James Mentor is Marketing. Why they wont buy your small business

6 Reasons Why No One Will Buy Your Small Business in 2023

Understand Why Your Business is Unattractive & How to Make it Irresistible to Investors.

According to Hostinger’s research, roughly 30 – 40% of businesses that list sell.

That means 60-70% of businesses that list are ultimately unattractive to investors and buyers.

But what if I don’t want to sell my business right now? 

Regardless of your selling interest today, you should always build a business with the exit in mind.

Why?

Before the tech boom of 1999, it would take years for innovation to shake up the marketplace, create new jobs or industries, and ultimately moonlight older business models.

Now, our economy seemingly shifts every six months instead of years. 

In the last 15 years, I’ve helped build strong valuations for 100’s of small franchisees and multi-million dollar SaaS companies by transforming business models through digital, wherever it made sense.

Recently, I’ve helped two SaaS companies (Cyber and Finance) to multi-million dollar exists by focusing on transforming key business functions into sellable assets.

My focus is digital adoption (innovation), finance, and growth at scale: the key areas investors look at when researching businesses to buy.

This is a comprehensive guide for current or future small business owners who wish to learn how to build a sustainable business model that’s attractive to investors and buyers when it’s time to exit.

We’re going to be bold and honest in this guide. You need to understand how the world is changing it’s approach to business acquisition. More importantly, what businesses investors believe will be part of the future economy.

Here are 6 major reasons why your no one will ever buy your business.

You Ignore the Fundamentals

Investors interested in purchasing a small business will always be interested in your financial and operational fundamentals. 

Is there a business model here they can understand?

What are the strengths and weaknesses?

“Can I get my money out of this investment?”

Your fundamentals need to tell a story about your market, your operations, and your leadership. Make sure these are solid during investor presentations.

Financial fundamentals that may affect the sale of your small business

You have inconsistent revenue or income fluctuations. Unpredictable income streams mean you don’t have control of your revenue strategy. Concerns about year-round profitability will reduce interest significantly.

Fluctuating revenue stream.

For example:

  1. Seasonal Fluctuations during holidays or off-peak seasons.
  1. Dependence on a few accounts (the 80/20 rule) makes up the majority of recurring revenue.
  1. Market Volatility in an industry prone to rapid market changes. This tends to mean cashflow issues are imminent. 

You have unresolved debt or financial issues. The following is a list of the most common financial red flags.

  1. Hidden Liabilities like undisclosed loans, pending lawsuits, or tax obligations increase
  1. Overextended Credit. When your business relies heavily on credit lines and struggles to make timely payments.
  1. Outstanding Vendor Debts. You have unpaid supplier bills that lead to strained relationships and supply chain challenges. 

Operational Challenges That Make a Small business Unattractive

Your business lacks scalability. Business models that don’t scale are like jobs. They are typically unattractive to investors interested in self-sustaining assets. 

 These business models include:

  1. Local Service Businesses: You run a small business with a single location and niche local offering: local bakery, HVAC, Plumbing, etc.
  1. Personalized Services: You’re a one-person consulting firm built around your expertise. 
  1. Limited Product Range: You’re running a small manufacturing business focusing on a narrow product range, metalwork, design, packaging, etc.

Overdependence on the Owner: You exist at the center of your business. You are the brand and your name is somewhere in the business model. Your acquisition chances are near zero without implementing systems to carry on your expertise post-acquisition. 

via GIPHY

Examples of these models include:

  1. Consulting Firm: You are the primary source of knowledge and client relationships, and clients are accustomed to working exclusively with you because of your work. 
  1. Artisanal Craft Shop: You run a small craft store known for its unique artistic creations and hands-on customer interactions. 
  1. Health and Wellness Studio: You are the primary instructor and motivator for your clients, and clients are deeply connected to your face your voice, and your coaching style. 
  1. Event Planning Business: Your exceptional creativity and personal touch is the product. Your craft was honed over years of experience and no one does it like you.

Fortunately, many of these business models can easily be transitioned from over-dependence on the owner.

Simply make a plan to begin transforming your business model to address seasonal fluctuations, financial issues, scalability, and owner dependence starting with this quick checklist.    

You Have Poor Market Perception and Brand Visibility

Market perception and brand visibility dictate more than just investor interest. Fail in anyone of these categories for two long, and you may barely have a business in 2023, let alone acquisition interest. 

Check your activities against the great brands in your categories. 

Look for patterns and practices you can adopt.

For starters, most great brands do the following consistently:

  • Communicate the business’s identity and values EVERYWHERE.
  • Address customer experience and expectations PUBLICALLY. 

Poor branding or negative perceptions deter buyers. 

Doubt about the business’s stability and potential for growth or survival increase as poor reviews pile up.

Using outdated branding strategies is a sign of poor leadership.

Business leaders are pioneers and should always be at the edge of performance and push it constantly.

These errors also carry a profound reputational impact that investors are increasingly concerned about. 

Signs your small business may have an outdated branding strategy:

  • You use generic logos and visuals.

You use clip-art style logos or stock images that lack originality.

  • Your collateral features irrelevant messaging.

Your taglines or slogans ignore current culture or common sense.

  • You have inconsistent branding across platforms.

Your brand colors, fonts, or messaging differs across platforms, indicating that you have no formalized brand kit.

  • You ignoring your online presence.

You’ve neglected establishing a solid digital presence through social media, websites, or e-commerce. Finding you is difficult in today’s digital-first economy. 

  • You lack a Story.

