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Today’s Business Scene Is Provided By:
Alpine Business Brokers
Call us
today at 801.224.8848 or e-mail us at sales@alpinebusinessbrokers.com |
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A recent survey asked leading
business brokers and intermediaries: What is the
seller’s biggest obstacle to selling the business? In
other words, why do business owners who are considering
selling fail to follow through?
Seller’s Biggest Obstacle to
Selling
The answers to this
question were revealing,
fascinating and important for prospective sellers to
understand and consider prior to placing their business
on the market.
The biggest reason was one that most
people would guess—price. Here are a few explanations
that sellers offered concerning price: |
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Price was the area most mentioned (by
far) as the reason sellers don’t sell or, not to mince
words, why businesses don’t sell. A professional
business broker is aware of local market conditions, has
comparable sales data available and is knowledgeable in
pricing businesses. Keep in mind that the ultimate
decision-maker in determining a selling price is the
marketplace. If you are not willing to accept what the
market is willing to pay, then you should reconsider
your reasons for selling—and read on. |
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Two obstacles other than price were
mentioned more frequently than any others. One of these had to
do with books and records—or the lack of; and the other was a
fairly new obstacle—seller’s remorse. You read that right: not
buyer’s remorse, but seller’s. Here are some examples:
• Money/letting go
•
Motivation
• Giving up business
• Price and emotional
ties
• What are they going to do after selling?
• No
more income stream
• Being ready to really let the baby go
• Motivation to actually sell when the offer comes
•
Can’t afford to retire
• Pricing, indecisiveness
(family/friends advice)
The point here is that sellers really
shouldn’t put their business on the market unless they are
totally convinced that they want to sell. Check with your
business advisors, family members, and most important of all,
ask yourself if this is really what you want to do. |
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Although inadequate books and records,
etc., probably cause more difficulty than seller’s remorse,
this subject is far less emotional than whether you really
want to sell your business. Although it deals with straight
forward numbers rather than emotions, it still takes its toll.
Too many sellers wait until they have made the decision to
sell and are ready to put their business on the market before
they realize that their books and records don’t measure up to
a buyer’s expectations. Today’s buyer wants to see everything
in black and white; they are not willing to accept a seller’s
version of sales and profits. If you are even considering
selling your business, now is the time to go to your financial
advisor, accountant, or CPA and have your financial records
put in order in such a way that the information can be
verified and a buyer or his or her financial advisor can
easily access them. Contact your business brokerage
professional, who can advise you about what buyers are really
looking for when examining a seller’s business financial
records.
Needless to add, but worth adding anyway:
proper record-keeping should be done on an ongoing basis
rather than on the eve of the decision to sell. |
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When is the last time you reviewed the lease on
your business premises? When you signed it years ago? There are some
important reasons that should prompt a business owner to revisit the
terms of his lease. If you can’t assign your lease to a new owner,
you may not be able to sell your business. A similar concern is that
if you can’t assign the lease, it may cost you a lot of money. This
means that the landlord may want what could be termed as a
“transfer” fee; or the seller may have to reduce the price
accordingly. Whether you are thinking of selling or not, it is a
good idea to review your lease and the transfer of lease provisions.
It’s also a good idea to check what happens at
the end of the lease. Is there an option to renew and if so, how
soon before the termination of the lease do you have to notify the
landlord? And, just as important, do you want to stay, or is it time
to
move on?
A recent article in the New York Times
titled “Thinking Past Location in Finding Space” said: “With rent
typically the second largest expense after salaries for small
business, and with office occupancy costs up sharply in many
markets, a simple miscalculation can cost an entrepreneur her
business.” An existing lease may make it difficult to negotiate a
lower rent with the landlord, but it may be worth a try. If the rent
is benchmarked with similar businesses, a landlord may be convinced
to make some adjustments. Landlords don’t like late rental payments
and they especially don’t like going through the eviction
process.
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If you are just now looking for space for a new
business or if it’s time to move into new space, here are a couple
of things to keep in mind when reviewing a new lease.
By following the points outlined above, your new
business or your new space should allow you to build or grow your
business. If you’re in an existing space, some of these strategies
may allow you to renegotiate your existing lease, or make some
beneficial changes when you renew it.
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Increasing the price of your products or services
is, in most cases, the most difficult decision a business
owner has to make. Looking at the negatives is easy.
• Our business is too competitive to increase
prices.
• Our customers/clients are used to our pricing.
• Customers are too price-conscious.
• We won’t be able
to get new customers/clients.
• We are known for low
prices.
• We have a lot of repeat customers, they won’t
pay more.
The list of reasons why prices shouldn’t increase could go
on and on. The fear is always that people won’t pay the
increase and profits will suffer.
Before considering a price increase, one must look at their
current pricing method. Do you work on a cost plus a certain
mark-up? If you use a mark-up percentage, are all items marked
up by the same percentage? Do you try to maintain a price
comparable to the competition? If you work on an hourly rate,
for example consulting, when was your last increase? Have
costs increased and have you increased prices to compensate
for them? |
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Looking at the positives is also easy. Profits will
increase; and the price of the business will increase based on
the increase in sales and profits. Funds will be generated to
do that advertising or promotion you have always wanted to do.
With increased profits you can hire that extra salesperson you
know will increase business; you can install the technology
you know will increase service and lower costs.
As Ravi Mohammed said in his book, The Art of Pricing, “Let
me ask you, will a 1% price increase really cause your
customers to stop purchasing from you?” A 1% increase on a
business doing $5,000,000 a year is $50,000 to the bottom
line. On a business with sales of just $500,000, a price
increase of only 2% would bring in $10,000 to the bottom line.
One does not need to increase prices across the board. On
fast-selling items, increase the price more than on
slow-moving items. By doing so, you can test the waters on
increasing prices. As Ravi Mohammed also points out,
“MacDonald’s profit on hamburgers is marginal, but it has
substantial profits on French fries and soft-drinks.”
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