Is Your Business Past Its Sell-by-Date?

Is now the right time to sell? Was it yesterday? Should you wait until tomorrow? Deciding when to sell a business can be one of the complex challenging and stressful decisions an owner can ever make, with almost limitless variables that could come into play. Naturally there are personal and lifestyle considerations, satisfaction of career goals, impact upon employees, clients, and vendors as well as market and selling price objectives.

There is no one right answer or solution to this question. There is, however, a threshold in which a business may fall into an irreversible decline in sale price potential and even salability. The business has passed its sell-by-date. The difficulty lies in recognizing that this situation can creep up ever so slowly without any warning signs, perhaps even over a decade or longer. In fact, often the more successful a business and therefore its enterprising owner, the larger this blind spot may be.

There is an sad maxim in the business brokerage industry, “A business owner is his 70s will more likely ‘die at his desk’ than sell.” What does this mean? In many cases, though not all as Warren Buffett clearly demonstrates, many owners become increasingly less effective in later years. There are three common areas this decline often takes place: marketing drive, technology, and death!

The most obvious is that an older owner simply can not pursue as active a marketing and sales drive as a 35-year old. Putting in 10, 12, even longer days with evening marketing events and socials will tire anyone out eventually. The business relies increasingly upon a core of stable clients and products or services. The old 20% of clients provide 80% of the business becomes 100% of the clients provide 100% of the business. Only now there are 80% fewer clients. Few or no new clients are brought in to replace exiting ones.

Technology is another business killer – if you don’t keep up. Many a business slowly calcifies in services and processes that were once cutting edge, as complacency, lack of re-investment, or plain old stubbornness make a business lose its preeminence. Yet another technology killer is even less obvious – the technology of marketing. How many 70-year olds have you seen using Facebook, Twitter and SEM technology? By not keeping up relevant communication with their clients, it becomes increasing difficult to attract those younger ‘replacement’ clients necessary when older ones leave.

Well, of course death! But not death of the owner, death of the clients. Most people work best with people 10 years younger to 10 years older than themselves. This is everyone’s sweet spot, so a 70-year old may well have lost up to one-half of their most receptive clients. The available need for the company’s product begins to dwindle, leading to staff reductions, reduced service offerings and a downward spiral begins.

The solution? Work with knowledgeable professionals (and maybe even younger ones!) to be sure the edge remains with the company. Stay current with the trends, articles, and research in your industry. Review your business plan and have a valuation done on your business every 3 to 5 years. A valuation compares your business to common standards in the industry. A knowledgeable business broker, CPA, or other professional, because they may be specialists in that particular industry, see dozens of similar firms on a regular basis. They can spot signs of business arthritis, cash flow arteriosclerosis and technology aneurisms. It can happen at any age, not just older owners. Just like milk, there is little one can do once a good business starts to go bad.