Selling a business is a complex process that requires careful planning, strategic decision-making, and a bit of luck. While many business owners dream of a successful sale that will reward their hard work and investments, the reality is that only a small percentage of businesses actually manage to close a deal. In this article, we will explore the reasons behind the startling statistic that only 20% of businesses that want to sell actually sell, backed by relevant statistics.
- Lack of Preparation:
One of the primary reasons businesses fail to sell is a lack of proper preparation. Selling a business involves extensive financial, legal, and operational considerations. However, many business owners underestimate the time and effort required to adequately prepare their business for sale. According to a survey conducted by BizBuySell, only 28% of business owners have a formal succession plan in place, leaving a significant majority unprepared for a successful sale.
- Unrealistic Valuations:
Business owners often have an emotional attachment to their ventures, which can lead to unrealistic valuations. Sellers may overestimate the value of their business based on sentimental value, rather than market realities. The International Business Brokers Association (IBBA) estimates that only 20% of businesses that go to market actually sell due to unrealistic valuations. Buyers are savvy and perform thorough due diligence, making it crucial for sellers to have a realistic understanding of their business’s value.
- Economic and Market Factors:
Economic and market conditions play a significant role in the success of business sales. During economic downturns or industry-specific downturns, buyers become more cautious, leading to a decline in the number of completed transactions. The Small Business Administration (SBA) reports that around 30% of small businesses listed for sale never sell due to unfavorable market conditions.
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- Poor Financial Records and Documentation:
Accurate and organized financial records are essential for buyers to assess the viability of a business. Unfortunately, many businesses fail to maintain proper financial documentation, making it challenging for buyers to evaluate the company’s performance. According to a survey by IBBA, approximately 60% of small businesses that are listed for sale have inadequate financial records, leading to difficulties in attracting potential buyers and completing a successful sale.
- Lack of Professional Guidance:
Selling a business is a complex process that often requires the expertise of professionals such as m & a advisor, accountants, and lawyers. However, many business owners attempt to sell their businesses independently, without seeking professional guidance. This can lead to costly mistakes, delays, and unsuccessful sales.
The statistic that only 20% of businesses that want to sell actually manage to do so is a sobering reality for aspiring business sellers. The reasons behind this low success rate are multifaceted, ranging from lack of preparation and unrealistic valuations to economic factors and poor financial records. To increase the chances of a successful business sale, it is crucial for business owners to invest time and effort into adequately preparing their businesses, seeking professional guidance, and having a realistic understanding of their business’s value. By addressing these factors, business owners can position themselves favorably in a highly competitive market and increase the likelihood of achieving their desired outcome.
ABOUT THE AUTHOR
Tim Fawcett CEPA, CAP, CMEA
EastWind Business Solutions Inc.
Tim Fawcett, the founder and managing director of EastWind Business Solutions, Inc., a merger and acquisition advisory firm that specializes in strategic sales of SMEs with revenue between $2M-$100M+, has provided strategies to over 2000 baby boomer business owners in Canada and the USA, helping them accelerate value and prepare their businesses for sale and guiding them through best practices in exit planning.