One very big reason you can’t sell your business is because your business is not making money.
No one wants to spend money on a business that will lose money monthly, no matter how hard you’ve worked to build it to that point or how much money you think it will make in the future.
Unfortunately, we see this scenario quite often. A business owner buys a business, works extremely hard to build it, but at the end of the day, they are just breaking even or still losing money. They then want to sell it. But what do they really have to sell? In my opinion and many prospective buyers opinion, a job that pays nothing and in some cases, a job that you have to pay to work at.
When a buyer has X dollars and has a choice to spend it on a business that either makes X dollars a year or one that loses money, which do you think he will pick? The answer is simple and I am sure my 6 year old daughter can make the right decision here as well.
Now the question is, what do you recommend a business owner do in this situation?
The answer unfortunately is not black and white. I first would recommend the owner of a business losing money to re-valuate the business and business plan. I would ask questions like, was this part of the plan? Did I know I was going to lose money this long? Does it usually take this long for a business like this to become profitable?
If the answer is yes, then I would most likely continue the plan I initially created to get to the point I planned for. But if the answer is no, then you have to really consider one of two options, keep going, or move on to another venture. Sometimes, we think an idea is great, but many others do not. Or we think the market is bigger, but we simply miscalculated.
Not all businesses are great, unfortunately, a lot fail. So you have to weigh the pros and cons. For example, if it takes 24 months to break even and you lose X dollars during that period, you have to ask what amount of profitability is worth losing that much money over that period of time. I wouldn’t do it unless, my end goal produces exactly what I desired. If the business can not produce that, the risk is not worth the gamble.
There are a lot of other factors that go into making this decision. As I said, it is not black and white and I cannot answer this question in a blog post because it will turn into a book if I try.
Another possible reason your business is not selling is because your asking way too much!
If you had a $100,000 and two business are for sale at $100,000 each, would you want to buy the business that makes $75,000 a year or the one that makes $25,000? Of course, we all will pick the $75,000 year business. In very rare situations, one will pick the lower income producing business because of some very rare tangibles, but this is very rare.
So properly pricing your business is extremely important. You must, research what your industry multiplier is. If businesses similar to yours are selling for 2x, then you should sell for 2x. There are very few things that allow for a higher multiple. For example, if you have hundreds of five star reviews and your competitors only have a couple, or you land a contract that ensure your business will thrive for many years and your competitors do not, then maybe you can sell for a higher multiple.
Therefore, doing a true business valuation is extremely important. It will help you know what your industry multiplier is and also help with getting a proper asking price that will generate prospective buyers to inquire, learn more, and possibly buy.
Please contact us if you have any questions or want to learn more. – Wishing you the best, Alex Khabbaz, Managing Partner and Austin Business Broker for Texas Business Brokers.