Why 70-80% of Businesses Never Sell: Avoiding the Pitfalls

By Patrick Metzger , CEO/Founder at The Greenhouse

You’ve likely invested years of hard work, dedication and passion into building your company as a business owner.

But what happens when it’s time to step away? Ideally, you would sell your business for a handsome profit, secure your financial future and perhaps even pass on a legacy. However, the reality is much harsher: According to the Exit Planning Institute, a staggering 70% to 80% of businesses that go to market never actually sell. This statistic should be a wake-up call for every business owner.

In this blog, we’ll explore why so many businesses fail to sell, the common pitfalls that lead to these failures and how proactive exit planning can dramatically improve your chances of a successful sale.

The Startling Reality: Why Most Businesses Don’t Sell

The statistic that 70% to 80% of businesses never sell is a sobering one. But why is this the case? Several factors contribute to this high failure rate:

1. Lack of Preparation: Many business owners wait until they are ready to retire or step away before they start thinking about selling their business. By then, it’s often too late to make the necessary changes to make the business attractive to buyers. Exit planning should begin years in advance—ideally 3 to 5 years before the planned sale or exit.
2. Incomplete Financial Records: Buyers need a clear, accurate picture of the business’s financial health. Inconsistent or incomplete financial records can scare off potential buyers who may question the legitimacy or stability of the business. Audited financials, clear profit margins and a history of financial growth are critical.
3. Unclear Succession Plan: If your business relies heavily on your personal involvement, buyers may be hesitant to purchase it. A well-thought-out succession plan that outlines how the business will continue to thrive without you is essential. This includes training key employees to take over leadership roles and ensuring that business operations can continue smoothly in your absence.
4. Market Conditions: Sometimes, external factors like economic downturns, industry-specific challenges or changes in market trends can make it difficult to sell a business. While these factors may be out of your control, a well-prepared business is better equipped to weather these challenges.
5. Overvaluation: Many business owners have an inflated sense of what their business is worth. Overpricing a business can lead to it sitting on the market for years without any serious offers. It’s important to get an accurate valuation from a qualified professional to ensure your expectations align with market realities.

The Importance of Early and Proactive Exit Planning

So, how can you avoid becoming part of the 70-80% statistic? The key lies in proactive and early exit planning. Here’s why starting the planning process years before you intend to sell is crucial:

1. Time to Improve Financials: By starting early, you can work on improving your business’s financial health. This might involve cutting unnecessary expenses, increasing profit margins or even restructuring your business model to make it more appealing to buyers. Financial transparency and stability are major selling points.
2. Building Transferable Value: A business that is overly dependent on the owner is much harder to sell. Over time, you can work on delegating responsibilities, building a strong management team and ensuring that your business can run smoothly without you. This creates transferable value, which is what buyers are looking for.
3. Tax Planning: Early exit planning allows for better tax strategy development. The tax implications of selling a business can be significant, and there are strategies that can help minimize the tax burden. Working with a tax advisor well in advance can help you maximize your after-sale profits.
4. Creating a Succession Plan: Developing a succession plan takes time. You need to identify and train successors, whether they are family members, key employees or outside hires. A strong succession plan not only makes your business more attractive to buyers but also ensures a smoother transition when the time comes.
5. Adjusting to Market Conditions: The business market is constantly changing. Starting the exit planning process early allows you to monitor market conditions and time your sale for when the market is most favorable. This could be the difference between a successful sale and no sale at all.

Key Steps in the Exit Planning Process

To improve your chances of selling your business, consider following these key steps in the exit planning process:

1. Get a Business Valuation: Start by getting an accurate valuation of your business from a certified professional. This will give you a clear picture of where you stand and what you need to improve.
2. Clean Up Your Financials: Work with an accountant to ensure your financial records are in order. Consider having your financials audited as this can increase buyer confidence.
3. Develop a Succession Plan: Identify potential successors and start training them. Make sure your business can continue to operate without you at the helm.
4. Enhance Business Value: Focus on increasing the value of your business. This could involve expanding into new markets, improving operational efficiency or diversifying your product or service offerings.
5. Consult with Advisors: Work with a team of advisors, including accountants, lawyers and business brokers, to develop a comprehensive exit strategy. They can provide valuable insights and help you navigate the complexities of selling a business.
6. Plan for Taxes: Discuss the tax implications of selling your business with a tax advisor. There may be ways to structure the sale that can reduce your tax burden.

Conclusion: Don’t Leave Your Future to Chance

The statistic that 70-80% of businesses never sell is a stark reminder of the importance of early and proactive exit planning. By starting the process years in advance, you give yourself the best possible chance of a successful sale. Remember, selling your business is not just about finding a buyer—it’s about ensuring that your hard work pays off and that you can step away on your terms.

At The Greenhouse, we understand the challenges of exit planning and are here to help you navigate the process. Whether you’re just starting to think about selling or are ready to begin planning, our team of experts can guide you every step of the way. Don’t leave your future to chance—start planning your exit today.

Contact Us to speak with Certified Exit Planning Advisor (CEPA) Patrick Metzger to learn more about how we can help you achieve a successful exit.