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Factset reports that 2017 was tough for middle-market companies looking to sell. In the past year, there was a 10% drop in middle-market deals. Also, the premium paid for these deals fell by 11% from the year before.
Many reasons push a business owner to sell. These include not having diverse products or services and not protecting intellectual property well. Other reasons are having too few customers, issues with key staff, and not planning for the future. Industry trends, challenges, and big projects also play a part.
Key Takeaways
- Middle-market deals have declined about 10% in the last 12 months compared to the prior year.
- Premium paid for middle-market deals decreased by 11% year-over-year.
- Lack of product/service diversification can lead to a business sale.
- Insufficient intellectual property protection can impact the value of a business.
- Concentrated customer base poses risks that may drive a business sale.
Why Owners Decide to Sell Their Business
Running a business is tough, and selling it can be a big decision. Owners have many reasons, from planning for retirement to dealing with health issues. Knowing these reasons helps buyers and sellers in the market.
Common Reasons for Selling a Business
Many owners sell to retire and enjoy the fruits of their labor. Health problems, burnout, and boredom also push them to sell. Disagreements with partners and unprofitable businesses are common reasons too. Some sell because they want to move or due to economic changes.
Advice for Buyers and Sellers Based on Seller's Motivation
- For a seller retiring, the buyer may offer the seller a continued role in the business, often at below-market rates, ensuring a smooth transition.
- For a seller with health problems, the buyer should be sympathetic and trust but verify the owner’s claims.
- For a seller experiencing burnout, the buyer should focus on restructuring the business to avoid the same issue and revitalize the company.
- In cases of an unprofitable business, it’s advisable to sell to someone within the industry who has turnaround experience.
- Relocation-driven sales may require the buyer to assess the feasibility of operating the business in a new location and provide support during the transition.
Understanding why sellers are selling helps buyers offer better deals. This approach leads to successful sales and happy outcomes for everyone.
Lack of Product/Service Diversification
In today’s fast-changing business world, having a variety of products and services is key to success. It helps reduce risks, make income more stable, and protect against market ups and downs.
Many businesses struggle because they rely too much on just a few products or services. This makes them vulnerable to changes in what customers want, shifts in the market, or problems with their supply chain. By looking into product diversification and service diversification, companies can make their income more stable and lower their costs.
- Check if your sales mainly depend on the same factors or market conditions.
- See if the cost of goods sold is mostly due to a few key parts or suppliers.
- Look into if your business heavily depends on certain financing methods or credit terms.
By focusing on these areas, companies can add more vendor diversification and try out different financing methods. This can make your business more resilient and adaptable. It helps you stay ahead in the market and take advantage of new chances.

Diversification is a smart move that can open up new growth paths and give your company a competitive edge. By always checking and updating your products and services, you can make your business more varied and lasting. This will boost your chances of long-term success.
Insufficient Intellectual Property Protection
Protecting your business’s intellectual property (IP) is key to keeping your cash flows safe and staying ahead in the market. Buyers often pay more for businesses that have products or services protected by patents, copyrights, trademarks, or proprietary technology.
Ensuring Future Cash Flows with Patent, Copyright, and Trademark Protection
To boost your business’s value, think about these steps to protect your IP:
- Do a deep check of your products to see what can be protected with patents, copyrights, or trademarks.
- Put money into new projects that could lead to protected offerings, like making innovative products or services.
- Make sure your IP registrations are current and follow the best practices for keeping records.
- Collaborate with skilled legal experts to strengthen the legal shield around your IP assets, ideally 6 to 12 months before selling your business.
By actively protecting your intellectual property, you can secure your business’s future earnings and make it more appealing to potential buyers.
Concentrated Customer Base
When selling a business, buyers look closely at the customer base. A business with a few big customers is riskier than one with many customers. Owners should check how much sales come from their top 5 customers and how long those customers have been loyal. They should also look at how they reach their market.
