Here’s a statistic that might surprise you: between 70 to 80% of businesses listed for sale will never sell.
This may be shocking, considering how many businesses are listed and how many times as a buyer you have likely experienced being outbid by a number of other buyers.
That said, as a broker who has participated in over 100 transactions, my own and others’, I can tell you that my experience supports this statistic – it’s not an unreasonable number. Even research done by the State of Owner Readiness at the Exit Planning Institute (EPI), which measures business attractiveness and owner readiness, backs up this statistic.
Over the years, I’ve seen firsthand why businesses don’t sell, but I’ve also learned how to navigate these obstacles to close the right deal.
Today, I’m going to walk you through the top five reasons why businesses fail to sell and how you can overcome them.
#1 Lack of Preparedness
The number one reason businesses fail to sell is a lack of preparedness.
Specifically, business brokers and owners often don’t invest the time to put together a thorough Confidential Information Memorandum (CIM), a document that provides potential buyers an overview of the company.
According to Axial, a strong CIM should provide the following information:
- Executive Summary
- Company History
- Sales Process and/or Manufacturing Capabilities
- Management Team Structure
- Growth Opportunities
- Competitive Landscape or Industry Outlook
- Intellectual Property Overview and/or Company Assets
- High-Level Financials (3+ years preferably)
If brokers skip this step or sellers rush the process, buyers will uncover these issues later, and by then, it could derail the deal.
Source: Software Equity Group
I recently worked with a seller who kept asking me when we were going to market. My answer was always, “Not yet. There’s work to do.” And there was – a lot of it. We spent weeks compiling financials, conducting client interviews, and researching the industry. Only after everything was ready could we launch.
At the Acquisition Lab, we frequently see buyers reviewing CIMs only to find glaring omissions. For example, imagine opening a package that includes financials for 2021, 2022, and 2024 – but nothing for 2023. It’s like asking someone to make an offer on a house without letting them see the living room or dining room. It just doesn’t make sense.
Taking the time to prepare isn’t optional – it’s directly tied to whether or not a business can sell and for how much.
Mark Daoust, founder of Quiet Light Brokerage conducted internal research to evaluate the difference between well-prepared and poorly prepared CIMs. What were the results? Turns out, there was a strong correlation between the quality of the CIM and the purchase price achieved in the market.
This lack of preparedness isn’t just an oversight – it’s a systemic issue.
M&A advisors often dedicate comparatively little time to the preparation phase of the deal process, focusing the majority of their efforts on managing buyer interactions and navigating due diligence and deal execution. It’s clear that inadequate time and effort at the start of the process can have major repercussions later.
As Abraham Lincoln famously said, “Give me six hours to cut down a tree, and I’ll spend the first four sharpening the axe.”
The same principle applies here. A poorly prepared CIM reflects poorly on the business and the broker. Buyers need clear, comprehensive information to assess the risks and opportunities quickly. Without it, the chances of a successful sale drop dramatically.
As much as I love and respect my fellow brokers, the reality is that the market is unregulated, and the quality of work varies widely. A lack of preparedness in creating a CIM is one of the biggest reasons businesses fail to sell – and it’s something we can and must do better.
If you find yourself in a position to sell your business, keep this tip in mind and take the time and effort required to produce a strong CIM – your bank account will thank you for it.
#2 Overvaluation
Overvaluation is one of the biggest reasons businesses fail to sell.
Valuation is a nuanced process, and determining whether a business is overvalued requires understanding a variety of factors.
While there are objective financial metrics – such as historical or projected earnings and whether the business generates sufficient cash flow – valuation is ultimately relative.
Think of it this way: the value of a business isn’t fixed; it exists on a spectrum, much like a bell curve.
On one end, you might find a business selling for 2X earnings, while on the other, a business could command 4.5X. Both valuations can be valid, depending on specific details such as whether the sale includes inventory, real estate, or other assets.
Here’s where sellers often go wrong: they base their expectations on stories they’ve heard. Maybe they know someone who sold their business at a high multiple and assume theirs warrants the same price. But they overlook the glaring fact that their business may or may not have the same characteristics the other business did to justify that premium valuation.
