Most business owners don’t realize that their business isn’t sellable. Having a good business alone isn’t enough. Less than half of small businesses that are put up for sale actually sell.
It actually gets worse.
Twenty percent of businesses put up for sale end up closing. And I don’t mean closing a deal, I mean shutting the doors, gone-out-of-business closed. That number comes from a popular website that lists businesses for sale. If they say it’s twenty percent, I suspect it’s even higher.
I’ve seen great businesses that were impossible to sell, and I’ve seen mediocre businesses go quickly. The difference comes down to whether or not the owner put in the work, either internally or with the right professional help, to ensure the company could withstand an actual due diligence process.
A business broker won’t tell you any of that. After all, they aren’t too different from real estate brokers. They want the listing, so they’ll tell you all about how many qualified buyers they have in their network, how many deals they’ve done, and how well they know the space.
But if you could get a totally honest answer from them, they would share some version of what I call “the Business Broker’s Dilemma” or “BBD”.
The BBD is the two-fold problem business brokers face with sell-side clients. It’s actually quite simple.
Most people looking to sell their business don’t have a business that is sellable.
Wait, you might say, what’s new there? You’ve already shown us the data that most businesses are unsellable.
But look at the BBD from a slightly different angle and you’ll see something else:
People that own sellable businesses are not motivated to sell.
Why isn’t there more overlap of motivated sellers and sellable businesses?
That’s easy. If an owner puts in what’s required to make a business sellable, there just aren’t that many reasons left to sell beyond a purely personal decision.
When your business is sellable, it’s not just a job where you get to be your own boss. It’s an actual asset, producing income and capital appreciation, owned and controlled by you.
That’s next-level self-determination—knowing that when and if you ever decide to sell, it will be on your terms, and with competing offers and increased multiples.
Aside from the obvious benefits come exit time, there are three key short-term advantages to making your business sellable:
More predictability and control regarding business and personal cash flows.
A broader range of financing partners and the ability to negotiate better terms.
Access to outside investment for growth, restructuring the capital stack, or recognizing gains.
What makes a business sellable varies widely, depending on a number of factors too vast and varied for here. Frankly, those factors usually affect valuation more than whether or not it can be sold.
The first and most critical step is making sure the business is not “un-sellable.”
For that approach, I can tell you precisely where to begin. It’s the single biggest hiding spot for deal killers. To use a real estate analogy, this is where the lead paint, asbestos, and former laundromat tenants are always hiding.
It’s in your books.
That’s right. Accounting and finance.
It’s boring, but it’s true. If you’ve been relying on half-hearted book-keeping and bank reconciliations, you’re obviously going to be un-sellable (and un-investable and un-creditworthy).
But I’ll go beyond that: if you can’t say with absolute certainty that your books could pass full due diligence and support a valuation you find acceptable, you’re not actually sellable.
My advice is to take action to make sure you have proper accounting and finance processes, designed by professionals that understand the deal and valuation mechanisms at play.
If you’d like our help, feel free to reach out here.
The returns will be many times the investment.
Waiting until the need is urgent could mean you’ve waited too late.
In upcoming VND posts, we’ll dive deeper into some of problems I’ve seen in the past.
Or you can always reach us by replying to this email address.