Forget about getting a low-ball offer from a potential buyer of your business. How about a “no-ball offer” for your business?
It happens more than you think. Thousands of businesses each year go unsold. Many of these are simply too small, too dependent on the owner to survive, or simply have run out of stream. But these are not just mom and pop businesses either. Even larger and more established businesses don’t find buyers. You can find dozens and dozens of articles, blog posts, and videos trying to get their arms around the “why.” Studies, surveys, and polls all cite to this growing Seller’s abyss where some say a mere 20% of all businesses listed are sold, where 50% of purchase agreements never close, and where 90% of buyers don’t’ find the right business investment that makes the cut… Add to a seller’s challenge the coming wave of Baby-Boomer business owners all looking to cash out and retire in the next few years, all flooding the market, and looking for buyers at
the same time. Sound scary?
Imagine after a year trying to sell your business you later find out too late that your business was in the abyss after all. And given a chance to go back in time and take a closer look at why, you learn firsthand the reasons. You discover that businesses across the board, from those with annual sales as low as $100k to as much as $100M and higher can fail to find a buyer to take the business to the next level.
To illustrate the “why”, take a look at this chart to the right: green is good, orange is bad. And thus from the buyer’s point of view it doesn’t take long to compare a good investment from a bad one. Just ask somebody who reviews these deals every day, like me. Or ask yourself; Does my business have:
- Reliable Revenue Streams
- Solid Dependable Annual Growth
- Independent CPA Reviewed Financial Records
- Operating Performance metrics at or above industry norms
- EBITDA Margins at or above industry norms
- Proven, results driven Mgmt Team Leaders
If so… you’re in the lucky green Ready-to-Sell column on the left. But if you’re not green, or if some measures are green and some are not, take some time to evaluate and improve the Sellability of your business before you call your broker and expect miracles.
According to Pitch Book, which tracks companies sold to Private Equity groups, seller multiples in 2016 are at their highest point since 2013. Making this year a strong market for strong companies and owners looking to sell. And who doesn’t like selling at the top?
So study this chart, and learn more about these simple measures of how well your company and management team measure up to what buyer’s expect most. Because when a business falls into the abyss, you can almost always find the “why” somewhere on the right hand side.
About the author: Rick Andrade is an investment banker at Janas Associates in Pasadena, Ca and finance writer in Los Angeles helping CEOs buy, sell and finance middle market companies. Rick has earned his BA and MBA from UCLA along with his Series 7, 63 & 79 FINRA securities licenses. He is also a Real Estate Broker, a volunteer SBA/SCORE instructor, and blogs at www.RickAndrade.com on issues important to middle market business owners. He can be reached at RJA@JanasCorp.com. This article is for informational purposes only and should not be considered in any way an offer to buy or sell a security. Securities are offered through JCC Advisors, Member FINRA/SIPC.