We are always adding to our inventory of listings because we want to give buyers as many choices as possible. They want to know they have several great opportunities to choose from. But that doesn’t mean we sell every business that comes our way. Sometimes we do not list certain businesses. Why? Here are the three reasons we usually decline a business listing.
Serious business owners have clean books and regular access to accurate and understandable financial statements. They use them day to day to keep tabs on the health and well-being of their business. Having clean books doesn’t mean putting charges and expenses into catch-all categories. They are as specific as possible and show progress and problems, month-to-month, quarter-to-quarter, year-to-year.
Clean books show that the business is on good terms with the IRS. Any serious seller should have no serious tax issues and should not be playing games in order to evade taxes. Taking regular payment of taxes seriously shows the buyer he can feel comfortable with a transaction with someone who is in good stead with Uncle Sam.
Lacking Process and Procedures
Having systems and processes in place shows that the seller is selling a business that will be able to, not just survive, but thrive without the person who built it. If the business can survive without the current owner for 30 days—because it has systems and processes in place to keep things running smoothly– then the owner has something to sell, if not, it is what they call the blue sky, and a wise man shouldn’t bet on such. Hope is not a strategy.
Every buyer wants to have some kind of manual that explains everything about how the business runs. Processes and systems are that manual for the buyer. Good sellers have processes, procedures, and management down to a science, and that is what often makes a business sellable or not.
The two poor attitudes that make us decline a business listing are:
A fixed idea about what the business is worth. When the value of the business is tied to emotions instead of financial data. Feelings do not equal facts, nor determine what a business is worth. The market determines the value, after all, the market value of something is what someone is willing to pay for it. The market doesn’t care what a business owner ‘thinks’ his business is worth, or how much blood and sweat the seller had to go through to get the business where it is today. After all, it is the blood and the sweat the seller had to do so he could one day sell his business at a 3X multiple of net earnings so he can retire or move up in income with the next business he purchases.
Slow or untimely delivery of documents or answers to key questions. The way an owner works with a broker is a good indication of how the owner is going to work with a buyer. If the owner can’t (or won’t) answer tough questions or deliver key documents, the buyer cannot understand the business and we decide not to accept your listing. There’s only a small chance of making it through due diligence in that situation. Patience and timely responses get a buyer to the finish line better than poor attitudes and slow playing due diligence.
The good news is that each of these problems can be fixed with a little self-awareness and a lot of sincere effort. If we’ve refused to sell a business, it is one of the above reasons. We can and often will give constructive criticism to sellers and buyers, so we don’t have a failed deal due to a lack of thought or mindfulness during the process that can often seem long and painful if both parties are not being at their best.