6 Reasons Businesses Don’t Sell

For sale by Nick Youngson CC BY-SA 3.0 Pix4free

Why is it that 80% of businesses that go to market don’t sell? There are many factors that contribute to that statistic. In this first article we will look at factors related to the businesses themselves.

1. Lack of Profitability

To be attractive in the marketplace, a business has to offer enough profit for the buyer to live on, but also to service the SBA loan he/she will likely take out in order to acquire the business. If the business profit cannot support the servicing of that debt, the pool of available buyers decreases significantly.

2. Owner Dependency

Some owners will claim they only work 5-10 hours a week in the business, but this claim is rarely true. That doesn’t mean that all businesses for sale are owner-operator situations, but if owners are working far more than 40 hours per week in their businesses, this can also reduce the pool of available buyers.

3. Poor Paperwork

We are broken records here at Apex on the value of clean books and up-to-date tax returns. We do so because we know that it’s the best way to have a clear sense of what a business is worth, but we also know that without such records, the chance of bank financing goes down significantly.

4. Legal/License/Real Estate Issues

Some businesses require a particular type of license to operate. Sometimes we can structure a deal such that the seller holds that license during a transitional period, but other times we can’t close the deal until a license has been obtained. This is true for real estate as well: if the buyer is not able to secure occupancy terms for a business with a physical location, a deal might be dead.

5. Location

While some businesses have gone remote since 2020, many businesses still rely on physical locations. Sometimes those physical locations involve commutes for buyers, and they have to make sure they are going to be okay with that travel if the business cannot be feasibly moved. Sometimes we have seen deals fall through in early stages when buyers found such a commute undesirable.

6. Limited Future

There are two ways a business can have a limited future:

• By providing a legacy product (think VHS tapes 20 years ago…for those who don’t know what those are, it’s impressive that you’re on this blog!)
• By having limited growth potential

Buyers are interested in the history of a business, but they are also there to build a future. If there are no promising avenues to explore that offer significant upside, then you’re likely selling a variation of a lifestyle business, which will also limit your pool of buyers.

In our next article we’ll look at ways that Buyers and Sellers can prevent the sale of a business.

Do you want help navigating these issues? Give us a call today.