Small business owners are always thinking about how they can improve and grow their businesses. Unfortunately, too few of these owners are considering how and when to exit those businesses. Unless owners already have a family, friend or employee they plan to pass the business to, the reality is they will need to sell at some point. Some will sell to pursue another venture, others because they are burned out, and even more just so they can retire from their life's work.
But do owners know what to expect when that time comes? That's the question a recent BizBuySell survey of small business owners sought to answer. The survey asked owners various questions about the sales process and compared the answers to what brokers say they are actually seeing in today's business-for-sale market. The results revealed some key gaps in owner expectations compared to broker experience and insight.
Owners Say They Value Finding The Right Fit, But Does Money Win in the End?
One of the first steps to a sale is determining a seller's priorities in exiting the business. Common sale priorities include a fast exit, immediate cash pay out, employment continuity for employees, overall buyer fit, and, of course, maximizing the sale price. But which priority is really most important?
The survey highlighted a disconnect between what current small business owners say they will look for in a buyer and what brokers say ends up winning in the end. Forty-one percent of small business owners listed "a good buyer fit (future success of the business)" as their top sale priority but as might be expected, brokers see that money is ultimately the decision-maker. An identical 41 percent of brokers said getting the best price is the main goal for sellers today.
While owners are still engaged in their businesses day-to-day operations, it makes sense that they would prioritize buyers who can continue running the venture successfully. But while finding the right fit is an important factor, it's likely that many sellers will begin to consider their future and have a tough time passing up a larger payout.
Brokers Say Now is a Great Time to Find Buyers, But Owners Still Picky
The recession and recovery halted many small business sale plans as owners waited for a more stable economy to drive up prices. Even with the recent economic rebound, some owners still believe there is a lack of qualified buyers in the market, despite broker sentiment and data suggesting otherwise.
In fact, a majority (54%) of small business owners surveyed said they believe that less than half of interested buyers are qualified. The majority (62%) of brokers, on the other hand, said that over half of potential buyers are qualified, with 25% indicating that more than 70% of interested buyers are qualified.
Similarly, many owners (22 percent) said the most common reason a small business remains on the market or doesn't sell at all is due to a lack of qualified buyers. Just 6 percent of brokers agreed.
Recent data supports brokers' confidence in today's market. According to BizBuySell.com's First Quarter 2015 Insight Report, small business transactions continued a two-year trend of robust activity in the business-for-sale market and key financial indicators suggest the improving health of small businesses in general. It appears brokers have a valid confidence that there is a large pool of buyers ready to dive into entrepreneurship and take over for sellers, whereas owners may have unrealistic expectations when it comes the value of their business or finding the perfect fit. In fact, a majority (58 percent) of brokers blamed sellers' unrealistic expectations (e.g., asking price is too high) as the main hurdle to sales today.
Owners Under-Estimating Time Required to Sell
Estimating how long a business will be on the market before it sells can be challenging. Most surveyed owners seemed optimistic as nearly half (44 percent) believed the entire process would be finalized in less than five months. Brokers found that to be unrealistic, with a majority (54 percent) saying sellers should set their expectations in the six to 11 months range.
Recent time to sell data does show that small businesses are selling faster than in previous years but sellers should still give themselves more time than originally anticipated. Over the past two years, the median time to sell a business stands at about 172 days. While the timeline has compressed a bit (down to 167 days in 2014), it still remains somewhat longer than most owners' expectations.
Overall, when an owner begins the sales process, it's important that they research the market and perhaps consult a broker to get a solid understanding of the entire sales process. By researching and setting up a realistic timeline owners can find the right buyer for them, complete all the necessary steps, and ultimately, receive the best return for their business.