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What To Do When Having Trouble Selling a Business

The word "tips" spelled out in scrabble tiles.

Are you having a difficult time selling your business? If so, then you may be making several critical mistakes. The good news is you can make your company much easier to sell by identifying and resolving any issues regarding your exit strategy. In this review, we explain how to identify those critical errors and what you should do if you are having trouble selling your business.

7 Tips to Help Sell Your Business Faster and for Optimal Value

Every business is unique. It is important to identify the precise issue that is giving potential buyers pause when it comes to purchasing your company. With that said, there are general rules that you can follow to help sell your company faster and for an optimal sale price. Specifically, here are seven ways you can improve the salability of your company if you are having trouble finding a buyer:

Minimize your customer concentration
Make your financials understandable
Price your business correctly
Improve your team
Document your processes and procedures
Define your key performance indicators (KPIs)
Improve your marketing strategy

1. Minimize Your Customer Concentration

One of the ways in which potential buyers assess the risk of a business purchase is through the company’s customer concentration. The fewer customers you have the riskier the business is viewed.

For example, if your primary client makes up 50% of your revenue, then the buyer will have concerns about your company’s stability if that client were to no longer require your goods and services. To determine if your customer concentration is too high, ask yourself these questions:

What percentage of your cash flow comes from your top three clients?
If your top client were to leave, how severely would that impact your business?
Do most of your sales come from ongoing contracts and relationships or one-time payments?

For the last question, potential buyers also want to know how much of your sales come from long-term commitments. For example, if you are an electrician, what percentage of your sales come from maintenance contracts, and what percentage are for one-time projects (i.e. new construction)? In this example, the more maintenance contracts the better.

2. Make Your Financials Understandable

Your company’s financial performance is the number one factor that determines how much (and how quickly) you sell your company. If you are having trouble selling your business, then it may be because your financials are not understandable. It is important to be direct and organized when presenting your financial information. Here are some key metrics that you should calculate:

Gross margins: This refers to the amount of business revenue left over after you remove direct costs (cost for labor and materials).
Profit per service/product: This is similar to gross margin. However, gross margin is a percentage. Displaying your profit per service/product can help show precisely how much money your company makes per sale.
Revenue growth (year by year): Is your business growing in revenue each year or in decline? Growth of 20% or more is excellent. If your company has endured a recent downturn, then you will need to explain why this is the case.

Your calculations should come from verifiable financial records. Notably, this includes federal tax returns, profit and loss (P&L) statements, and cash flow statements. You should also organize asset lists, employee lists, and other important financial records that are related to your company’s financial performance.

3. Price Your Business Correctly

It is understandable that you want to maximize your company’s value during the sale. You have poured years into building your company, and you want others to see the value that you see. While this is understandable and certainly a worthy goal, it is important to understand how potential buyers view your company.

If you are receiving offers but are having trouble closing deals and actually selling your business, then the valuation may be too high. For this reason, it is important to receive a professional valuation from a business broker. If you are not able to sell, then it may be time for a second opinion about your company’s value. Based on your valuation, you can decide whether you want to work to improve your company’s worth or lower your asking price and sell much sooner.

4. Improve Your Team

Your team matters for several reasons. First, potential buyers prefer a company that can operate with little to no involvement from ownership. This allows them to focus on long-term business growth, rather than playing an integral role in daily operations. Secondly, a quality workforce represents a better service (or product). Therefore, if you have not been able to sell your business, then it could be an issue with your workforce.

To address this issue, you may need to spend more time and resources on training your existing staff; you may also need to hire additional team members. The ultimate goal is for the ownership involvement to not be necessary. In doing so, ask yourself this: “How would the company perform if I turned off my phone and went on vacation for a week?” If the company would not perform well, then you need to improve your team.

5. Document Your Processes and Procedures

Buyers also want to know how your company operates. They do not want to purchase a company that does not have clearly defined systems, processes, and procedures in place. If your operating procedures are ambiguous, or if you do not have the right team members in place to support your operating procedures, then you may have trouble selling your business.

On the other hand, if you are able to define your processes and procedures, then the buyer will have far more confidence in the long-term profitability of your company. With a successful model in place, they can trust that the company will operate predictably, which frees the owner to focus on their goals for business growth.

6. Define Your Key Performance Indicators (KPIs)

Key performance indicators, or KPIs, are business metrics that indicate a company’s level of success. Your KPIs are based on your business type and your industry. Common KPIs include (but are not limited to):

Number of qualified leads per month (i.e. how many consultations do you have each month?)
Average cost to acquire a customer (this can include marketing costs, employee costs, etc.)
Operating cash flow (this measures your ability to pay operating costs)
Customer lifetime value (how much in total is the average customer worth?)
Lead to conversions (what percentage of your leads become customers?)

This is a vital step to take as potential buyers will want to know what it takes to make money consistently and predictably in your industry (and specifically within your company). If you can show them how your company has performed through KPIs, then they will have a better understanding of why your organization is a good investment.

7. Improve Your Marketing Strategy

If you check the first six boxes but are still struggling to find a buyer, then you may need to assess your marketing strategy. For example, you may want to consider working with a business broker who has a track record of selling companies for fair value. They can utilize confidential online listings (i.e. BizBuySell listings), private networks and connections, and more to help ensure your sales memorandum reaches the eyes of hundreds of potential buyers.

Final Thoughts

If you are able to establish a diverse clientele, organize your financial information, improve your team and work processes, and price your company based on what a fair and reasonable buyer is willing to pay, then you should put yourself in a good position to sell. To identify the specific reason your company is not selling, we recommend discussing your exit strategy with an experienced business broker.