Many business owners have inaccurate perceptions and expectations about what it will take to sell their business. Some assume that if they have been operating a business for several years that has positive cash flow and is in an attractive sector that there is a high probability of successfully selling the business even if there are some significant risk factors such as low diversification of revenue, or impending technological obsolescence.
Because of this perception many business owners believe that they can either successfully sell their own business or that the selection of a business broker is less critical than it really is.
The reality is far more stark. Depending on the study or statistics I’ve seen over the years, the average percentage of businesses that are actively marketed that actually sell ranges from about 1%-30%. In a recent article titled “Will you be able to sell your business?” by Anne Fisher she claims that rate is between 0.5% and 1%.
So, how do you make sure that your business is one of the few that actually sell? Here are some suggestions:
1. Start planning for a business sale 3-5 years in advance of when you want to sell. Start openly sharing information with a quality business broker 3-5 years in advance and ask him or her for guidance in what needs to be done to make the business more marketable and valuable. This isn’t something that can usually successfully be done within 1-2 years of a sale.
2. Make sure that you are using a quality business broker. Business brokerage is highly unregulated, and in many states almost anyone can pronounce themselves to be a business broker. So what does a quality business broker look like? That’s a more difficult question to answer because there are a variety of factors that could impact competence and quality. Following are a few tips in ascertaining the quality of a business broker:
- Generally, it would be preferable for a business broker to have a MBA with strong knowledge of finance, valuation, law, negotiation, operations, and marketing.
- Professional backgrounds may vary but it is more likely that an appropriate skill set will have been developed by a broker who previously worked in a field such as loan underwriting, business appraisal, financial analysis, mergers & acquisitions, capital formation, or strategic planning than if their background were in a far less related field such as residential real estate sales, elementary school teacher, car salesman, or former deli owner.
- Because business brokerage is an easy entry business, but a difficult business to succeed at, it may be wise to give greater consideration to business brokers who have been in the business full time for at least 2 years.
- When you called or emailed the broker were you able to get ahold of him or her, and/or did they respond in a timely manner? How responsive will the broker likely be to inquiries from buyers of your business?
- When a buyer seeks more information after seeing an ad or marketing piece on the business, what additional information is provided by the business broker and is it quality information?
- Does the business broker anticipate spending significant time in developing an understanding of the business before trying to actively market it? Some business brokers will tell business owners that they can have ads up within 24 hours. Yet, in order to effectively sell a business you must first understand it. A broker who will rush to bring the business to market without first analyzing and understanding it is not indicative of a broker that will likely achieve optimal results for a client.
- Is the business broker going to do more than simply place ads on business sale websites? While many small businesses DO lend themselves to being marketed to general financial buyers via ads on business sale websites, most often there are other appropriate ways to broaden the marketing reach. If a business broker plans on doing little more than placing an ad on BizBuySell.com and one or two other business sale websites, then they probably aren’t providing comprehensive representation.
- What information is contained in the business broker’s ads and information packages for other businesses? You may be shocked by the lack of content when looking at business sale ads from many less competent business brokers. In fact, many business sale ads contain less information than you would typically find in the sale of residential real estate. It’s not uncommon to see a short paragraph of information, the revenue for the business, but no price or cash flow listed. A competently represented business’ ad should give the reader a decent understanding of what the business does, what makes it unique, what the benefits of owning it are, opportunities for growth, and what its most recent financial performance has been.
Selling a business is more difficult than most entrepreneurs realize, but with some planning a few years in advance and the engagement of a professional business broker your odds of success will be significantly higher. While it is hard to put an exact number on the probability of a successful business selling since all businesses are different, it will likely be more in the 50%-85% range than in the overall business sale success rate of 0.5%-30%.
