It’s obvious that in a booming economy buyers for medium sized and large businesses are more enthusiastic about business purchase and perceive a low risk in business transactions. The demand increases as a result an so do business values. This is not so obvious for smaller size businesses for the following reasons:

1. Small business valuations are already on the lower end of the valuation spectrum because of their high dependence on their owners. Business buyers are always afraid that the business is the owner and no value will be left when the seller leaves. Therefore, even in a slow economy these valuations still look attractive to buyers.
2. Small businesses are more like a job replacement than an investment. New owners have to be very involved in the daily activity of the business and as a result they have more control over the business destiny and they perceive a lower risk in purchasing the business.
3. In a slow economy laid-off workers looking for a job replacement find business purchase a very good alternative, which increases demand for small businesses and put an upward pressure on prices that balances the negative effect of the general business pessimism.

Moreover, a businesses seller that is ready to sell but deliberately waits for the economy to improve might be making a poor business and life decision. Small business success is largely a function of the owner’s enthusiasm and hard work. If the owner looses interest in the business, the business generally deteriorates very quickly and loses most of its value. This loss is in most cases much bigger that the potential increase in value that could happen if the economy turns around.

Additionally, even if the economy turns around, which might take a few more years, the business sellers will still needs to wait some additional years to repair the business financial statements so they look attractive to buyers. It could be five additional years or more before the seller could consider selling again.

If the seller has a good reason to sell, then waiting five additional years is in most cases not a viable alternative. After all a seller desiring a complete change in his/her lifestyle should be the one deciding when to do it not external events such as economic conditions!

• Uncertainty about the asking price: small and medium size businesses do not command high price multiples. The selling price should not be the main motivation for selling a company. I frequently see frustration in seller’s faces when I tell them about what asking price they might ask for their business. Sellers say ” if I have to sell my business at this price then I would be better-off waiting another 2 years and earn this money in my business without having to sell it”. My answer is then “yes, wait 2 years and come to see me when you are ready to sell”. The business is worth more to its owner that it is to most potential buyers. Owners sell their businesses for other reasons than money. Reasons include need for change, retirement, new opportunities, sickness, moving, and many other reasons not related to money. However, for larger businesses ($1M and more in value) a deal structured as a share sale involves a tax advantage that makes the sale worthwhile financially.
• Uncertainty about Timing the sale: Most sales of small and middle market companies are driven by personal considerations that in most cases could be delayed. For example a seller contemplating retirement at the age of 60 could wait few more years before effectively retiring. This creates a huge indecision for business sellers. Timing the sale of a small or medium size business is mostly dictated by personal consideration rather economic cycles.
• Uncertainty about how to go about selling: this can be so overwhelming that the business owner keeps procrastinating for a long period before taking the necessary actions. For most sellers, this is a one lifetime event. As a result, sellers lack the  knowledge and experience to go through a smooth sale process. Some sellers discuss the issue with friends and relatives who are not qualified to advise them about it.  Other sellers would seek advice from their accountants or even entrust them with the sale of the business. Accountants however are qualified to do accounting but not to sell businesses. They are capable of analyzing the company financial statements but they are not qualified in marketing the business. Marketing a company for sale is a full time profession called business brokerage and requires a long experience and a variety of other skills including finance, sales, psychology, business strategy, marketing and others.

In my experience, business owners who know why they are selling and have a clear idea about what they will be doing after the sale and who seek help from professional brokers specialised in selling businesses are more successful in selling their companies.

Unfortunately, it’s not that easy. Most business buyers are looking to buy a business as a way to make a living. Small business purchase is like buying job. If these buyers were looking to take the risk of buying a money losing business that “has potential” they would have started one themselves instead of buying it from somebody else. Nobody wants to pay for others’ business mistakes. There are many possible solutions for an entrepreneur who invested in a new business that he couldn’t make profitable, but selling the business after one or two years of its inception is clearly not a realistic option.

Possible solutions include product line improvement, cost reduction, strategic partnership, more leadership, owner skill improvement, new service addition and many others. Once the business is established and has demonstrated that it has a valid business model, then the owner can sell it at a reasonable price.

Other businesses that are very difficult to sell include:

• Companies whose top and bottom lines are deteriorating year over year.
• Businesses that are too highly priced.
• One man show businesses (very dependent on one person whether it is the owner or an employee).
• Companies very dependent on one large customer.
• Businesses whose owner are not ready to sell and/or are too emotionally attached to their companies.
• Companies whose owners are dishonest, are misrepresenting the business and/or misleading the buyers.

If you are a business owner intending to sell a business that falls into some of these categories, then you will get a huge return if you take some time to improve your business to make it more sellable before spending tremendous time and money trying to sell a business that nobody will buy .

As a first approach, we suggest that a business owner contemplates these questions:

• Why would you sell your business?
• Are there other options available?
• What is your plan after selling your business?
• What price do you expect to sell your business for?

This introspective thinking will help the owner decide whether selling the business is the way to go. Owners can also  seek professional help from business brokers. I receive frequent questions from potential business sellers who are in the early stages of their decision. In many cases my advice to them is to explore their other options since selling their business appears not to be the optimal solution. Surfing the Internet searching for blogs and websites providing information about the business sale process can also be very helpful in understanding the preliminary concepts.