The Smith Report - Operational Playbooks

20 Reasons Why You Will Never Sell Your Business

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The US Census Bureau considers baby boomers to be those born between 1946 and 1964 or aged 49 to 67 in today’s currency! Many of these folk own businesses and will want to realize their life’s work over the next 5 years. A remarkable few will achieve their goal. Below I’ve listed 20 reasons why business owners fail to exit.

20 Reasons
  1. Acquirers love a compelling story. They love targets that own a niche. Those that don’t exit rarely have a profitable niche.
  2. Customer dependency, one customer accounts for more than 25% of your sales, leading to risk aversion.
  3. Growth has stalled and the acquirer loses interest rather than adjust price.
  4. The business is too dependant on the owner.
  5. Margins are weak relative to the competition.
  6. Pre-tax profits are too small to justify a meaningful price. Expectations of the seller are totally unrealistic given the size of the company.
  7. Business model does not produce sales annuity stream – supporting sustainable earnings growth.
  8. Owner waited too long.
  9. Accounting records weak, documentation weak, cash flow forecasting weak. Seller fails due diligence.
  10. Too many non-core activities confusing the buyer.
  11. Product innovation has stopped. Seller relies on legacy products.
  12. Staff engagement seems weak. Internal training non existent. Buyer is not comfortable that staff will hang around.
  13. Shareholding structure too complicated. Easier targets to purchase.
  14. Second tier management is weak. Buyer is nervous that the company can reach the next level without expensive intervention. Buyers don’t have a warehouse full of spare staff.
  15. IPR, patents, and trademarks are out of date or not well documented. Or the business does not own it’s technology.
  16. Total value of the market is too small to interest acquirers.
  17. Lead generation is declining and the sales pipeline is dropping off.
  18. Losses have undermined your credibility and the acquirer needs to see several more years of profits.
  19. There appears to be limited processes and protocols to scale to the next level. Alignment between departments is weak.
  20. The owners have failed to realize the bad consequences of holding 85% of your wealth in one illiquid asset.

Conclusion

The next 5 years present owners with an unusually attractive time to scale a remarkable business that will attract a premium valuation on exit. Think of it as an options strategy not an exit strategy. You don’t have to sell but it would be nice to have the option.

Scaling businesses using our tried and trusted playbooks always improves the odds of selling out one day.

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About the Author

Ian founded The Portfolio Partnership (TPP) in 2010. TPP is an operational consultancy focused on scaling private businesses safely. He believes his resume of building 4 previous businesses from publishing, investment banking to software in Europe and the States gives him a unique set of skills and a sense of humor. He remains a competitive masters track & field athlete and in 2012 was ranked #2 indoors in the world for his age at 400m.

Discussion

  1. Heather Stone  July 3, 2013

    Hi Ian,
    Point number two is an interesting one because so many small business owners are told early on and even today to focus on existing customers instead of always being in acquisition mode. This advice may be fine for big brands like Apple, who perhaps focus on fans more than, say, Microsoft does, but still have an immense fan base. Shift this to a smaller company that may have only a few big clients and obviously telling that business not to focus on acquiring new customers is bad advice.

    (reply)
    • Ian Smith  July 3, 2013

      Heather

      There will always be conflicts of priorities. The small business must over service those initial customers to get things moving. However over time if you are going to scale, creating a safer, fast growing environment you need to drive new customer acquisition. Measuring customer dependency is essential.

      Ian

      (reply)

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