A business sale can’t fall through for various reasons. Before you advertise that you’re ready to sell your business, there is one looming concern we’re sure you’ve thought about. Yes, we’re talking about why some businesses don’t sell. It can be frustrating when you put all of that effort into selling your business only for no one to buy it.
However, in our experience, there are 6 main reasons why some businesses don’t sell. Let’s unpack each of these, starting with a two-part look at Taking Shortcuts.
Taking Shortcuts, Part 1
The typical process to sell your business includes multiple stages, meetings, and discovery meetings. Some of this can feel excessive or, if you’re a sole proprietor, even a bit invasive. Accurate financials, including profit and loss statements for multiple years, need to be revised and fully understood. Reviewing the buyer’s landscape and understanding your drivers of value take time.
Each aspect of the Investigate Stage is highly detailed and for good reason. You cannot take shortcuts with the process, and those who do often find that their business sale doesn’t happen.
Taking Shortcuts, Part 2
Of course, everything we just described is effectively the introductory phase of selling your company. Stages 2-4 are sometimes just as much if not more involved. For example, the Due Diligence portion of Stage 4 allows the buyer to take a deep dive through your business so that they can make an informed decision. Skipping Due Diligence is a recipe for disaster for the transaction, yet an anxious seller may find themselves trying to expedite this faster than is reasonable. This, in turn, can plant a seed of doubt in the buyer’s mind and lead to the deal falling apart.
Impatience with the process
It’s not unreasonable for the selling process to take upwards of six months or longer. This, of course, can vary depending on various factors. Nevertheless, if you’re looking for a quick sale, remember this general timeline:
- Stage 1, Investigate: Around 3 weeks
- Stage 2, Marketing and Sale Preparation Programme: At least 2 additional months
- Stage 3, Negotiate Heads of Terms document: 4-5 weeks on average
- Stage 4, Due Diligence to completion: 2 to 2.5 additional months
In this scenario, the process took right around 5 months. However, everything from your company’s specific niche to the complexity of your financials can affect the timeline. Don’t get impatient.
A lack of transparency
Transparency is absolutely vital during the sales process. Your potential buyers need to know what they’re getting themselves into and how an M&A of your company will affect theirs. You might not think of it as “hiding” when you don’t reveal certain details about your company, rather simply that those pieces are irrelevant.
However, a simple analogy can be buying a house. If you purchased a flat in London that had some water issues 15 years ago, you would want to know that. Even if there haven’t been any problems since then, you’d still need to be aware of the details of how it happened.
Likewise, if your business ran into some problems a decade ago, it’s necessary to let your buyer know about the situation. Otherwise, if they discover it halfway through, it can completely derail the sales process.
This is a simple yet hard truth: sometimes businesses don’t sell because there was a breakdown in the negotiation. This isn’t necessarily the fault of the seller or buyer, but rather a part of any financial transaction.
Using the analogy of buying a flat once again, let’s say you put an offer in on a piece of property. The seller may come back with another price, of which you need to decide if you wish to proceed or back out.
With the business sale, the buyer may decide that the acquisition of your firm just isn’t right for their company.
Outside factors are always going to be a cause as to why a business sale might not happen. In fact, they may be the driving factor in some cases. If the economy looks to be taking a dive, some buyers will back off completely. A tightening of the belt, so to speak, doesn’t mean your business is worthless. It simply means that timing could be a factor right now.
Some businesses don’t sell, but don’t let that happen to you
The best way to ensure your business sells is to work with a reputable corporate finance advisor who can help mitigate each of these potential stumbling blocks. In addition to helping you navigate each phase of the selling process, they can also pair you with like-minded buyers who are the optimal fit for your business.
Our team of experts wants to help ensure your sales process is a complete success. If you’re considering selling your company, start with our Transaction Readiness Report. Venture Corporate Finance is here to help discover all of the relevant details necessary to put your business on the path to success!