the coin, conditions that create discounts or an inability to sell. The pendulum can often swing the other way leading to a business being valued at less than average or unable to find a buyer at all.

Here they are:

Erratic or Negative Performance – When profits are inconsistent, buyers will tend to value based upon the valleys not the peaks. When profits decline buyers disappear.

Negative Market Conditions – If your industry is in a decline, there is going to be little interest even if you are doing well.

Poor Records, Accounting, Systems and Controls – If the quality of information you provide to buyers is poor, they will assume it is inaccurate and as a result will discount the price they are willing to pay or they will look for lower risk opportunities.

Over Dependence upon the Owner for Company Performance – When buyers perceive a business success is a function of the owner’s personal activities, they assume the business will lose much of its performance once the owner is cashed out and gone.

Note that a business owner has the power to CHANGE three of the four conditions listed. Gaining a realistic estimation of business value allows you to create a more realistic exit strategy. Doing so at least five years before you plan to exit will give you more time to rectify issues that may affect the price your business can command. Stay tuned for more information on how to prepare a business for sale.

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Posted in Blog, Selling Your Business