Why Up to 80% of Businesses Never Sell—and What Owners Can Fix

By Daniel Okafor

Up to 80% of businesses on the market never sell, according to the Exit Planning Institute’s latest report. An unnamed Entrepreneur contributor links failed exits to three preparation errors: unrealistic assumptions, neglected fundamentals and a sales narrative that buyers cannot verify.

Why do unrealistic expectations stall sales?

An Entrepreneur contributor says owners often attach an emotional price to a company they have spent years building. In the contributor’s example, one owner sought $1 million, rejected a valuation at a fraction of that amount and preferred closure to a lower offer.

The emotional value carries little weight in the valuation process, according to the contributor, because buyers do not pay for an owner’s sacrifice. The contributor recommends a broker or professional exit advisor who can assess operations objectively and show the owner how the estimate was built.

What makes a business hard to buy?

The contributor recounts a retailer with multimillion-dollar revenue from two locations and zero dollars of profit. The account shows why revenue cannot substitute for profit: high overhead left the owner unable to find a buyer.

The contributor’s financial review found duplicate and unnecessary costs, including two advertising professionals on staff while an outside agency also handled advertising, and a pricing structure the owner had never raised.

After reducing overhead, the retailer returned to market in about five months and sold at a profit, according to the contributor. The contributor declined to disclose the price but called it a large increase from a business that had produced no profit.

How should owners prove recurring revenue?

The contributor says buyers in a risky world favor stable businesses, predictable cash flow from recurring revenue and a solid management team that can keep operations running after the owner leaves. Large but unpredictable infusions offer less assurance, according to the contributor.

That evidence should appear in financial statements, cash-flow comparisons, customer lists, inventory reports and other documentation, according to the contributor. The contributor says the owner must let a buyer follow the company’s financial story rather than simply assert its quality.

One client told the contributor: “We have all these government contracts and recurring revenue bases, so we should be worth more.” The valuation reflected those assets, the contributor said, but the client needed proof that was easy to follow.

The contributor asks whether contracts demonstrate reliable long-term income and whether reports show recurring revenue rising steadily over the last two years and its future value.

What should owners fix before another market attempt?

The contributor says owners should inspect the business through a buyer’s or outside adviser’s eyes because an asset that feels unique may look ordinary to another party. That review can expose weaknesses that end buyer interest, according to the contributor.

The contributor also separates two objectives: producing steady income for the owner and building a transferable asset. An owner running for income can tolerate different priorities from an owner preparing the business for transfer, according to the contributor.

The contributor says personal expenses may run through a company during operations but do not fit the exit case. Before another market attempt, the contributor’s checklist is:

• Commission an objective valuation from a broker or exit advisor, and require the adviser to show the assumptions behind the number.
• Cut unnecessary overhead, remove duplicate costs and revisit pricing; the contributor’s retailer sold at a profit after doing so.
• Separate the sale file from owner spending and keep records clean enough for an outside reader to follow.
• Show contracts for reliable long-term income, recurring-revenue reports and evidence of steady growth over the last two years.
• Document the management team that can maintain operations after the owner departs.

The contributor says it is almost never too late to fix the problems behind a stalled sale and start attracting serious buyers again. For the next market test, serious buyers will focus on documented cash flow, controlled overhead and a management team that can continue after the owner leaves, according to the contributor.