Business Owners Can be Their Worst Enemy in Selling Their Business
Statistics show that less than 28% of businesses sell when they are marketed for sale. This means that more than 70% of businesses aren't sold. A survey of merger and acquisition (M&A) advisors and business brokers showed some very interesting insights. The advisors and brokers were asked to identify top issues that were problematic in the ability of a business to sell successfully. The top response was seller valuation expectations; 69% of the advisors and brokers indicated this issue as being the most problematic in selling a business.
Top 10 Reasons Why Many Businesses Don't Sell or Realize Fair Market Value (FMV) *
1. Unrealistic expectation as to value of business
Without properly preparing the business for sale and arming oneself with a proven mergers and acquisitions process, there will be a huge business valuation gap between what the business seller expects to receive and what a reasonable buyer sees as fair market price. Selling a business takes preparation and the use of a proven process.
For owners of B2B businesses and larger businesses, your better buyers will most likely not be an individual, but rather a corporation or a private equity group. If the potential buyer has revenues up to $100 million, the mergers and acquisitions contact is usually the president. If the company is larger, the contact is typically the head of strategy, business development or merger and acquisition services. The first task is to recognize that reaching these corporate buyers is a very difficult and a labor intensive process. In these situations, it is wise to enlist the services of a merger & acquisition advisory firm that specializes in reaching these targeted buyers.
In summary:
I cannot stress enough that there needs to be proper preparation of a business for sale. The process to properly prepare a business for sale is not very costly and it does not have to take much time, but the results will bring about realistic expectations as to terms and value along with an increased likelihood of a successful sale.
* Fair Market Value (FMV)
1. Unrealistic expectation as to value of business
Without properly preparing the business for sale and arming oneself with a proven mergers and acquisitions process, there will be a huge business valuation gap between what the business seller expects to receive and what a reasonable buyer sees as fair market price. Selling a business takes preparation and the use of a proven process.
For owners of B2B businesses and larger businesses, your better buyers will most likely not be an individual, but rather a corporation or a private equity group. If the potential buyer has revenues up to $100 million, the mergers and acquisitions contact is usually the president. If the company is larger, the contact is typically the head of strategy, business development or merger and acquisition services. The first task is to recognize that reaching these corporate buyers is a very difficult and a labor intensive process. In these situations, it is wise to enlist the services of a merger & acquisition advisory firm that specializes in reaching these targeted buyers.
In summary:
I cannot stress enough that there needs to be proper preparation of a business for sale. The process to properly prepare a business for sale is not very costly and it does not have to take much time, but the results will bring about realistic expectations as to terms and value along with an increased likelihood of a successful sale.
* Fair Market Value (FMV)
Under a section of the Internal Revenue Code, this is defined as: “…the price at which the property will change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having a reasonable knowledge or relevant facts.”
In 1959 the IRS issued a revenue ruling that identified specific factors that can influence fair market value. They include the nature of the business, the economic outlook, book value, earnings, dividends, goodwill and recent prices paid for similar businesses.
About Terry Stidham
In 1959 the IRS issued a revenue ruling that identified specific factors that can influence fair market value. They include the nature of the business, the economic outlook, book value, earnings, dividends, goodwill and recent prices paid for similar businesses.
Mr. Stidham speaks the language of both the seller and the buyer having vast experience on both sides of the transaction. He has been directly involved in the execution and successful closing of hundreds of investment banking and corporate finance transactions. Mr. Stidham has been instrumental in aiding thousands of business owners prepare their businesses for eventual sale by teaching them how to maximize efficiencies in operations leading to significant increased cash flow.
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