Lack of preparation to blame for collapse of 81% of SME business sales
According to a survey published today (5th February) by James Caan’s finance business, Bluebox Corporate Finance, 81% of SME business owners tried and failed to sell their businesses in H2 2013 with 83% citing lack of preparation as a major contributing factor.
The “UK Business Sale Survey” questioned over 100 UK SME’s across a multiple sectors including business services, financial services, healthcare, retail and technology. Preliminary results revealed a ‘failure rate’ which is alarmingly high for UK business disposals in the SME market.
Key highlights include:
• 81% of business owners had failed when trying to sell their business
• 83% of business owners felt they lacked preparation prior to sale
• 31% of business owners found the levels of due diligence required to be much greater than anticipated: and
• 38% of business owners cited an ‘unsolicited approach’ as the catalyst for beginning the sales process
Most business owners lacked preparation
The need for pre-sale planning well in advance of a business sale was highlighted by the survey, with an astounding 83% of business owners admitting that they ‘should have’ been better prepared. The fact that 31% of respondents admitted to not having prepared at all for due diligence further backs the findings.
Unsolicited approach preparation
In 38% of cases business owners claimed an ‘unsolicited approach’ was the driving force behind marketing their business, which highlights the need for pre-sale planning regardless of whether or not a sale is being formally contemplated. Unsurprisingly, these cases experienced the highest rate of collapsed deals as a result of lack of preparation.
Value creation versus preparing for due diligence
‘Preparing for due diligence’ was identified by the majority of business owners as a key driver for pre-sale planning, something Bluebox disputes. The corporate finance experts advocate that the most important reason for pre-sale planning is to fully prepare a business so it is properly ‘positioned’ for exit and that any ‘growth opportunities’ (on the assumption that buyers are paying tomorrow’s value today) are articulated in such a way so as to enhance the ultimate price at which a business is sold.
Due diligence need not be a difficult, drawn-out, but 31% of SME’s surveyed fond the process much more extensive than anticipated. The process of selling a business undoubtedly requires due diligence so planning for this well in advance of making the decision to sell greatly improves the chance of a successful sale.
Positive change for 2014
Commenting on the findings of the survey, Paul Herman, Group CEO of Bluebox Corporate Finance said: “Having reviewed the results of the business sale survey, our team was not surprised to have our suspicions confirmed that over 8 out of 10 businesses ‘taken to market’ fail to sell. This provides us with clear evidence that there is a very real need for pre-sale planning in the UK SME community. This survey provides solid evidence of what we have been preaching that a ‘lack of planning’ is one of the fundamental reasons for business sales falling through. It is frustrating for us to see these statistics given how they could be dramatically improved with the right focus from a business owner on a handful of simple things in advance of their sale exercise. This is where we are here to help. ”