There is an industry understanding that only around one third to fifty percent of all businesses listed for sale actually get sold. This figure is not one that business brokers will readily admit since they would like to sell all of their listings, and I surely don’t blame them; that’s how they pay their bills.
It’s important for prospective buyers to understand this statistic specifically to adopt the strategy that they may have to look at a lot of potential businesses in order to find the right one.
At the same time, buyers must understand that they have to go beyond the public marketplace to find potential businesses. The reason is that the majority of online marketplaces cater only to broker listings. While there are some for sale by owner sites or sections to the popular sites, these represent a much smaller percentage of the listings. Further, brokers only sell about ten percent of all small businesses.
Most businesses never get sold because they’re simply not very good businesses, and more specifically, because they aren’t ready to be sold. Now, this situation has two sides to it – first, if it’s not ready for sale, has too many problems, is overpriced, financials cannot be proven, or is in an industry that’s in decline, it’s easy to pass up. However, the second scenario is where a business has solid fundamentals but has either been neglected, or put on cruise control for the last few years. They are what I call “lazy owner businesses”.
These can represent phenomenal opportunities to the savvy buyer and business operator. When a business has just been puttering along, it can be ripe for a new owner with the capital, know-how and drive to people it upwards. Plus, the purchase price and terms have to reflect the present-day reality of the business and therefore, with the right knowledge, one can negotiate very favorable deal terms. The challenge is to maintain a logical approach and not be delusional about what can realistically be done to improve the company’s performance. Additionally, one must be aware so as to not fall for the most common seller ploy of telling buyers, “With new blood, there’s no end to how successful this business can be.” That may be true, but the fact is the current owner didn’t make it happen, so they cannot be compensated for the future.
The point to all of this is to avoid disregarding businesses too quickly. Look for signs that the business is fundamentally sound. It could be one that has been in business for many years, or has a loyal customer base, or best, when they have a significant competitive advantage. It may very well be that the current ownership hasn’t been able to exploit those attributes, or, they may just be a lazy owner.
A successful business buyer also knows how to go beyond the marketplace and successfully solicit businesses that are not even listed for sale.
This is a massive advantage when looking to buy a business. There are tons of companies whereby the owners would love to sell, but may not yet be completely ready to do so. If you know the strategies to use, you can easily accelerate their plans.
In the guide How To Buy A Good Business At A Great Price, there’s an entire section devoted to why every business is for sale and how to find the ones that aren’t listed for sale.
Don’t be a lazy buyer. Investigate businesses that even slightly pique your interest. Often times, the gold is there, it’s just not at the surface. Similarly, do not rely solely upon online business for sale listings to find your gem.