Why do businesses fail to sell?

The US Census Bureau defines baby boomers as individuals born between 1946 and 1964 or currently around 59 to 77 years old! Many of these individuals own businesses and plan to sell them in the next five years. A remarkable few will achieve their goal.

There are many reasons listed below and yet with a decent runway (say 18 months) most can be remedied. But it requires private company owners to stop looking through a seller's lens and start looking through a buyer's lens.

Here are our top 21 reasons why business owners fail to exit.

1. Acquirers prefer businesses with a profitable niche and a compelling story. Your business lacks that precise positioning. You are seen as lacking an edge.
2. Customer dependency, one customer accounts for more than 25% of your sales, leading to risk aversion.
3. Growth has stalled and the acquirer loses interest rather than adjust the price.
4. The business is too dependent on the owner. Risk is just too high.
5. Margins are weak relative to the competition.
6. Pre-tax profits are too small to justify a meaningful price. (probably <$2m)
7. Expectations of the seller are totally unrealistic given the size of the company.
8. Shareholders can’t agree on a common valuation.
9. The business model does not generate a sales annuity stream to support sustainable earnings growth.
10. The owner waited too long.
11. Accounting records are weak, documentation weak, cash flow forecasting weak. Seller fails due diligence.
12. Having too many non-core activities leads to a high degree of difficulty for buyers.
13. Lack of product innovation and reliance on legacy products can make the business less attractive to buyers.
14. Weak staff engagement and lack of internal training can make buyers concerned about retaining employees.
15. A complicated shareholding structure turns the buyer and increases the uncertainty of closing the transaction. There are easier targets.
16. Weak second-tier management can make buyers nervous about the company’s ability to reach the next level without expensive intervention.
17. Outdated or poorly documented intellectual property rights, patents, and trademarks or not owning the technology undermines the strategic rationale of the deal.
18. The total value of the market may be too small to interest acquirers.
19. Declining lead generation and sales pipeline can deter buyers.
20. Past losses can undermine the business’s credibility and make buyers want to see several more years of profits before entering into serious discussions.
21. Limited processes and protocols to scale to the next level and weak alignment between departments make the post-acquisition integration a potential nightmare.

Conclusion The next 2 to 3 years present business owners with a unique opportunity to scale a remarkable business, that will attract a premium valuation on exit. This will require a "value creation" mindset. It will require assessing the saleability of the business now and building an operational plan to remedy value leakage. Think of it as an options strategy not an exit strategy. You don’t have to sell but it would be nice to have the option.

Ian founded The Portfolio Partnership 15 years ago around the philosophy of Value Creation teams working on a fractional basis to execute change. The concept, unapologetically was copied from the Private Equity industry who are scaling companies for a premium exit every day of the week. More recently Ian has partnered with Ted Schlueter founder of The Grist to reimagine the Exit Process.

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