InSight

Exit and Growth Strategies for Middle Market Businesses

Buying and Selling – Beating The Odds

By Craig Allsopp | Apr 24, 2017

I was reading a study about private business sales the other day and came across a very startling statistic – only 20% of the companies put up for sale ever change hands.

This is a sobering thought – particularly if you are a business owner contemplating retirement and counting on the sales proceeds to fund it.

For some businesses it’s a matter of performance that makes a sale difficult, if not impossible. These companies may be losing money, or facing lawsuits or might be overly dependent on one or two customers.

For others, it’s a lack of preparation that creates the roadblock that prevents a transaction. Businesses with sloppy records, aging equipment and poorly maintained facilities fall into this category. Most investors aren’t looking for a fixer-upper and will quickly pass when they see one.

Still other companies never trade because their owners have unrealistic expectations when it comes to the notion of “transferable value.” They fixate on a number – without considering how their companies rank against their peers’ or the operational challenges and investment new owners will face.

So what is the solution to beating the odds in an environment where it is so hard to sell a company?

We believe it starts with preparation and a commitment to making fact-based decisions throughout the process.

Here are three basic concepts to get the sale process off and running toward a positive result.

  • Invest in a bench marking study. This will provide you with an objective look at your company’s position versus its peer group and provide you with a realistic expectation of its transferable market value.
  • Commit to spending time and effort to spruce up your business. Your company will stand out if you have a good management team, orderly books and records and well-documented customer relationships.
  • Hire a licensed investment banking firm to handle your transaction. Dealmakers at these firms are subject to FINRA testing and SEC regulation. You can see their dealmakers qualifications online and easily find out if they have been subject to any disciplinary action.

To sum up, there are no guarantees when it comes to selling a business. But proper preparation and committing to a professional process are more likely to beat the odds then leaving the details to chance.


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