Why Some Businesses Can't Be Sold

7 Reasons Why Some Businesses Don’t Sell

?These issues apply across industries. Here are seven reasons why owners encounter failure when they attempt to sell their business (especially on their own,without representation):

?1. Inadequate financial reporting and lack of consistent attention to appropriate financial metrics.?Often we encounter sellers that neglect to regularly monitor financial performance or aggressively make adjustments that could improve long-term profitability.?They operated a “lifestyle business” that was focused on short-term personal salary and compensation (aka ‘excess compensation’), not the long-term value and viability of their business.

?2. Their market was changing and they didn’t adapt despite ample warning.?A good example recently relates to changes in the healthcare industry.?Many small medical equipment businesses with a heavy reliance on Medicare payments didn’t shift their business model in the face of new competitive bidding regulations, and suffered severe declines in revenue.?Most market changes give ample advance warning, but it can be hard to change habits when a business owner is accustomed to a particular way of operating.

?3. The business owner watches their business spiral downward and then decides to sell as it approaches the bottom.??The deer-in-the-headlight phenomenon.?This sort of thinking is called “distress psychology” and leads to the mistaken idea that their business will turn around if they “wait it out.”?This rarely happens without significant strategic planning and financial investment.??Unfortunately many business owners are not willing to make these kind of investments in capital and expertise.

?4. The company was in a highly regulated environment that changed due to new regulations or legislation.?Though this issue can apply across many industries, it is a particular issue for certain business in which contracting regulations can vary dramatically by state or region. If there is change in the wind, the risk can be very high even for historically successful companies.

?5. Management turnover was high and salaries were below industry standards for a significant period of time.?Most buyers see this issue as a warning of even greater problems for the company.?Human capital can ultimately lead to greater success than even financial capital can achieve.

?6. Unionized employees or other restrictive employment agreements were in place.?Buyers are typically quite wary of a unionized workforce and often attribute union presence to poor management.?This is not really a judgment about unions, but a concern about the ability of the organization to respond quickly and nimbly to changing market or workforce dynamics.

?7. The company location was not ideal for growth.?Most buyers want to expand their new business to maximize the potential of the business.?This is especially true in the case of private equity investors, who seek scalability in their acquisitions. ?No perceived scalability = no deal.

?The great basketball coach, John Wooden, once wrote that “failure isn’t fatal, but failure to change might be.”?In the situations described above, we have seen numerous owners honestly assess their circumstances, re-align with the core values of their companies, and over time, successfully solve the problems impeding their growth.?The necessary “changes” that Coach Wooden spoke of are always obvious if one looks hard enough.?The difference was the courage and discipline required to execute change in the face of difficult business challenges.