Selling a business is often more complex than it appears on the surface. What are the key factors that make the process more challenging?
- Financial Performance: If the business is not performing well financially, it can be challenging to find buyers who are willing to pay a fair price. Prospective buyers will typically conduct due diligence to evaluate the business’ financial health. If they find weakness in the financials, they may be deterred from making an offer.
- Customer Concentration: Only the most exceptional businesses can overcome the element of a small number of customers accounting for most of the sales.
- Surprises: No one likes a surprise, least of all intentional buyers. Sellers should clearly identify potential issues and provide documentable evidence of solutions. For example, if a lawsuit is pending, sellers should be forthcoming to explain the circumstances and potential resolution.
- Market Conditions: The state of the market can also have an impact on the sale of a business. If the industry is facing challenges or experiencing a downturn, it may be difficult to find buyers who are willing to invest in that market.
- Lack of Buyer Interest: Even if the financials and market conditions are favorable, finding the right buyer can be a challenge. It takes time and effort to identify, find, and negotiate with buyers.
- Legal and Regulatory Issues: These issues can include disputes with customers, employees, or vendors, as well as regulatory violations.
- Personal Factors: Finally, personal factors can also play a role in the difficulty of selling a business. For example, if the owner has a strong emotional attachment to the business, they may be hesitant to let it go. Also, if they have unrealistic expectations about the sale price, it may be challenging to find a buyer who is willing to meet their expectations. Lastly, even after a signed LOI is in place, personality conflicts can arise and quash even the best deals.
To overcome these challenges, it’s important to have a solid strategy in place for marketing and selling the business, as well as to work with experienced professionals such as investment bankers, lawyers, and accountants who can help navigate the process. If you or your client is considering a sale, call us to discuss these issues.