Risks of Relying on a Few Major Customers
High customer concentration means a few clients make up most of the sales. This is seen as a big risk. It can lead to less bargaining power and lower profits. In some cases, having one client make up a big part of sales can scare off buyers.
Importance of Customer Loyalty and Distribution Channels
To lessen customer concentration risks, focus on building strong customer relationships. Showing growth in sales and loyal customers can raise the business’s value. Also, using more ways to sell and getting new customers helps reduce dependence on a few big clients.

Addressing customer concentration risks can make a company more valuable and appealing to buyers. Working with an M&A advisor can help in spreading out customers, keeping them loyal, and improving sales channels. These steps are key to a successful business sale.
Key Personnel and Succession Planning
When selling a business, buyers really value the leadership team and key staff. Keeping important managers and making a smooth transition are key. Using strong succession planning strategies helps reduce risk and makes selling the business more successful.
Retaining Integral Managers and Leadership
Keeping the management team stable is crucial for buyers. Offering long-term contracts and non-compete deals with key staff shows they’ll stay after the sale. A good succession plan for key roles shows the business’s dedication to stability.
Employee Relations and Staff Transition
Buyers also care about how employees feel and the plans for changing ownership. Good employee relations and a clear staff transition plan make buyers more willing to pay more. Showing a focus on business continuity and caring for the workforce boosts the business’s value.
Keeping key personnel and planning for the future are key to a successful sale. By focusing on management stability, employee relations, and staff transition, sellers can make their business more attractive. This increases the chances of a good sale outcome.
Factors Leading To a Business Sale
When thinking about selling a business, owners need to be ready to talk about key trends, challenges, and chances in the industry. They should also be open about big plans for spending and any debts or benefits not shown in the financial records yet.
Industry Trends, Challenges, and Opportunities
Sharing insights on the current state of the industry helps buyers understand the business’s strengths and where it can grow. Owners should talk about industry trends, like market growth or new tech, that could affect the company. They should also mention industry challenges, like new laws or supply chain issues, to show they can handle them.
It’s also good to point out industry opportunities the business is set to grab. This could be new products, entering new markets, or finding new customers. This shows the company’s potential for growth and attracts buyers.
Major Initiatives and Capital Expenditure Plans
Owners should be ready to share about big plans for the business, like spending on new tech or upgrading facilities. These plans can help buyers see where the company is headed and what it might cost.
It’s also important to be clear about any business liabilities or pending benefits not in the financial reports. Being open about this can help build trust with buyers and make their decision-making easier.
Building Perceived Value for Buyers
In today’s market, what buyers think is worth the price is key to their choices. They look for what makes one company or product stand out. If they don’t see a big difference, they often pick based on price alone. This leads to a tough fight over who can offer the best deal.
Businesses need to make a strong case for why their products or services are worth more. The success of quartz countertops shows that buyers are ready to pay more if they see the value. This means companies must show how their offerings are special and valuable.
Understanding the Role of Value in Purchasing Decisions
Research shows that Americans might pay up to 50% more if they feel a product or service is better. When buyers look at what makes one product or service better than another, they think about several things. These include:
- Quality of materials and workmanship
- Timeliness and professionalism of service
- Warranty and brand trust
- Connection with the company
- Potential risks and benefits
By making it clear what makes your company different, you help customers see the real value in what you offer. This makes it easier for them to make smart choices.
Differentiating Your Offering
In today’s competitive world, it’s key for companies to make their products stand out. Buyers look at several things, like the quality of materials and work, how fast and professional the service is, warranty, company strength, trusted brands, and risks. Sales pros need to show how their products are better in these areas.
Key Areas of Value Differentiation
To be noticed, businesses should focus on these main areas:
- Quality of Materials and Workmanship: Talk about the top-notch quality and craftsmanship of your products. Show how you use the best materials and pay attention to every detail in making them.
