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Why Profitable Small Businesses Cannot Get Sold

You would think that a profitable, cash-flowing business would sell quickly. Many are. In some cases, businesses will not get sold at any price. It sounds counter-intuitive, but it is true. What would deter a ready, willing, and able buyer from purchasing a sound, well-run operation? Hmm. Businesses that suffer from this fate have the business value in the owner and not in the operation. Let me explain. A buyer purchases a business to inherit the future benefits that are reasonable predictable and transferable to him. Those benefits include a salary, perquisites, and other discretionary items. If the current owner is the business, then when the current owner sells the operation, the business's future benefits exits with him. The value leaves with the exiting owner. There is little or nothing left to transfer to the new owner. Some examples of this syndrome are personal service operators and professional practices. If the current owner provides unique or specializes services to its clients, chance are that such services cannot get duplicated (to the client's satisfaction) by a substitute person. If you have a favorite tailor that custom-made your suits and shirts for years, you will not easy transfer you business to the next tailor that comes along.

How do you avoid this trap? Develop written business processes. Establish and update written policies. Train staff. Start a mentorship initiative. Delegate responsibilities. Share the burden and the benefits with your team. A true test is if you can take a two-week vacation, come back, and your business is still running (maybe not smoothly but it survived). Now you have something valuable and transferable.

The sale of your business is probably the biggest business investment decision you will make. Do not let it stall because you failed to develop an Exit Plan that worked for you and your prospective buyer. Contact us if you need help assessing your current status or generating ideas to get you sell-ready.

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