When you’re trying to sell, there are some realities that are out of your control. But that doesn’t mean there’s nothing you can do.
This post was first published on my Medium blog—follow me there for the most up-to-date entries!
What is stopping you from selling your business? In this series of three posts, I’ll talk about overcoming the barriers to selling your business: the mental barriers, the practical barriers, and the external factors. This week, we’ll discuss external factors outside your control.
When considering selling a small business, certain external factors can significantly impact whether the timing is right for a sale. These factors can shape the market conditions, influence buyer sentiment, and even affect the business’s future valuation. But just because something is out of your control doesn’t mean you’re stuck. Below are four key uncontrollable factors, along with specific action steps you can take to navigate each challenge and move forward with the sale process.
1. Market conditions
Market conditions play a significant role in the timing and success of a business sale. Economic cycles, industry demand, and buyer sentiment are all key components of market conditions that can either make or break a sale.
Economic cycles
During downturns or recessions, the demand for businesses can decrease as buyers become more risk-averse and financing becomes harder to obtain. In contrast, in times of economic growth, there is often a higher demand for businesses and potentially better valuations. But there are some steps you can take to minimize economic cycles as barriers to selling your business.
Action Steps:
- Optimize business performance: Strengthen financial health by cutting unnecessary costs, streamlining operations, and improving profitability to enhance attractiveness.
- Monitor economic trends: Stay informed about economic cycles. Avoid selling during downturns; act swiftly during market recovery.
- Time your exit: Wait for favorable conditions if recessions could lead to lower valuations or less favorable terms.
- Track industry trends: Recognize demand shifts within your industry. Adapt to changes in volatile sectors like technology or maintain stability in steadier ones.
- Adapt to market trends: Upgrade technology, diversify offerings, or explore new markets to stay competitive and appealing to buyers.
- Highlight growth potential: Showcase long-term potential with adaptation strategies or niche market advantages despite industry changes.
- Consider buyer sentiment: Economic uncertainty can make buyers cautious, affecting investment willingness.
- Demonstrate transparency: Provide clear, detailed insights into financial health, operational stability, and growth potential to reassure buyers.
- Offer assurances: Include post-sale support or a transition plan to ease buyer concerns about short-term stability.
2. Industry-specific challenges
Some industries face unique cycles or challenges that can affect the timing and attractiveness of a business sale. Whether it’s cyclical demand, regulatory changes, or technological disruptions, each industry has its own dynamics that can influence the sale process.
Cyclicality of certain industries
Industries such as construction or retail often face cyclical fluctuations, which can make timing more critical to avoid encountering barriers to selling your business.
Action steps:
- Sell at a peak: If your industry is highly cyclical, aim to sell during the peak of the cycle when demand is high, and valuations are stronger.
- Highlight stability: If the business has strong customer relationships or long-term contracts, emphasize this stability to offset potential concerns about cyclicality.
Technological shifts
Some industries, like technology and manufacturing, may experience rapid technological changes that can threaten the value of businesses that don’t keep up.
Action steps:
- Invest in technology: Stay ahead of technological trends by investing in new tools, systems, or products that will ensure the business remains relevant. Buyers are more likely to invest in a business that embraces innovation.
- Demonstrate adaptability: Show how the business has weathered past technological disruptions and highlight any steps taken to modernize operations or products.
Regulatory changes
Frequent changes in regulations, especially in highly regulated industries like healthcare or finance, can create uncertainty for both sellers and buyers.
Action steps:
- Ensure compliance: Work with legal and financial advisors to ensure all regulations are up to date. Make it easy for buyers to transition by providing clear records and compliance documentation.
- Mitigate risks: Stay informed about pending regulatory changes and position your business to adapt quickly. This can help potential buyers feel more secure in the investment.
Contractual obligations
Businesses with long-term contracts (e.g., government contracts, leases, or service agreements) may face hurdles with transferring those contracts to a new owner.
Action steps:
- Simplify transfer processes: If possible, renegotiate or streamline any long-term contracts to make the transition easier for the buyer.
- Offer transition assistance: Provide training or a detailed handover plan to ensure the new owner can continue managing these obligations effectively.
3. Geopolitical and social factors
Geopolitical events, political instability, and global social movements can have a profound effect on business valuations, buyer confidence, and overall market conditions. These can be tough barriers to selling your business, but you can still take the reins.
Political uncertainty
Changes in government policies, tax laws, or trade regulations can create a climate of uncertainty, making it harder for buyers to assess the future value of a business.
Action steps:
- Diversify operations: Reduce dependence on any one region or political climate by exploring new markets or expanding operations internationally to mitigate political risk.
- Monitor political trends: Keep track of changes in government policies, especially those that directly affect your industry. This will help you decide whether to sell now or wait for more stability.
Global events
Global crises such as pandemics, wars, or financial crashes can affect both the attractiveness and the feasibility of a sale.
Action steps:
- Increase resilience: Invest in technology and systems that make the business adaptable in times of crisis, such as remote working capabilities or diversified supply chains.
- Prepare for recovery: If selling during a global event isn’t ideal, prepare a recovery plan that demonstrates how the business can bounce back, making it more appealing to buyers once the crisis has passed.
4. Availability of financing
The availability of financing is often a key determinant in whether buyers can purchase a business. If lending conditions are tight, or interest rates are high, buyers may struggle to secure the funds necessary for a purchase. You don’t want a lack of financing to be a barrier to selling your business.
Action steps:
- Strengthen financial records: Ensure that the business is financially strong, with clear, accurate records. Buyers are more likely to secure financing for a business with proven profitability.
- Offer flexible financing: If interest rates are high or buyers are struggling to secure loans, consider offering seller financing or structuring the deal in a way that makes it easier for the buyer to secure the necessary funds.
- Work with lenders: If you have a prospective buyer, help them connect with financial advisors or lenders to secure the financing they need.
5. Competitive landscape
The level of competition within your industry or market can impact the desirability of your business for potential buyers. High levels of competition or the entry of a larger competitor can affect your business’s value.
Action steps:
- Emphasize unique selling points: If your business is in a competitive market, focus on what makes it unique. Highlight your niche, loyal customer base, or innovative offerings to stand out.
- Consider market differentiation: If competition is a significant concern, consider pivoting or innovating in your product or service offerings to increase the business’s market position before selling.
- Identify opportunities for buyers: If your business is a market leader in a niche with little competition, make sure to emphasize this, showing potential buyers the unique advantages they can gain by acquiring the business.
Sell with confidence
While external factors are largely beyond your control, taking proactive steps can greatly increase the chances of a successful business sale. Whether adjusting to economic cycles, embracing technological changes, or navigating geopolitical shifts, being prepared and informed can ensure that the business remains attractive to potential buyers, even in less-than-ideal circumstances. By managing these external factors effectively, you can move forward with confidence in the sales process.
Have you overcome the other barriers to selling your business? Learn all about the mental barriers and the practical barriers.
This post was first published on my Medium blog—follow me there for the most up-to-date entries!