3 Reasons Why So Many Businesses Don’t Sell – And How to Make Sure Yours Does

If you’re having trouble exiting your company, you’re far from alone. According to the Exit Planning Institute’s latest report, up to 80% of businesses on the market never sell. You may start to question if there’s something wrong with it. It’s almost never too late to fix the problems causing your stalled sale; most of your issues can probably be fixed with a detailed view of what’s going on.  

So, if you think you’ve done all you can to prepare but you’re not getting any bites on your asking price, it’s time for a second look at your operation to be sure you aren’t making these three big mistakes: 

1. Clinging to unrealistic assumptions 

Many businesses languish on the sale block because their owners’ expectations are misaligned with the market. An owner will come in and say they want to sell for $1 million, and when the valuation comes in at a fraction of that, they decide they’d rather shut down than take less money. It happens a lot, unfortunately.  

If you’ve spent your life building your enterprise and it has enabled you to support your family, it’s understandable that you might overvalue it. As far as you’re concerned, no price is high enough to compensate you for all the sweat equity you’ve poured into your company. 

But those emotional values aren’t a significant factor in how valuation is calculated. Often, an owner who struggles to sell just doesn’t understand that process or how the market dynamics work.  

Work with a broker or professional exit advisor who can take an objective look at your operations and give you a fair estimate of what they’re worth to buyers. They should be willing to show you how they arrived at their number. 

2. Ignoring the fundamentals 

This is a common problem for owners whose exit has stalled.  

We worked with a retailer who had multimillion-dollar revenue from two locations; the demand was certainly there. But their overhead was so high, it cut deeply into their profits. In fact, they weren’t making a single dollar in profit. Naturally, they couldn’t find a buyer. 

When we started pre-planning, we went through their financials and found they were spending a lot of money on unnecessary and duplicate expenses, like putting two advertising professionals on staff while also paying an outside agency. And they had never raised their prices, so they were also undercharging in the market. 

We worked on reducing overhead, and in about five months they went back to market and sold at a profit. I can’t tell you how much they got, but it was previously worth nothing, so the price was a huge bump. 

3. Telling your story wrong 

With so much risk in the world today, buyers just want good, stable businesses they can count on. They measure financial strength in factors like predictable cash flow from recurring revenue, rather than big but unpredictable infusions. And on the operations side, they want a solid management team that will keep things running smoothly after you’ve left.  Above all, they want to see tangible proof that you’re worth the risk. So, you’d better bring the receipts.  

The story of your company is based on financial statements, cash flow comparisons, customer lists, inventory reports and other documentation. Make sure whoever reads your story can follow it. 

Recently, I was talking about this with a client who said, “We have all these government contracts and recurring revenue bases, so we should be worth more.” I told him the valuation did show that, but they had to show proof that’s easy to follow. 

Can you produce contracts showing reliable long-term income? Do your reports show recurring revenue that’s been growing steadily over the last two years and what it will be worth in the future? You can’t just tell somebody a good story. You have to show the data that backs it up.  

Change of mindset 

It’s easy to get so caught up in day-to-day operations that you fail to see weaknesses that could eliminate prospective buyers. You need to see it through the eyes of a buyer or an outside advisor. What you think is unique could be very mundane to them. 

It’s also necessary to change your ownership mindset. You operate differently when the purpose is to earn a steady income than if you want to grow a transferable asset.  

When the time comes to go on the market, work with your advisors to create and maintain clean books and records. Are you running personal expenses through the company? That’s fine when you’re running the place, but not when you’re going to exit.  

Be honest about your value, shore up the fundamentals so you can justify a good asking price and clean up your books and records to make it easy to understand your story, and you’ll start attracting serious buyers again.