After years of running your online business, you’re ready to pass on the torch through a sale. You research how much similar businesses are selling for on Acquire.com and list yours at a comparable price. However, you’re surprised when buyers get cold feet or send you unrealistic offers. Why is this happening?
You might struggle to sell for any number of reasons, but the most common are below:
- Your business has too many problems, debts, or bad market outlooks.
- A buyer couldn’t operate the business without you.
- Your asking price is too high.
- They haven’t used the right channels to announce their sale.
- You’re unprepared for the process.
- Your potential buyers are inexperienced.
The good news about each of these problems? They are entirely avoidable. Here’s what you can do as a seller to ensure they don’t stand between you and your dream exit.
Your Business Has Too Many Problems Now or On the Horizon
You might think the right time to sell a business is when you’re struggling to keep the lights on or expect something to happen that impacts your bottom line. However, just like with stocks, you never want to sell a business “at the bottom.”
If you:
- Are low on cash needed to pay employees or vendors
- Are on the verge of losing a key supplier or employee
- Have contingent liabilities (pending legal cases or parts of your business that are at risk of violating local laws and regulations) and past claims (legal or financial obligations incurred that have not yet been fully paid or settled)
- Have leases and other subscriptions due to expire
- Have inaccurate inventory and poor finances
Then you will likely need to reduce your sale price or expect to negotiate with buyers.
Some buyers are interested in buying “fixer-uppers”. These turnaround specialists buy failing companies at a discount and bring them back to profitability. However, these specialists target big brands with name power. They also are more likely to purchase from “tried and true” industries where they’ve developed a playbook for improving operations.
That said, you can sell a pre-revenue business or one struggling to make money if a buyer wants your software or some other asset. Often, buyers would rather pay for something they can use or develop now than build it themselves.
Still, the best time to sell a business is in the healthy adult stage when you’re growing and making large profits.
Your Business Isn’t Ready for the Market
Just because you don’t have any red lights in the cockpit doesn’t mean you’re ready to pass the controls. Your business may be highly successful but will have trouble on the market if:
- It requires too much owner experience.
- It has only a few large customers (with personal relationships with the owners).
- It cannot scale because it requires too much commitment from the owner.
Let’s discuss these points further.
The Business Requires too Much Owner Experience
If you were to quit tomorrow, could anyone (with leadership experience) step in to take your place? If your business cannot operate without your expertise, how can someone buy and operate it?
For example, say you’re the head developer of a web design agency. You lead all of the projects and code doesn’t pass on to clients unless you’ve reviewed it. Your current employees and contractors may not even know certain tech stacks well enough to build with them unsupervised. If you were to step away from this business, it would be unable to offer the same quality of service and would likely lose customers immediately.
Understand the significance of your role before you begin talking to buyers. If they realize they’re buying a business that they can’t run without you, they’ll likely walk.
Want to avoid this? Ensure your leadership team knows how to operate everything without your oversight. Draft in-depth guidelines and processes that any employee can refer to in times of trouble.
The Business Only Has One or Two Large Customers (Or They’re All Your Friends)
Buyers get nervous when 60 percent or more of a business relies on one customer. If you lose that customer, you likely won’t have a business anymore. It’s almost worse if most of your clients buy your service because they are your personal friends.
Say you run an advertising agency and all your accounts are buddies from your previous corporate career. What reassurance does a potential buyer have that these people would work with a stranger?
If you plan to sell anytime soon and you’re in this situation, ask your clients to reassure buyers they’ll stick around – maybe by signing a longer contract. You could also search for new leads and include this list in your handover.
The Business Doesn’t Scale
Just because your business earns high revenue now doesn’t mean it will earn more in the future. Desirable businesses not only need to promise recurring revenue, but they must also nurture a clear path to making more. A growing business is much more valuable to buyers as it can:
- Provide more resources for reinvestment.
- Improve market share, making it harder to lose business due to competition.
- Increase brand recognition.
- Increase bargaining power with vendors, suppliers, and other stakeholders.
This is often a huge problem for agencies and consultation-based services requiring highly-skilled employees. If your process for onboarding new employees or acquiring customers is complex or labor-intensive, consider streamlining your process or adding another business line before selling. As mentioned earlier, your buyers want a business, not a job. If growing revenue is hard work, you’ll attract less buyer interest.
One method for companies struggling with scalability is to find one aspect of your business and automate it at scale.
For example, maybe you notice one of your clients needs a system for storing customer data. Pay to create that system and then charge customers a subscription to use it. Suddenly you have a software business, one of the most scalable models there is.
Read our article about three agencies that pivoted into SaaS companies for some real-world tips on how to scale.
Your Asking Price is Too High
It’s hard to take an objective view of what your business is worth when you’re its founder. You might have spent years nurturing it from a failing product to a profit-generating machine. Maybe you’re only selling because of a financial problem like a tree falling on your house or needing treatment for a disease.
You want your sale to be worth it, especially if you weren’t always planning on selling it.
The problem with valuations is that the market doesn’t necessarily care about how much money you need. Buyers only care about what your business is worth to them. Especially for online businesses, we often see high valuations based on things like:
- Miscalculated revenue multiples – We have suggested revenue multiples you can use to calculate your business’s sale price. Some businesses that have only operated for a year often conflate trailing twelve-month revenue (TTM revenue) with annual recurring revenue (ARR), which can throw off the calculation.
TTM can be misleading if you’re measuring one-off sales. For example, imagine you’re an ecommerce business that sells only harmonicas. You might have some good months in your first year, but most customers will only want one harmonica. Sales could fall once your target market has purchased all the equipment they need to cover Piano Man for the next few decades.
