In my 25 years in public accounting, I sold and valued several companies including franchises, a casting plant, several light manufacturing companies, a restaurant, a dry cleaner and a retail shop, to name a few. They were all difficult. Here are 5 (among many) reasons why businesses are hard to sell.
- Bad accounting. This can be due to a lot of factors, but largely it’s due to antiquated accounting system. Major corporations and franchises use technology for all financial inputs but it goes deeper than that. My experience has been there are several areas that can reduce the value of a company. These include bad inventory controls, no capital budget, buying things “for tax deduction purposes”, the belief that the accountant, who often has hundreds of customers, is “looking out for you,” and sloppy accounting for depreciation and amortization. Solution? Technology
- The buyer is buying a job. This is true in most small businesses. Why would a person pay $2 million for a 70 hour a week job that pays $80,000 a year? Solution? Manage, don’t “work.”
- They are too reliant on the owner. This is especially true of companies where the owner is the go to guy. If he leaves, the customers often go. Old, antiquated technology. This can be especially true in Auto Repair shops, Medical and Dental Practices, Machine Shops and Building and Maintenance contractors. Solution, see above.
- No business plan. In my opinion, 50% of what they recommend for business plans is BS. But the 50% that isn’t is critical. A business plan only needs a few things. (Click here for a business plan summary) The most important though is a marketing strategy. This has two parts, a penetration strategy and a growth strategy. The reason a plan is important is because one can waste a mountain of money in marketing.
I once sold a manufacturing company in three days. The owner had cancer and the buyer was a client. Both trusted me with the transaction. The chances of this happened for you are low. Even if you sell to an employee, there’s a conflict of interest and lawyers get involved. You want to be in a strong position.
A strong position would be you saying, “Look, I don’t need to sell. My employees run the place.” Getting to that point is the challenge. Technology and good management are good starting points.