For over 20 years I have heard that stat that less than 20% of businesses in the USA sell. Why is that? Well a simple google search will give you some perspective but I wanted to see what AI had to say on the matter. In short, they area afraid of the unknown….so the simple answer to addressing the appalling shortfall in success….address the concerns one by one.
Here is what the Matrix had to say and how in italic you can address it!
Main Street business buyers often have specific concerns when buying a business, which generally center around risk, profitability, and the operational stability of the business. Here are some of the most common concerns:
- Financial Health and Profitability
Buyers want assurance that the business is profitable and will provide a return on their investment. This includes reviewing financial statements, profit and loss records, and cash flow. Concerns often include:- Hidden liabilities or debts- if you close with a good closing attorney who runs the lien searches and has the proper documentation…not a issue
- Fluctuations in revenue or seasonality – sellers need to see this as a issue and build your business to address it …things like this mitigate a bank being able to do a deal
- Overstated revenue or understated expenses – hire a independent CPA to conduct a proper due dilligence and this is a non issue
- Valuation and Fair Price
Determining a fair price is essential. Buyers are concerned about overpaying, so they’ll often scrutinize valuation methods and comparable sales in the market. – in Florida brokers can pull comps…ask your broker to pull the comparable sales you can see exactly what things sell for historically…this is the benefit of working with a GOOD broker. - Industry Risks and Market Trends
Buyers are wary of external risks, such as changes in consumer behavior, regulatory changes, or technological advancements that could affect the business or industry. They often want to know:- Whether demand is steady or growing – good concern but that is a YOU issue…you as a buyer need to assess your skills and understanding of the business in question. The market and micro and macro economic factors…not everyone is cut out for business.
- If competitors have significant advantages – again a due dilligence item but simple google searches and market assessment by your are good tool: look at population demographics, income levels, competitors eating up share and the like
- The likelihood of future disruption – have contingency plans and have a plan to grow customers to mitigate risk….revenue solves problems so do not be afraid to get after it creatively. You buy for what it is but close on what you will do with it.
- Customer and Supplier Dependency
Overreliance on a few key customers or suppliers poses a risk, as the loss of a major client or supplier could impact revenue and operations.– address and identify in due dilligence with a cpa…a careful analysis of the books should shed light on these risk elements. - Owner Involvement and Transition
Many small businesses are highly dependent on their current owners. Buyers often worry about how well they can take over operations and whether the current owner is willing to stay on temporarily to ease the transition. – contractually address up front at the time of the offer…put in the document a small note to hold the feet of the seller to the fire that they perform…its called a performance clause. These are standard in the Florida market when done with BBF Business Brokers. - Employee and Staff Retention
Buyers want assurance that key employees will remain with the business after the sale, especially if these employees have specialized skills or relationships critical to operations.- always a question but in over 430 transaction its been a issue one time and frankly it was due to the buyer being a dictator and …well a jerk. Leadership is an amorphous term but I like to say “you need to be able to do the work of the staff” if they have the keys to the kingdom they will no doubt take advantage. - Location and Lease Terms
If the business relies on a physical location, lease terms and conditions can be a concern. Buyers want to know if:- The lease is transferable– due dilligence item…landlords have right of first refusal and almost always negotiate for a new one which can be to your advantage
- Rental terms are favorable- contractually put approval of a new lease with acceptable terms in your contract offer
- The landlord is likely to renew the lease under reasonable terms- its a contingency that allows you to get out of the deal should it not occur
- Licenses, Permits, and Compliance
Buyers need assurance that the business complies with all legal and regulatory requirements and that licenses and permits can be transferred or renewed without issues.- ask what licenses at the start, google the licensing process and ask the broker…an experienced on will know…now dont be shocked that Government agencies do not have their act together and the clerk you talk to talks out their ass from department to department. Seasoned brokers should be able to articulate the headaches and path forward as they do this all the time. - Operational Risks
Concerns about day-to-day operations include understanding the standard operating procedures, inventory management, and customer service practices to assess whether the business can run smoothly under new ownership. - Reputation and Brand Equity
Buyers are concerned about maintaining the business’s existing customer base and reputation. A poor or inconsistent online reputation, for instance, can be a red flag. – buyers can search online to address…sellers need to do so as well. Now sellers need to understand that most people do not say good things they just forget so actively solicit good review cause the one is the one that stands out. But to buyer recognize that the guy who rants is probably a nut…look at the reviewers profile…9 times out of 10 they are looney tunes. - Financing Options and Structure
Finally, many Main Street buyers look at financing options as they may not be able to purchase the business outright. Financing sources like SBA loans, seller financing, or bank loans are often evaluated, and some may avoid deals where financing options seem overly complex or unfavorable. -The quality of the books and records and how they lay out on the tax return are the FACTOR dictating funding. Play silly games and you will not finance the deal…and then you are owner financing cause there is limited options for seller financing in business deals.
Each of these concerns helps the buyer gauge the risk and viability of the business, determining if it’s a sound investment with potential for growth or stable returns
For more on selling a business in Tampa Bay contact Tampa Business Broker Michael Shea Florida’s Number 1 Business Broker at 321-287-0349 or email mike@tworld.com .