Sometimes business owners are their own worst enemies when they try to sell a business. Statistics show that less than twenty percent of businesses sell when they are marketed for sale. This means that more than eighty percent of businesses never sell. A survey of merger and acquisition (M&A) advisors showed some very interesting insight. They were asked to identify top issues that were problematic in the ability of a business to sell successfully. The top response was seller valuation expectations; 69 percent of merger and acquisition advisors indicated this issue as being the most problematic in selling a business.
Top 10 Key Reasons HealthCare Businesses Do Not Sell
- The valuation of the business is too high, in some cases by as much as 100 percent.
- The business has several family members in top management positions.
- The owner is the business. The business cannot effectively operate without the efforts and know-how of the owner.
- Lack of diversity by payer source.
- The industry is diminishing or threatened by globalization or regulations.
- The owner(s) is aging and has slowed down, resulting in diminished revenues.
- The owner did not take time to perform exit or succession planning. To properly prepare the business for sale the owner should have engaged in exit planning two to five years prior to selling.
- Many of the financial rewards of the business were taken by the owner in various “perks,” which from a business valuation perspective will not make it to the EBIDTA as reconcilable add-backs.
- The seller did not take time to become educated on the selling process, especially on the possible ugliness of the due diligence process by the buyer and their advisor.
- The owner did not utilize the professional services of trusted mergers and acquisitions advisors.
Without properly preparing your business for sale and arming yourself with a proven mergers and acquisitions process, there will be a huge business valuation gap between what the business seller expects to receive and what a reasonable buyer sees as fair market price.
Selling a business takes years of preparation and the use of a proven process. Additionally, it is time-consuming. A business owner trying to keep their business running smoothly while, at the same time trying to sift through streams of bargain hunters, can be daunting. Without a proven process, a formal business valuation and a good amount of preparation, these bargain hunters will chip away at the sellers asking price.
What About Larger Businesses?
If your company is larger than $10 million in gross revenues, the buyer contact is typically the head of strategy, business development or an outside merger and acquisition firm. The first task is to recognize that reaching these corporate buyers is a very difficult and labor intensive process. In these situations, it is wise to enlist the services of a mergers and acquisitions advisor firm that specializes in the healthcare market that has direct connection to these targeted buyers.
In summary, it cannot be stressed enough that you need to properly prepare to successfully sell your business. Ideally, two to five years prior to your exit is when you should start planning. It is not very costly and does not take much time, but the results can be phenomenal and will bring about a much higher business valuation, better terms and a faster sale.