The situation of 27 businesses about 1 year after their owners decided to sell them
About 3 years ago I started selling business. Or tried to sell them...
The first contacts I had with entrepreneurs who wanted to sell their business was by contacting them after their ads with "sell business" on various platforms. I also began following the responses of some of them to my ads on Facebook.
After a while I could approximate relatively correctly when the ad with the sale was put online or when they wanted to sell their business: those entrepreneurs who had just posted their ad or those who had placed ads more than 3 months before were very confident that they would sell their business in a short time. They had an authoritarian tone in their voice, not wanting to pay for any service (OK, there were a few exceptions. But they also wanted to pay strictly a small successful commission, in case the business would be sold with my help). Those who had been placing ads for the sale of their business for a long time were the most realistic ones. They were more modest in expression and willing to accept help, but still only on a success fee basis.
I admit I entered that "game" with the success fee. I was at the beginning of my venture. I wanted to gain more experience in the field and I considered that I could not have obtained it any another way but by accepting what was being offered to me. No, I don’t think it was good for either party: after 4-6 months I was tired of investing time, work, and my own money in selling something that I wasn't even sure was salable. They could always change their mind about selling the business. About a third of business owners do so, even if they have to pay penalties for it. Thus, even if I did my job in an exemplary way and found buyers for their business, it would still have been a failure. They were not connected at all with the sale of their business. And not to me, either. I remembered something that one of my mentors once said to me: "Feri, you want your client to be more successful than even he wants to be." I must admit that they also had their share of truth: I was in the beginning of my journey, not really knowing what I was doing (OK. They did not know that). It wasn't good for them either because their business remained unsold.
Last fall I had an idea: I wanted to check the current situation of those businesses I had dealt with early on. Had they sold? If Yes, for how much? If not, what price were they asking now?
Why then? Because I had a site with business sales ads (AfaceriDeVanzare.com – in Romanian) whose subscriptions had to be renewed and I was wondering if it was worth continuing with that website or not? I did not decide to continue because I considered that the effectiveness of online ads is similar to lottery scratch tickets: meager success rate of 2-4%. If you know what to do and you do the right thing, then you can get to 8-10% success. It can be a good approach, but only as a complement to other methods.
But let's get back to the idea ... Some entrepreneurs called me, others I contacted. It was easy to see the result, that is, the new price they were asking for their business, on the same ads. There were 27 listings for businesses. Of these, 8 businesses were no longer for sale because their owners liquidated them at about a third of the value they had originally requested.
The asking price after 1 year decreased by 50-60% from the initial price for 14 businesses - I mean just the business part, not the possible real estate component of the value. The other 5 had relatively the same prices. But we all know how much a small or medium business whose owner has wanted to sell for about 1 year is worth: at most, half of what he thought it was worth initially. (I also wrote an article about something similar to the free work of an entrepreneur in case he misses the moment of selling it. You can read it by clicking here: https://www.thetimetosell.com/post/i-m-not-selling-it-now-because-i-just-want-to.
Now is probably a good time to do some calculations. The "cheapest" deal out of the 27 was 600,000 Euros, and the most valuable was 4 million Euros. Calculating the loss of value of those businesses after 1 year of being "for sale" at about half of their initial value, means that this loss is between 300,000 and 2,000,000 Euros. Breaking it down into months, they have a monthly loss of 25,000 to 167,000 Euros. When you see these numbers, you start to get scared of the magnitude of the monthly losses endured by waiting for someone to respond to ads. Only then you realize it’s a race against the clock. And a good business broker (or M&A consultant for larger businesses) not only manages to sell your business with a success rate of 20-40% (as opposed to 2-4% through online ads published by the entrepreneur), but he also advises you on what to do and how to do it so that you can at least keep the current value of the business until it is sold.
For the calculations to be complete, I should enter the fees of some business brokers or consultants in mergers and acquisitions. I don't know how others work, nor is it a very transparent field. Most entrepreneurs told me that those who contacted them only asked for a 3% success fee. "Cool! And what did they do for it? What tangible result did they give you?” I asked them.
The response: "I don’t know. They said that they posted my business on another website ... but I don't have anything to lose with them either...”Really? They do not see cost because it is not obvious. It is not paid out of pocket, but... Do they really lose nothing? Think again. :)
What I know for sure is our situation: we want to cover our expenses involved in finding and contacting potential buyers and a successful commission depending on the size of the business. Is there any business where you don't pay for the materials? In carpentry (another business of mine) it is normal to pay a 50% advance that covers most of the material expenses. And so it is in any other field.
A sale process with us takes between 8 and 18 months. The shortest timeline and with the highest chances of success (i.e. 75-80%) involves expenses of 40,000 to 50,000 Euros. The other approaches (other business sales methods) have expenses between 15,000 and 25,000 Euros for the entire sales process of 8 to18 months, with a success rate of 8-40%. As previously calculated, the monthly losses in the value of an unsold business valued between 600,000 and 4,000,000 Euros are 25,000 to 167,000 Euros. Comparing the costs involved in finding investors with the value losses resulting from waiting in vain, we notice that it costs less than 1 month of loss value for the smallest business out of the 27 analyzed, or 2-3 days of waiting in the case of the 4 million Euro business.
Knowing these figures, who wants to spend 1 year waiting for a "miracle" once they have decided to sell their business?
PS: If you are still thinking about selling your business, maybe it would be more interesting to know how ready your business for sale is before entering the process of selling it. Specifically, how much could you lose from the negotiated price with a potential buyer, at the final negotiation (immediately after the due diligence stage) due to some unresolved aspects of your business in time? To do this, complete the online questionnaire with 28 questions in the next 8-10 minutes. You can find it here and the answer will be instant, in exact numbers, when it is finished. Good luck in everything you do!
Check your “business preparation for sale” for free using the online questionnaire with an answer on the spot. Success!