- Timeliness and Professionalism of Service: Show how you offer quick and professional service. Make sure customers get the help they need right away.
- Warranty and Risk Mitigation: Emphasize the strong warranty and ways to reduce risks your company offers. This gives customers the confidence they want.
- Company Strength and Integrity: Use your company’s good name, financial health, and honest business ways to show you’re trustworthy and reliable.
- Trusted Brands: If your company carries well-known brands, use this to your benefit. Talk about the value and trust these brands add.
By focusing on these areas, businesses can be different from others. They can meet the needs and likes of careful buyers.
Conclusion
Selling a business can be influenced by many things, like not having different products or losing key staff, and changes in the industry. The main thing that makes a buyer want to buy is how much they think the business is worth. Businesses need to stand out and make a strong case for why they’re a good buy.
Knowing what buyers look for, like a good sales plan, why the owner is selling, and what makes the business special, helps owners get ready to sell. This way, they can increase their chances of selling for a good price.
Business owners face challenges like having too many customers, protecting their ideas, and planning for the future. They need to work on these issues to make their business ready for sale. By making their business seem more valuable, they can make a sale easier and ensure a smooth handover to new owners.
FAQ
What factors can lead to a business sale?
Selling a business can happen for many reasons. These include not having diverse products or services, not protecting intellectual property well, having too few customers, and issues with key staff and planning for the future. Industry trends, challenges, and big projects also play a part.
What are common reasons for selling a business?
People sell businesses for many reasons. These include wanting to retire, health issues, feeling burnt out, or bored. Other reasons are disagreements with partners or family, the business not making money, moving, or economic changes.
What advice should buyers and sellers consider based on the seller’s motivation?
If a seller is retiring, buyers might offer the seller a role in the new ownership. For sellers with health problems, buyers should be careful but trust the seller. If a seller is burnt out, buyers should look at ways to change the business to prevent this in the future.
How can lack of product/service diversification impact a business sale?
Owners should check if all sales come from the same sources. They should look at if the business depends on a few key parts or suppliers. Also, if it’s too reliant on certain credit conditions.
They can work on adding new products, finding other suppliers, and changing how they finance their business. This makes the income more stable and reliable.
How can insufficient intellectual property protection affect a business sale?
Businesses need to see if they can protect what they offer. They might invest in new projects that can be protected. This can make the business more valuable to buyers.
Buyers often pay more if they think the business will make more money in the future. Products and services protected by patents, copyrights, trademarks, or proprietary technology can ensure higher earnings.
How can a concentrated customer base impact a business sale?
Buyers look at how diverse a company’s customers are. A business that depends too much on a few big customers is riskier. Owners should look at how much sales come from the top 5 customers and how long those customers have been buying.
They should also check how customers buy their products. Making the customer base more diverse, keeping customers loyal, and using more ways to sell can lower risk and increase the business’s value.
How do key personnel and succession planning issues affect a business sale?
Businesses need a plan to keep key managers, like through contracts and non-compete agreements. Having a long-term plan for replacing important staff can make buyers feel safer. Also, how well employees get along and plans for staff during a change in ownership matter to buyers.
How can industry trends, challenges, and major initiatives impact a business sale?
Owners should be ready to talk about trends, challenges, and chances in their industry. They should also share any big plans or costs for the business. This includes any future debts or benefits not yet shown in the books.
These details might not directly affect a buyer’s choice, but being open and giving good answers can make selling easier.
How does perceived value influence purchasing decisions?
Value is key in deciding to buy something. Buyers look for what makes one company or product stand out. If they don’t see big differences, they often choose based on price.
To beat price competition, businesses need a strong value message. This shows why their unique offering matters to the buyer.
What are the key areas of value differentiation for a business?
Buyers look at several areas to see the value of a business. These include the quality of what’s made and sold, how fast and well it’s done, warranties, the company’s trustworthiness, strong brands, and any risks or issues. Sales experts must show how the company is better than others in these areas.