The industry of business-buying has some very interesting, yet dismal, statistics. When I have mentioned these numbers to people outside this industry, they are stunned.
- 90% of all of the people who begin the search to buy a business never complete a transaction
- Only 20% of all of the businesses listed for sale ever sell.
- Business brokers only account for 10% of all transactions.
- Roughly 50% of the deals that are agreed to between buyer and seller, never get to closing
Why is it so important for you to know this? Let's look at each one individually:
Why 90% Never Buy
Interestingly enough, a recent poll indicated that 50% of all Americans dream of owning a business. One would think that, with such high numbers, far more people would be successful. After all, a 90% failure rate is abysmal. There are several factors why this happens.
Today's business buyer will face an onslaught of life-altering questions, situations, and decisions during the various stages of the buying process. Lacking the critical knowledge to make these decisions, they simply choose to abort the project rather than seek out materials to assist them. It's crazy, but most people will spend hours online trying to save a few bucks when booking a vacation, but will not invest any time learning how to buy the right business. To avoid this trap, educate yourself, before you start looking, and certainly before you invest your money.
Reason #1: Most people have never bought a business before. They enter this process completely unprepared. Even if they've had a successful career to this point, for most, nothing they've ever done adequately prepares them for what's involved in this process. It's even new to those who have been involved in corporate acquisitions, because now, it's their money at stake. Clearly, a lack of education is the number-one reason for failure.
Reason #2: Determining the right business is difficult for most people. With so much on the line, most get too scared to take a chance of buying the wrong one. After looking at many listings, and even visiting some sellers, most people cannot get comfortable with what type of business fits with their strengths. Don't spend your time searching endless business-for-sale listings, trying to figure out which, if any, may be right for you. Determine what type of business is right, and then find it (it's actually quite easy once you know how to do it). Always remember, whatever it is that you do best has to be the single most important driving factor of the revenue and profit of any business you consider purchasing.
Reason #3: A lack of expert advice. Not having access to expert and unbiased advise derails many people. Business brokers either work for the seller or represent the deal, not the buyer, unless you have a separate agreement with them. Plus, most are negative about the entire concept because they don't want to see you at risk. The average person cannot afford to high- priced consultants or representatives, since they want to allocate their available funds to the acquisition itself. Whatever it takes, be sure that you have someone with whom you can strategize and discuss various opportunities or have their input for the situations you will encounter.
In summary, to avoid being a 90%er:
- Educate yourself
- Determine what business is right for you
- Affiliate yourself with someone who can provide you with expert advice
Why 80% Of All Listings Don't Sell
There are too many listings. The Internet is swamped with business-for-sale listings. There are hundreds of thousands available. Listed businesses do not always provide comprehensive information. A savvy buyer knows that they have to dig in and extract the information. You have to know what questions to ask, what to look for, and how to determine if what is being represented is true.
Many businesses are overpriced. The sellers have no logical reason for their asking price outside of deciding that they want x amount. Typically, what the seller feels their business is "worth" does not have much to do with the real value of the business. That may be fine for them, but that's no way to package a business for sale. There are additional unrealistic expectations by the sellers which cause only one in five to sell: they want all-cash sales, they do not provide adequate books and records, the business may be in decline, and, quite often, they do not disclose enough information for someone to make a logical decision.
Many businesses have problems. You need to learn everything about the business before you buy it. When sellers misrepresent facts, or do not disclose all of the issues when/if they arise, buyers become leery of continuing the negotiations. Again, it comes down to knowledge and trust. When the buyer wants to buy, and the seller wants to sell, and the parties trust each other; then every challenge can be overcome.
Why 50% of the Deals Falls Through
There are many reasons why this happens including misrepresentation of the numbers, cold feet by the buyer, seller's remorse, and the inability to arrange financing. While they may all be valid reasons on their own, one has to seriously question the staggering 50% statistic. As a buyer, you will need to understand that deals will fall apart. Do your best to move them forward, but if they collapse, then dust yourself off and move on to the next opportunity.
Your Next Steps
Buying a business is something that anyone can achieve. Don't let this become a looking process. Put yourself in a position to buy. Above all, educate yourself. You cannot guess your way to success! With the right information and advice, you'll make all the right decisions. Don't allow yourself to become a 90%er!
Next Step: Get the Guide to Buying a Small Business
This free, 100-page digital book provides step-by-step instructions for buyers.