Why Your Business Is Unsellable (And How to Fix It)

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Is your business actually ready for a successful exit, or are you sitting on hidden deal breakers that will scare buyers away? Every small business is sellable when done the right way, but missing these critical steps during preparation will land your company straight into the garbage pile. In this video, a Quiet Light advisor breaks down the top 5 deal breakers that kill transactions for small businesses and e-commerce brands, from messy financial statements to uncounted inventory, and exactly how you can fix them starting today.  

CHAPTERS

00:00 Is Your Small Business Actually Sellable?

00:24 Deal Breaker 1: Messy Financials & Lack of Software

00:59 Deal Breaker 2: Uncounted & Hidden Inventory

01:38 Deal Breaker 3: Intermingling Personal Expenses

02:18 Deal Breaker 4: Unrealistic Valuation Expectations

03:02 Deal Breaker 5: Overvaluing Patents without Sales

03:48 Product vs. True Functioning Business

04:11 The TTM Rule: No Cash Flow, No Valuation

04:45 How to Fix Your Deal Breakers Today

TRANSCRIPT

00:00 Is Your Small Business Actually Sellable?

Every business is sellable when done the right way, but there are a few things that truly are deal breakers, and I want to share those with you and how you can overcome those so that yours doesn’t fall into the garbage pile. There are so many deal breakers when it comes to selling a small business. I deal with a lot of very small businesses. We’re talking businesses under $100,000 at times. 

00:24 Deal Breaker 1: Messy Financials &Lack of Software

So, the first deal breaker I would say is not having clean financials. A lot of entrepreneurs are small business owners without a finance background. So, when I say, “Hey, can you send me 3 years of financials?” they say, “No, I have bank statements.” Or they say, “Can you just dig into my Amazon account and build it yourself?” At Quiet Light, we’re happy to help build your financials. We’re happy to assist you with your financials. My recommendation, though, is to go get an accounting software, hire an e-commerce specialized accountant, or a software specialized accountant to run your books, and then you have 3 years of solid financials to get back to us. 

00:59 Deal Breaker 2: Uncounted & Hidden Inventory

Another deal breaker I see often is how much inventory do you have? I hear people say, “I don’t know, it’s in a storage unit.” Or “I don’t know, it’s in my basement. I haven’t counted it for 3 years.” We really can’t tell you the value of your business or sell your business until you have >> [music] >> confidence in your level of inventory. So, I always recommend if you want to sell your business, go to a full count of all your inventory, log it into an Excel spreadsheet. The clearer the data is, the more confidence that’s going to give to a buyer during due diligence. 

01:38 Deal Breaker 3: Intermingling Personal Expenses

Another deal breaker is intermingling way too many personal expenses or other business ventures into your financial statements. So, I recently talked to a business owner that had two businesses flowing into one bank account, one set of financial transactions, and they wanted me to try to sell one piece of their business. It’s very common to sell only one portion of a business or one LLC within a parent company, but you do need to make sure to segregate all your financials and separate the business models. So, my recommendation is if you’re getting ready to sell one portion of your business, clean it up starting today. Try to get separate bank accounts, separate out the financials so that you’re ready to go. 

02:18 Deal Breaker 4: Unrealistic Valuation Expectations

Another really big deal breaker for us at Quiet Light is when sellers have very unrealistic expectations of what the value of their business is. Unfortunately, as Quiet Light advisors or as you as the owner, we don’t really get to pick what the valuation truly is. A business is worth what a buyer is willing to pay for it. Sometimes the difference in opinion is too great and we’re not able to come to a middle ground consensus on what to list your business for. So, my recommendation is remember that every business is worth what a buyer is willing to pay for it. Come in [music] with reasonable expectations. We will help guide the process to make sure you pick the number that maximizes your value, but is also a realistic and reasonable number that we know a buyer would actually pay. 

03:02 Deal Breaker 5: Overvaluing Patents Without Sales

So, another challenging deal breaker for us at Quiet Light is when somebody comes to us with maybe a patent or some intellectual property that’s way overvalued for what a buyer would actually pay. So, I recently was talking to an entrepreneur that had filed for a patent, had invested time and money over many years with an innovation lab, spent over $150,000 developing a product. They want to sell that product and their business for at least that amount to recoup the cost. The problem is there’s no revenue being generated, there’s no profits, there’s no proof that there’s even demand for this patent. So, we can definitely help sell patents, we do it all the time, but it is very helpful to have reasonable expectations on what the patent is worth, and it’s even better if you can get some proof of concept, get some sales rolling, get some cash flow in the door to prove to a buyer that your patent actually does have some value. 

03:48 Product vs. True Functioning Business

So, there is really a big difference between a stand-alone patent or an individual product and a true functioning business. So, my recommendation is build a business around your product or your patent so that it has real value that a buyer will pay for. So, another deal breaker is not having cash flow to support your valuation. We have businesses come to us all the time that say, “Hey, I’ve generated $300,000 of revenue in the last year.” Or, “My business has done 5 million in sales in the last 10 years.” 

04:11 The TTM Rule: No Cash Flow, No Valuation

Those numbers are great, but what was the profit in the last 12 months? The large majority of your valuation is going to be based on the last 12 months. So, if you don’t have profits, it’s going to be hard to justify any kind of evaluation. So, in that situation, you would want to get some marketing going, get your sales going back up into the right. You want to have some profit in the last 12 months. It doesn’t really matter much what you’ve done in the past. If your business is significantly declining, it’s going to make a sale much harder. And we can help guide that process and tell you what your business is worth today and what it would be worth in the future if you can get it back to where it was in [music] the past. 

04:45 How to Fix Your Deal Breakers Today

So, if you want to learn a little bit more about how to turn these deal breakers into a sellable business, click the link below and we are happy to get in touch with you and do a phone call, walk you through how you can turn your business around, generate maximum value, whether that’s now or maybe if it’s 6 months or 1 year into the future.