Selling a Business Statistics
Take a moment to review some Selling a Business Statistics -the business brokerage / merger and acquisition industry. If you are a business owner and you are considering selling your business these statistics are not meant to scare you, but to convey some of the realities regarding selling a business. I share these statistics with every client so that they will have realistic expectations and be prepared for bumps in the road along the way.
First, I want to discuss the length of time it takes to sell a business. On average it takes 6 to 18 months to successfully sell a small or medium sized business. On occasion, it will take longer than 18 months, especially for large deals and rarely a deal will close in less than a 6-month period.
Why does it take so long to sell a business? One reason is that we need to find the right buyer at the right time. Think about it, we need to find a buyer who is financially capable, has the knowledge, skills and abilities to run a business and a business in general. Plus the candidate needs to be a person who happens to be in the market or is open to the idea of buying a business and once presented with the facts and information regarding your business they agree to the price, terms and conditions and move forward with the sale. In short, many things need to happen, at the right time, in the right order.
Let's continue talking about buyers. Statistics show that it takes 15 to 20 buyer inquires before a serious buyer makes an offer. The truth is there are a lot of buyers who do a lot of looking and only a few buyers who actually follow through and complete a transaction. This is a big reason why many business owners choose to utilize the services of a business broker. After all, they still need to run their business.
Once a buyer makes an offer on a business the deal will often fall apart three times before the transaction closes. What does this tell us? This points out that there are many stumbling blocks along the way that can present themselves. Sellers get nervous, buyers get nervous and sometimes buyers and sellers just don't see eye to-eye.
According to Tom West, founder of the International Business Broker Association, small businesses with less than ten employees and with revenues less tha $750,000.00 have only a one in five chance of selling. These businesses account for the vast majority of small businesses in the United States. Does one in five sound high to you? The truth is that there are many businesses that are simply not marketable. Very small businesses have what I call the "start-up factor" working against them.
Here's an example: Imagine a retail store that generates $500,000.00 in revenue and a net profit or a discretionary income cash flow of $100,000.000. If this business were to be listed, a buyer would be faced with a price tag of probably $150,000.00 to$250,000.00. Upon examination, many buyers would eventually come to the conclusion that they could start up their own business and for less money.
Furthermore, running a business is challenging and some businesses are simply not profitable. Therefore, the statistics are bumped up because of the fact that businesses that are not profitable are often listed but never sold.
The statistics improve for businesses that have revenue from $750,000.00 to $30 million. These are businesses that are considered upper main street or middle market businesses.
Typically these types of businesses will have anywhere from 10 to 100 employees. These businesses could command a price of $500,000.00 on up to $20 million. In this realm, the likelihood that a transaction will take place improves to approximately one in three. Larger businesses simply have more influence in the marketplace and make more financial sense for a strategic or synergistic buyer to acquire them.
So why am I describing all of these statistics? I share these statistics with my clients because, as a business owner myself, I appreciate having all of the facts and being able to make informed decisions.
If you're a business owner and after reading this if you're feeling a little nervous about selling your business, don't be. Thousands of businesses of all types are bought and sold in California every year.
If you are a business owner in Southern California and would like to learn more about selling your business,
I would be happy to give you my opinion regarding the marketabability of your business and, if needed, some tips to make your business one that successfully sells.
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