December 29, 2022

3 Surprising Reasons Why a Business Won’t Sell

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3 Surprising Reasons Why a Business Won’t Sell

Unconventional Acquisitions

December 29, 2022

You’ve probably heard us talk about how to buy a boring business, but do you know what causes deals to fall through the cracks?

It’s estimated that about 85-90% of businesses don’t sell, according to Seiler Tucker. And a lot of this has to do with succession planning.

Basically, the owner is so consumed with running the business that they don’t have a plan for actually closing it down or transferring ownership. They just keep truckin’ along. 

But herein lies the opportunity. Get better at sniffing out deals and structuring them in a way that helps you actually close them, and you’re one step closer to cash flow. 

Sometimes the owner is in a dying industry or one that could be revamped if only they added a little tech to their infrastructure. 

Other times, they’ve managed to run their business on tribal knowledge. Maybe they’ve been in business for the last 20 years, but nothing is documented. 

Unfortunately, this makes it nearly impossible to transfer ownership, because the current business owner is the only one who really knows how the business runs. 

There are a million reasons why a business doesn’t sell, but these are the ones we see over and over again:

1. The Owner Doesn’t Know What Their Business is Worth

This one is more on the seller than the buyer. A lot of the time, a business owner is usually interested in selling their business for one of a handful of reasons. 

The most common ones we see here at Unconventional Acquisitions are:

  • Baby Boomer generation
  • Tired and/or ready to retire
  • Wants to dissolve the family business
  • Declining health reasons
  • Interested in moving/relocating the business
  • No transition plans or successor(s) in place

Sometimes, a business owner decides to sell their business without a lot of forethought, and for that reason, they skip over or have significant gaps during the valuation process.

For example, a business owner may have a certain number in their head of what their biz is worth, quite literally pulling it out of thin air. 

According to a survey conducted by EPI, ~70% of business owners don’t know what their after-tax income should look like to support their lifestyle. 

So, when it’s time to value their business to list it, it’s basically one big guessing game. 

This could sound like this:

“I need $2 million to pay off my business assets.”

“I need $1.5 million to retire, otherwise it isn’t worth it.” 

“I heard that I need to make X-times my initial investment back for this to be a fair deal, so that’s what I expect in the sale.” 

Another common factor is the business owner has been so stuck in the day-to-day operations that they never set their business up to sell in the first place. 

Standard operating procedures haven’t been documented. Ongoing maintenance and repairs take a back seat. 

Sometimes, they are even out of date with their books by several months or more, making it challenging to have a conversation around the numbers. 

2. They Don’t Know About Seller Financing 

There’s a high likelihood that your seller is a Boomer, which means they’re probably only familiar with deals that are set up via a bank loan or the SBA, a.k.a. the old-school funding options.

Typically, these options take longer to work through because #bureaucracy. 

It’s not that seller financing is off the table. It’s just more likely that the current business owner doesn’t know about it. 

Mix that in with not knowing their numbers, and you’re looking at a looooong time to actually work through and close your deal… if it even gets done at all. 

This is another one of the top reasons that a business doesn’t sell. 

3. They’re Focusing On Listing Their Deal (Or it’s Not Listed At All) 

This one comes down to who the original owner has on their dealmaking team

If they’re working with a real estate agent, they may be following the more traditional approach to selling a business. 

Decide to sell. List the business. Make the sale. 

It sounds great in theory, but most of the time we see businesses listed on real estate sites or other places online that have some red flags to them:

  • The business isn’t valued properly
  • There are key financials and/or info missing from the deal structure
  • The payment terms, or deal value, aren’t flexible for the buyer
  • The business requires major renovation or equipment replacement

We’re not saying that means finding a biz listed online is off-limits, we’re just saying to be cautious. 

So, if that’s the case… what if we told you there is an even easier way to buy a boring business that doesn’t land you in someone’s inbox or spam folder? 

All you need to do is start with a Google search of the business types and industries you’re interested in getting into. 

Then hit the pavements of Main Street and start a conversation with the business owner. Crazy simple, right? 

By stopping in to introduce yourself, followed by a quick chat with the business owner, you’ve taken off a lot of the pressure to get lawyers and accountants involved.   

Phone calls and informal chats over breakfast work well, too. 

The reason this works is, according to a study conducted by PwC, ~80% of business owners don’t have a succession or transition plan. 

Which means they just haven’t thought about it. 

How to Buy a Small Business

If you need more guidance on what to look out for when buying your first or next boring business, our online course for small business buyers is for you.

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