Challenges to Selling a Business
As a key transition point in most business owner’s lives, exiting their business can be quite a challenging endeavor. Imagine, the owner has worked for years if not decades growing, adapting, evolving and nurturing their business enterprise. They’ve made huge sacrifices, including personally and with their family, and have put their blood, sweat and tears into this dream. Although the emotional nature of a business sale can be extremely difficult to manage and is filled with uncertainty and fear, the reality is that there are many other practical hurdles and pitfalls that must be overcome in order to complete the sale of a business and do so optimally.
Arguably, their business is the most important and valuable asset in an owner’s life. When they come to the realization that they are ready to sell, most often owners discover that they are not prepared for complex intricacies associated with the selling process. Some choose to solicit the help of professionals and continue to concentrate on their business. Others decide to go it alone and think that they will save money by doing so. However we caution that more often than not, success is elusive and if a transaction is completed, net proceeds are less.
Successfully transitioning from a business and extracting its full value is not an easy task!
Let’s discuss a sampling of the practical challenges that one will face as they proceed through a disposition process:
DISTRACTION: Selling a business requires a significant commitment of the owner’s time and resources and as a result, represents a huge distraction from the operation of their current business. As they shift their focus to the daunting sales process and confront the level of commitment that it requires, owner’s often loose their competitive edge, loose market share, diminish profitability or fail altogether. For those owners that have decided to undertake this journey alone, many have done so to the detriment of their profitability and in the end, to the detriment of the viability and value of their business.
UNDERSTANDING VALUE: Upon the initiation of the sales process, most owners begin with an inflated sense of value for their business and rightfully so. This has been their baby for many years and much hard work has been put into it. However, in most cases, such a lofty valuation is not indicative of the real marketplace. Should they go out to market with an unrealistic asking price, they are really doing a disservice to themselves and sabotaging their potential success. They will experience limited or no inquiries, site visits or offers. Eventually, as their offering becomes stale, they will be forced to lower their price, and depending on the timing and level of price reduction, may signal weakness or desperation to the marketplace. In the end, they will not find success.
CONFIDENTIALITY: For an existing and operating business, maintaining maximum confidentiality is pivotal to the success of the business and transaction. Unfortunately, this creates a conundrum and limits the marketing of the business. Unlike selling a typical asset such as a house, a car, product or service, selling a business requires complete confidentiality. You are burdened with the task of selling a valuable asset, without being able to advertise it for sale or allow it to become public knowledge. If not confidential, people associated with your business, including customers, employees, suppliers and financiers, become unsettled. You risk affecting your current business volume, customer base, employee retention, competitor bad mouthing and strategies, and ultimately, your profitability.
MARKETING: There are many requirements and obstacles that must be contemplated when seeking to market a business yourself. As explained above, all marketing activities must be done in complete confidentiality. Additionally, a marketing package must be assembled that presents the highlights of the business and includes all pertinent information that a buyer will need to make an assessment of their interest. Thereafter, the owner must take the opportunity out to the marketplace and expose it to potential buyers. This is far more difficult than it appears at face value. The biggest logistical challenge is dealing the sheer volume of inquiries and the qualification of those prospects as potential buyers. Most owners are blindsided by the enormous commitment that is required and many are unable to take on this challenge while still operating their business.
MANAGEMENT: Should an owner succeed in navigating through the above issues and receive an offer to purchase their business, a new set of challenges will await them. They will face the complexities of deal structure, negotiations, legal issues, due diligence, contingencies, timeframes and the management of many documents to name a few. The process includes a huge series of tasks, deadlines, paperwork and professionals to manage all the way through to closing. There are all kinds of ways for a deal to fall through or get caught up. Professional and thorough oversight is paramount to mitigate this risk. Inevitably, every deal has its hiccups and impasses and in order to move past these unexpected hurdles, creativity, expertise and adept negotiation skills are required. Again, the real challenge to an already busy owner is the significant commitment and expertise required to handle the extensive deal management that is needed to successfully complete the transaction.
As you can see, selling a business is a complex and difficult process that requires a diverse skill set as well as strategic planning, expertise, market intelligence and absolute commitment. PROCISION BUSINESS BROKERS has a Comprehensive Solution to overcome these challenges and achieve successful transactions for our clients.