To make matters worse, some brokers exacerbate the problem by promising inflated purchase prices to win listings.
Imagine if you were selling your house: one real estate agent estimates it will sell for 2X, while another says 4.5X. Which one would you choose? It’s tempting to go with the higher number, even if it’s unrealistic.
The problem is, when a business is overvalued, it prices itself out of the market and effectively alienates the buyer pool. Buyers compare it to other opportunities and walk away when the asking price doesn’t align with the fundamentals.
That said, not every high asking price indicates a mistake. In some cases, a business may truly warrant a premium valuation.
The best search fund investors often say, “Find the single best business you can buy – and be prepared to pay a lot for it.” Exceptional businesses with desirable qualities can command higher multiples and still attract serious buyers.
Ultimately, overvaluation creates a gap between the market’s perception of a business’s worth and its listing price. This disconnect is a major reason businesses fail to sell. Sellers and brokers alike must understand the nuances of valuation and ensure the asking price aligns with the business’s actual performance and market potential.
#3 Poor Financials
One of the simplest yet most overlooked ways to improve your chances of selling a business is to clean up the financials. Unfortunately, many small business owners don’t make this a priority, and it costs them.
Let me start with an example of what not to do, by sharing what I did right.
When I owned my first business, a book printing company, I invested $12,000 to $15,000 every year in having my financials professionally reviewed by a CPA firm. Why? Because I always wanted to be ready to sell.
Our books were so clean that when it came time to sell, no one even asked to see the reviewed statements. They didn’t need to. The internal records spoke for themselves, and buyers trusted the numbers at face value.
Unfortunately, this level of preparation isn’t the norm. I’ve seen it all – P&Ls kept in Excel spreadsheets, inconsistent bookkeeping, and even claims of unreported cash revenue (pro tip: don’t pay for that). These types of financial practices raise red flags for buyers.
Source: Financial Optics
Buyers are looking for stable, reliable numbers they can trust. Poor financials or sloppy reporting can be deal killers, especially in the small business category, where natural fluctuations and risks already exist. Volatile performance, customer concentration, or incomplete records make it nearly impossible for buyers to assess the true value of a business.
If you’re serious about selling, investing in clean, accurate, and professionally reviewed financial records is a must. Clean financials give buyers confidence and significantly increase the likelihood of closing a deal. Without them, you risk leaving your business unsold.
Here’s the bottom line: How you do anything is how you do everything. Poor financials send the message that the business isn’t being run with rigor or professionalism.
But when you show up with clean, well-maintained books, you’re signaling to buyers that you’re running a business worth investing in.
Don’t let something as preventable as messy financials sabotage your chances of selling. Get it right, and you’ll be ready when the right buyer comes along.
#4 Niche or Risky Industries
Another factor that can hinder a business sale is a company that operates in a niche or risky industry.
Some industries naturally attract buyers, while others in niche or risky industries carry risks that can make selling a challenge.
Let me share two contrasting examples to illustrate this.
First, let’s talk about a coffee paraphernalia business I recently sold. This was a high-end brand, and coffee is an immensely popular segment – something like 70% of the world drinks coffee daily. I knew this listing would generate a lot of interest, almost like a blockbuster movie. Because of its popularity, it attracted significant attention and sold quickly, even at a premium.
Now, contrast that with a business I evaluated in a much riskier niche: a LinkedIn software company that operated against LinkedIn’s terms of service. While the business generated solid revenue, its entire existence hinged on LinkedIn not enforcing its rules. If LinkedIn decided to shut it down, it could happen overnight, leaving the buyer with nothing.
When I spoke with the owners, I was honest with them: despite their impressive performance, the inherent risk in their business meant the valuation would be lower. Buyers would demand a steep discount to compensate for the possibility of the business being shut down. In this case, I estimated it could sell for maybe 2X earnings at best, but it certainly wouldn’t be a popular listing.
