by Robert Reid Group • October 29, 2019
Record Number of Businesses Sold
A record number of businesses changed hands in 2018, in large part, due to baby boomers wanting to retire, and buyers leaving the corporate world behind in search of the dream of owning their own business. Not only were more businesses bought and sold in 2018, those businesses were performing better than those in the past with higher gross sales and higher cash flows. The outlook for 2019 and beyond is healthy as well.
Nevertheless, with this selling success, some businesses seem to have difficulty selling at their maximum potential value. Let’s consider a few key reasons for this.
Declining sales create a tough situation when selling a business. When seeing declining sales, the buyer might assume this trend will continue. A buyer does not want to buy a ticket on a train headed in the wrong direction. Sometimes the sellers will try to explain away these declining sales trends and point out that change is just on the horizon.
To receive maximum value for the business, a business owner needs to sell the business while sales and profits are growing. When faced with declining sales, the owner should look at options available to reverse the trend before presenting the business for sale. Considering the right strategic options available in this situation can provide all the difference in reaching the desired price target.
Lack of Key Management
A lack of key management other than the owner results when the owner remains too hands-on, performing key tasks themselves and not building a leadership team. In other words, the owner IS the business. The concern to a buyer is that without the owner, these businesses may not run well, or possibly at all.
Narrow Resource Base
Businesses having only one or two key sources for materials or products create a worrisome supply channel for potential buyers.
Likewise, having a very narrow customer base where one, two or three buyers account for large percentages of sales is problematic. These customers or clients might be very connected personally to the soon-to-be leaving owner. They also might feel that the company, under new ownership, will not be able to match previous standards. If there exists too much concentration on one or two customers or supply sources the buyer will consider the risk.
Financials not Transparent
Buyers want to know that the numbers they are seeing represent accurate and transparent business results. When an owner has to explain away certain financial numbers, buyers start to worry. One of the biggest problems is the use of company funds and accounts for owners’ personal use. Financial Statement recasting often is needed to arrive at true discretionary earnings. This requires a lot of owner explanation and can increase the buyer’s risk perception.
We are Here to Help
In preparation of selling a business steps can be taken that can reduce many buyer concerns and help put the business in the best light possible. This is a part of proactive planning toward an exit or exit planning. Robert Reid Group is here to help owners and entrepreneurs who are getting ready to transition their company to new owners. We assist with exit plans and help position businesses for sale. Robert Reid Group is in the business of helping business owners sell their businesses for maximum value.