- Unconventional valuation methods – This includes trying to value IP or time invested in the business. While your valuation can factor these in, you’ll need to provide proof like:
- A detailed list of the hours you worked.
- Invoices for what you paid contractors.
- Documentation of what similar assets cost.
If you want a better valuation, we advise you to read our blog on how to increase your business’s valuation.
Your Business Is Poorly Marketed
Selling online businesses – especially lower mid-market and below – is tricky. You likely don’t want to work with a traditional brokerage as they’ll usually charge up to 12 percent of the sale price for businesses selling for under one million dollars. Even if you’re selling slightly above this valuation, the fees add up and you’re not always sure how many buyers you’ll reach.
To dodge traditional brokers, I’ve seen online business owners hop into Facebook groups and try to market their businesses themselves. Many fail because they don’t understand how to market a business online. These ads need to be enticing without revealing too much confidential information and you never know who is viewing your business on a forum.
Today, a better path for marketing your online business without a traditional brokerage is to use online M&A marketplaces like Acquire.com. We tell you exactly what information you need to entice buyers and review and optimize your listing. Thousands of potential buyers will view your listing within 24 hours, with newsletter and social media exposure as well as personal introductions to buyers we believe would be interested in your listing.
You Are Unprepared for M&A
As a seller working alone and with no experience, you may enter into your first transaction unprepared for negotiations and other more complex stages like due diligence.
A lack of preparation can make it harder to sell. Neither do buyers want to educate you while handling their side of the process. You also leave yourself open to buyer advantage if you rely on them too much during the sale – and could potentially leave money on the table.
So is your only option to find a traditional brokerage or investment bank or beg experts online to give you free advice? Not at all.
A growing number of resources is available to help you become better informed about this traditionally insular industry. We give you all of the steps on our platform to help you get your business seen and attract interest in the open market including:
- A library of educational resources and the Acquire Academy that teaches you how to sell your business.
- Legal doc builders that help you construct complex agreements like LOIs, APAs, and more without an expensive legal team.
- A guided acquisition process (GAP) to easily track where your business is in the sale process and what to do at each stage.
- Aid from professional brokers and our Managed by Acquire service to take care of the sales process if you run a SaaS making over $1 million in revenue.
- And much, much more.
Your Buyers are Inexperienced
I saw this great quote in a Forbes article by Richard Parker, president of Diomo Corporation.
“You want to buy the perfect business? The only one is a toll booth.”
First-time buyers, especially in the mid-market and higher, are usually looking for their toll booth business. One that makes them easy money with very little effort. They likely aren’t experts in negotiation, deal hunting, restructuring, or flipping. Most just want to take over a business that’s already running and make a profit – and they get spooked easily.
Inexperienced buyers are frequently:
- Not prepared to negotiate.
- Don’t understand what expectations they should have.
- Lack the skills to run your business profitably.
That’s why we strongly recommend any seller prepare a systematic process for vetting and evaluating their buyers rather than casually accepting LOIs from just anyone. When you use our Managed By Acquire service, for example, we work to pair you with highly qualified buyers for your SaaS business.
What’s the Number One Reason Businesses Don’t Sell?
The best exits usually result from preparing to sell from the get-go, not when you’re scrambling at the last minute to get everything tidy for a handover. If you want to sell your business at a great price,spend a long time making sure it:
- Can operate autonomously.
- Is free of problems that impact its bottom line.
- Has clean and transparent financial records.
While we believe there is a dream exit out there for every founder, we believe founders following these three points usually get the best exits. That’s why we encourage you to use our resources and prepare for your sale from the start.
How Many Businesses Don’t Sell?
Only about twenty to thirty percent of businesses that go to market manage to sell. In 2022, 9,054 businesses reportedly sold in the US. That means in that year, roughly 40,000 businesses on the US market likely never sold. No matter the market, these figures stay steady.
Is It Hard to Sell a Business?
Most businesses put up for sale never actually sell. It is hard to sell a business without:
- Negotiating
- An objective valuation
- Urgency
- Clean financial reports
- A clear handover process
Getting each of these right is difficult but not impossible with the right resources. We aim to provide all the information you need to sell your business with the Acquire.com blog.
When Is the Right Time to Sell My Business?
The best time to sell your business is when it is most valuable to buyers. Put yourself in a buyer’s shoes. They want to get the best business possible at the lowest price possible. One that makes regular revenue and doesn’t require herculean efforts to recover from the sale price.
If your business is not at its most valuable, be honest with yourself and reflect that in the price. There is never a wrong time to sell, just a wrong price.
How Do I Find the Best Buyers For My Business?
Your ideal buyer depends completely on the type of business you run. And different types of buyers look for businesses in different places. You usually wouldn’t find a private equity buyer the same way you’d find an operator for a content site.
Ideally, you should advertise your business where many buyers will see it. Online M&A marketplaces are some of the best places to access the most buyers. On Acquire.com, we have thousands of vetted buyers looking at startups for sale every day.
How Can I Know My Business Is Ready to Sell?
Try to think like a buyer. If you think your business is a real chore to run, why would someone else think any differently? If the price is right, you can sell any business. You need to accurately assess the right price for yours and figure out ways to increase your valuation if you are unhappy with where you stand.
The content on this site is not intended to provide legal, financial or M&A advice. It is for information purposes only, and any links provided are for your convenience. Please seek the services of an M&A professional before any M&A transaction. It is not Acquire’s intention to solicit or interfere with any established relationship you may have with any M&A professional.