Here’s the key takeaway: industry plays a pivotal role in a business’s marketability. Popular industries, like coffee, can command premium prices – even for average-performing businesses – because buyers see them as safe, attractive opportunities.
Source: Grand View Research
In contrast, risky or niche businesses often deter buyers or require discounted pricing to account for the elevated risks.
For businesses that do operate in risky or niche industries, transparency is especially important.
Buyers need to know exactly what they’re stepping into, and it’s up to the seller to disclose those risks upfront.
If you’re a seller in this position, bear this in mind as you’re setting expectations for what your business will sell for and how you can position your business for a successful sale. Although all industries aren’t created equal, with the right preparation and strategy, even businesses in challenging segments can find the right buyer.
#5 Market Conditions
The final reason businesses fail to sell often comes down to market conditions, which can be influenced by both macro and micro factors. These external forces can make or break a deal, no matter how well-prepared the seller or buyer might be.
Macro conditions are the big-picture factors that impact the entire market. I experienced this firsthand when COVID hit. I had several deals under contract, and suddenly everything came to a standstill. Banks froze, operations shut down, and buyers got cold feet. While a few deals eventually closed, the uncertainty during that period disrupted nearly every transaction during that time.
Events like economic downturns, political upheavals, or even international conflicts can create turbulence that stalls deals. When the market is unstable, buyers tend to hold back, leaving even well-prepared businesses unsold.
Source: GeeksforGeeks
Micro conditions, on the other hand, are more specific to the individual deal. Imagine you’re under LOI with a business, and during the 90-day closing window, the company’s financial performance dips. If it’s a small fluctuation – say 10% – it’s usually not a big deal. As a buyer, I’d still move forward because I understand that no business grows in a straight line forever.
But when the dip is more significant, or the reasons behind it are unclear, things can quickly fall apart. First-time buyers – who are often the ones acquiring businesses under $5 million – are especially prone to getting spooked. They don’t have the benefit of years of experience running the business, so if they sense that something is off, or worse, suspect the seller isn’t being transparent, they’ll back out.
Interestingly, the opposite scenario can also derail a deal. If a business performs exceptionally well during the LOI period, buyers might rush to close, thinking, “Once I own this, all that growth is mine!” But short-term spikes in performance aren’t always indicative of long-term results. A strong month in June doesn’t guarantee the same success next February.
In fact, every business I’ve acquired, 10 so far, saw lower revenue in the first 12 months after I bought it compared to the year before. It wasn’t because I lacked the skills to run them – it’s just the reality of transitioning ownership and stabilizing operations. These businesses aren’t passive investments; they require full engagement and hands-on leadership to succeed.
The key takeaway? Whether it’s a global crisis or a momentary financial dip, market conditions matter. Sellers must stay transparent, address concerns head-on, and be prepared to navigate uncertainty. Buyers, on the other hand, need to approach deals with a clear understanding of both short-term fluctuations and long-term potential.
Market conditions may be unpredictable, but with the right mindset and strategy, you can adapt and succeed, no matter what comes your way.
Turn Preparation into Success
Don’t be deterred by the statistics. Selling a business isn’t easy, but it’s far from impossible.
As a seller, success comes down to preparation, realistic expectations, and working with the right advisors. Take the time to create a thorough CIM, maintain clean financial records, understand your industry’s position, and be upfront about any risks. These steps don’t just increase your chances of closing a deal – they position your business to attract the right buyer at the right price.
For buyers, look beyond surface-level challenges and evaluate the fundamentals. Don’t let high asking prices or initial hurdles deter you. Instead, focus on understanding the business, assessing its risks, and recognizing when it truly offers exceptional value. As the best investors often say, “Find the best business you can, and be prepared to pay for it.”
Whether you’re buying or selling, success in acquisitions is ultimately about preparation, strategy, and action. Done right, the rewards are transformative – not just financially, but in the lives you impact. With the right approach, you can turn opportunity into legacy.
If you’re ready to acquire a business in the next 12 months, the Acquisition Lab is your first stop. Reach out to us today and get on the fast track to becoming an acquisition entrepreneur.
