Every business comes to a period where its sale is far more beneficial than ever. This juncture
brings to a concluding dilemma where the sale of a firm is one of the crucial decisions that the
owners can make.
Any sale-related judgments are sure to bring pivotal changes to the entrepreneurial success of the
owner. However, selling a business is not always as easy as it seems. The company will often not
sell as planned or, worse, will fail overall.
So as a means of safeguard, every firm owner must know why businesses fail to sell. This article
lists six of the reasons for the failure.
1. Valuation Gap
The valuation gap is the difference between the owner’s perceived business value versus its
actual market value. This happens among business owners who didn’t establish a realistic and
clear comprehension of their enterprise’s worth.
This gap leads to misstatement of the companies’ financial statements and dissolves any forms of
agreement with a buying party. Owners having false perception of the business will overestimate
their company than underestimate rather its worth. This is why the company will lose potential
buyers until it eventually fails to sell.
To avoid this issue during the firm’s sale, it’s important to gauge the intrinsic value of the
business. Knowing the price of similar establishments within the same industry may also be
helpful in this computation.
2. Non-Monetary Value
A valuation can never be as important as with sales transactions. This is also true with the actual
sale of the business. However, asset valuation within the business can be a weary process,
especially when an asset’s worth is financially indeterminate.
For instance, a myriad of information is a valuable asset for the company, as databases are
currently in demand. The problem lies in the lack of pre-existing metrics in addressing a
monetary value to this good asset.
However, through data valuation, business owners can now have the means to determine a
dataset’s value. Data valuation is a joint process by both the IT and Accounting field that utilizes
estimating formulas that assign financial values. This process helps give a fairly represented
value to datasets within the sheets of financial statements.
3. Lack of Preparation for Sale
Preparing to sell your business is such a tedious task. Required files and documents can range
from various clearance certificates. These include up to three years of tax returns and financial
statements, a list and value of equipment, employee and customer lists. Even the most minor but
useful data that went on when running the business.
Not having even one of these can stir a reasonable doubt on the buyer. This may result in them
questioning the integrity and the quality of the business. Therefore, these pieces of information
should be readily available.
The period priming for sale transactions gives preparation for financial statements utter
importance. As such, the firm’s accountants must ensure that all assets—even the intangible
assets are all accounted for.
4. Business Owner’s Value
Many businesses heavily rely on their owner’s name—more so when it’s named after them.
When the proprietor gives a significant value to the brand, it will be hard to turn it over to
another owner. Buyers will take this as a huge risk as connections will most likely fade, and
clients will lose their trust once the owner departs.
To prevent this crisis from occurring in the future, it’s helpful to put up a business effectively led
by a team of managers with dedicated employees. Owners do the delegation years during their
operations so that the manager can run and give value to the business itself.
5. Firm’s Public Image
Public image matters when owners are selling their company.
A good public image means an already established business-customer relationship. It also means
increased effectiveness of brands in promoting brand awareness. Thus, when a certain issue
damages the brand, its impact results in the business’ decreased engagements. Owners will also
feel the impact even at its sale turnover of the entity as issues strongly stick to the brands.
6. The Buyer Is Not Prepared
Buyers can also be the reason for the delayed closure of transactions and deals. First-time buyers
who are often not well-practiced in the process of M & M&A. Buyers will try to figure out what
business is right for them, but that’s not even the worst part. The buyer is not properly prepared
on what they need to ask the potential seller, nor do they research enough for the precise
valuation of the business they are trying to buy.
Having a business broker and a legal representative is of good help, but they should not be solely
relied on in this important procedure. Also, buyers should not push through half-mindedly.
Instead, they must be rigorous and conduct due diligence on their way to buying a business.
