Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / Why Most Businesses Don't Sell and What Scares Buyers Away
Transcript
- Lucas: Sixty-two percent of small businesses that go to market never close. That is not my estimate. That is the 2025 data from the International Business Brokers Association. Luna: That is brutal. So nearly two out of three listings just die on the vine? Lucas: Exactly. And if you are a business owner thinking about an exit, that number should scare you enough to prepare properly. Because the reasons these deals fall apart are incredibly predictable. Luna: Alright, let's hear them. What kills the deal more often than anything? Lucas: Number one, by a wide margin: valuation disconnect. The seller thinks their business is worth two times what a buyer is willing to pay. And I am not talking about a ten percent gap. I mean a genuine chasm. Luna: Where does that come from? Are they just reading some online multiple table and picking the high end? Lucas: Sometimes. But more often it is because the seller has been running their business for twenty years and they have conflated their personal sweat equity with market value. They say things like, 'I haven't taken a salary in three years, so add that back to profit.' And sure, you can adjust for that, but buyers are not going to pay a premium for the owner's martyrdom. Luna: So the seller is pricing in effort that disappears the day they leave. Lucas: Exactly. And here is where it gets concrete. I worked with a manufacturing company in Ohio last year. They had revenue around eight million, and the owner was convinced it was worth four million dollars. A buyer came in, did the diligence, and said, 'Your owner-adjusted EBITDA is inflated by twenty-eight percent.' The owner was including personal expenses, a car lease, his son's salary who did not actually work there. The buyer walked. That deal was dead before the letter of intent expired. Luna: Twenty-eight percent is huge. That is not a rounding error. So what is the second deal-killer? Lucas: Incomplete or messy financial records. I am not talking about fraud. I mean the books are just sloppy. Expenses are categorized inconsistently, revenue recognition is not standardised, there is no clean P&L by month going back three years. Luna: And the buyer cannot underwrite that risk, right? They have no idea what they are actually buying. Lucas: Correct. A buyer's lender or their own accountant will flag that immediately. And if the buyer is using debt to finance the purchase, the bank will demand clean auditable records. If you cannot produce them, the financing falls apart, and the deal collapses. Luna: So if you are a seller, you need to fix the books before you even talk to a broker. Lucas: Absolutely. And that is the number one piece of advice I give: clean up your financials at least six months before you plan to list. Ideally hire a CPA who understands transaction accounting, not just tax preparation. Luna: What is the third one? Lucas: Cultural mismatch between buyer and seller. This is the one people underestimate because it feels soft. But I have seen it kill a deal at the very last minute. Luna: Give me a concrete example. Lucas: There was a family-run printing business in the Pacific Northwest. The owner was in his late sixties, ran the place like a country club. Everyone knew each other, there were barbecues on Fridays, flexible hours. A larger commercial printing chain came in with an offer. The valuation was fine. The financials were clean. The deal got all the way to the asset purchase agreement. Luna: And then? Lucas: The buyer walked into the shop for a final walkthrough and saw the production manager wearing shorts and flip-flops. They asked about vacation policy. The seller said, 'We don't really have one, people come and go.' The buyer's CEO told me later, 'I cannot run a business that requires me to change the entire culture overnight. That is not a business, that is a hobby with revenue.' Luna: Wow. So it was the lack of structure that scared them away, not the numbers. Lucas: Exactly. And that is a pattern. Buyers, especially strategic buyers, are buying a system that they can operate or integrate. If the system is dependent on the owner's personality, it is risky. If the culture is incompatible with the buyer's business, it is a non-starter. Luna: So what should a seller do to avoid that? They cannot fake a culture. Lucas: You can document it. Create an employee handbook. Formalize the processes. Show that there is a repeatable way of doing things, even if it is informal. The buyer needs to see that the business can run without the founder's daily presence. Luna: That is basically making the business 'deal-ready.' We hear that term a lot. What does it actually entail? Lucas: Deal readiness means you have prepared your business for sale as if it were a product itself. You have cleaned up the financials, you have documented your operations, you have removed personal expenses from the P&L, you have a realistic valuation based on comparable transactions, and you have a plan for the transition period. Luna: And how long does that typically take? Lucas: For a well-run business, three to six months. For a business that has been neglected operationally, twelve to eighteen months. And that is why so many listings fail: the owner decides on a Tuesday that they want to sell, and they expect to be closed by Friday. Luna: Speaking of timing, what about the earn-out structure? That seems like a way to bridge valuation gaps. Does that actually work? Lucas: It can, but it is a double-edged sword. An earn-out ties part of the purchase price to future performance. So if the seller says, 'My business is worth four million,' and the buyer says, 'I see two million,' they might agree on three million with a one million earn-out based on hitting revenue targets in year two. Luna: That sounds like a compromise. Lucas: It is. But the seller has to stay involved, often in an operational role, to hit those targets. That can be great if the seller wants a phased exit. It can be terrible if the seller wants to walk away and play golf. I have seen earn-outs turn into bitter legal disputes because the buyer changed the sales strategy and the seller missed the target through no fault of their own. Luna: So if you are a seller, you need to be really careful about how the earn-out is defined. Lucas: Yes. And you need a lawyer who specializes in M&A, not your cousin who does real estate closings. The earn-out language is probably the most litigated part of a private sale. Luna: Let's go back to that sixty-two percent failure rate. Is there a single red flag that sophisticated buyers spot immediately? Lucas: There is one, and it is almost invisible to the seller. When a buyer walks into the business, they look at the physical workspace. If the place is cluttered, if the filing system is a mess, if the owner's desk looks like a disaster zone—that tells the buyer that the business processes are equally disorganized. I have had buyers walk out within five minutes of arriving. Luna: So the first impression is the books, the second is the floor. Lucas: Exactly. And here is the thing: a buyer is making the biggest financial decision of their life. They are looking for reasons to say no. Do not hand them one on a silver platter. Luna: Alright, so if I am a business owner listening right now, what are the three things I should do today to increase my chances of a successful sale? Lucas: First, get a professional valuation from a qualified business appraiser. Not a broker's opinion, not a rule of thumb. A real valuation. Second, hire a CPA to clean up your financials and prepare at least three years of audited or reviewed statements. Third, document your operations. Write down every key process. Show that the business can run without you. Luna: That is a solid checklist. Lucas, what is the one thing that surprises sellers most about the process? Lucas: How long it takes. From listing to closing, the average small business sale takes nine to twelve months. And that is for a clean deal. If there are hiccups, it can stretch to eighteen months. Sellers who are not mentally prepared for that timeline often accept a lower price just to get it done. Luna: So patience is a negotiating tool. Lucas: Patience and preparation. The sellers who do best are the ones who treat the sale process as a project. They have a checklist, a team of advisors, and a realistic timeline. And they do not let emotion drive their decisions. Luna: Thanks, Lucas. That was a really practical look at why deals die and how to keep yours alive. Lucas: Always a pleasure. If you are a buyer, the same rules apply in reverse. Know what you are walking into.