Why Does It Take So Long to Sell a Business?
“THE LAG EFFECT”
I first heard the phrase ‘the lag effect’ from a colleague that I work closely with (Ian Haggerty). I will get to what it means soon, but for now, I would just like to mention how I feel the market is going in terms of business sales. Speaking for myself personally it has been very busy – a good thing right? I’m realising there is a very good opportunity for professionals such as; Accountants, Solicitors, Business Brokers, Financiers and business Buyers as the last of the “Baby Boomer Generation” start planning their exit strategy from their business now and over the next 5 years.
I’ve been a broker for over twelve years now and I’ve never seen the timeline for business settlements take so long, Banks seem to be requesting more information than ever and their decision to approve a buyer is also taking longer. In some instances the Due Diligence process with Accountants is slowly creeping out from 21 days to (some instances) 90 days, with an exclusivity request attached to it. Finance Brokers and Business Brokers are stuck in the middle of the process and as communicators / (“the pivot”) for both parties (Buyer & Seller) it is our role to keep all parties informed, focused and moving forward to the settlement date.
There is an abundance of businesses for sale within Australia right now – approximately 42,000. Many Sellers believe their business is going to be bought by some rich migrant. The truth is that less than 3% of all businesses sold in Australia are sold to migrants. You have to understand that a migrant has so many hoops to get through.
So, what is “the lag effect”
We can’t be certain why Lawyers, Accountants, Banks etc. are sooooooo slow these days with their decision making, it may be they are just busy, or short staffed. What about “greed” I hear you say? This is interesting, recently I’ve been experiencing Seller’s (and I say it straight) who are just greedy! They have this “blue sky” figure in their head with no supporting evidence of similar businesses selling for the price that they want to achieve.
Recently my colleague and I had a client who wanted $8 million for their business, we analysed the numbers, applied a methodology on the profit, and agreed with our clients we could achieve the number $8m. Cutting to the chase, we brokered a deal worth $12.6 million for our clients, you can imagine, everyone was happy until our clients decided they didn’t want to sell the business!
The absolute best time that you can sell your business, is when you’re up their “flying high” and making plenty of money, why?
- Your selling on your own terms
- There is no pressure on you
- You achieve a premium price for your business sale
- Satisfaction knowing you handed over a quality business
So now that I have identified the “lag effect” causes. I will address the remedy for this phenomenon.
Next time… stay tuned!
If you would like a business appraisal or would like to know how much your business is worth, contact Award Winning Broker, Ian Salter on 0433 563 585 or email@example.com.