We don’t know why you’re here. You don’t emotionally connect with your audience because you have no story to resonate with.

  • You overemphasize traditional advertising:

You rely solely on word of mouth and other dated advertising channels.

  • You fail to adapt to cultural shifts.

You’re on the border of insensitive. All of your outdated collateral is alienating the socially conscious consumer.

  • Your Brand is non-interactive.

Your offers are flat. Customers can only reach you in limited ways. Interactions with your brand go only through you. And you’re closed at 5pm.

  • You ignoring customer feedback.

It’s your way or the highway. You disregard customer reviews and feedback,  missing opportunities to address concerns and improve your reputation.

  • You have a static brand identity.

You haven’t evolved in 20 years. You resist changes to the brand’s visual elements and messaging over time, resulting in a stagnant and boring presentation.

Updating branding strategies to align with current trends and consumer preferences is essential for maintaining relevance and maximizing a small business’s potential for success and salability in today’s dynamic market.

  • You have too many negative online reviews.

You’ve pissed enough people off, and they’re telling the world about it. 

These days, online reviews wield heavy influence over purchasing decisions. 

If you don’t respond promptly and professionally to dissatisfied customers, why should anyone work with you?

By consistently delivering excellent products or services and encouraging satisfied customers to leave positive reviews, you can build a robust online reputation that demonstrates trust in your market. 

You need to invest in reputation management aggressively. A good review campaign will increase marketability to future buyers.

Avoid poor brand management habits if you want your brand to be considered an asset during acquisition talks.

Your Tech-Adoption Strategy is Non-Existent

via GIPHY

A tech-savvy company not only screams adaptability but is also positioned for innovation. 

Investors like assets that will grow or at least maintain market share post-acquisition. 

Find a way to demonstrate how your operations have evolved through consistent digital adoption. 

Highlight your business’s subtle R&D practices to show you’ve looked ahead while the business was in your hands.

Deep insights like these tend to be invaluable for new owners.

How Does Poor Digital Integration Affect Your Small Business Valuation?

  • It limits your reach. Limited reach means limited visibility. You are invisible on modern buying channels where Gen X, Millennials, and Gen Z live.
  • Customer experience suffers. These days you should be able to Apple-Pay or Google Pay your way through the day. 
  • Manual processes slow down business. No one likes long lines or long waits for services. There are just so many places you can go and things you can do. Why wait in a line. Manual processes are inefficient and lead to errors and delays. There are digital tools for every function you have now; enough with the papers already – save some trees.
  • Your marketing impact suffers: Digital marketing is now your main gateway to customers. Walk-ins are declining, and word-of-mouth is being replaced by Google or Facebook reviews. Invest in these channels to protect your brand – it could mean the difference between a deal or not one day.
  • You’ll struggle to compete with newcomers that do the basics better. From marketing to the transaction, you may offer the same product, but the experiences are worlds apart from digital adopters. Customers are now gravitating towards these experiences due to convenience and satisfaction.
  • Limited Data Utilization: Without digital tools, the business misses valuable data insights, preventing informed decision-making and marketing performance insights that could be crucial for investor due diligence.
  • Weakened Customer Relationships: Communicate and interact with customers through the channels they use or risk strained relationships and diminishing customer loyalty.
  • Missed Sales Opportunities: Without e-commerce capabilities, your business is not competing in the largest and fastest-growing retail market on the planet.
  • Lack of Scalability: The absence of digital integration prevents your business from expanding operations through outsourcing operations and hiring new team members.
  • Perception of Outdatedness: A lack of digital presence can lead to the perception that the business is outdated or unwilling to adapt, potentially deterring tech-savvy customers and investors.

Draw your business model out on a napkin again, just like in the beginning. Identify how you acquire customers, deliver value (your value prop), the channels you use to serve your customers, and your the key processes.

Business Model Canvas

Each of these components represents an opportunity to digitally transform your business permanently. Get used to seeing the value prop transform as new technologies enter the market.

And, of course, never be afraid to innovate entirely!

Compliance challenges, litigation, or unresolved disputes are no-nos. Don’t even begin soliciting your business for sale if you’re involved in one of these red-tape scenarios.

Legal complexities hamper a business’s ability to expand. 

No expansion opportunities for investors will limit interest entirely.

Here is a list of the most common legal and regulatory concerns you must avoid if you want an attractive business.

Intellectual Property Infringement: Copyright, trademark, or patent infringement disputes.

Contractual Disputes: Unresolved disagreements with suppliers, distributors, or partners over contractual obligations. 

Employee Lawsuits: Lawsuits involving current or former employees, such as claims of discrimination, harassment, or wage disputes.

Environmental Compliance: Issues regarding environmental compliance or pollution control. 

Consumer Complaints: Extreme no-no. Indicates a poor product and possibly a poor brand.

Tax Disputes: Ongoing disputes with tax authorities over unpaid taxes, deductions, or reporting errors. 

Privacy and Data Protection: Legal issues related to data breaches, improper handling of customer data, or non-compliance with data protection regulations.

Real Estate Disputes: Property-related legal disputes, like landlord-tenant issues or zoning conflicts.

Shareholder Disagreements: Internal disputes among shareholders or partners. 

Regulatory Violations: Ongoing industry-based violations or failure to adhere to legal requirements.

It’s best to avoid these by proactively engaging professionals in these categories. 

Consider retainer agreements with tax and legal professionals once your business reaches a certain volume or you’re engaged in heavily regulated industries. 

Investors love businesses that are immune to economic fluctuations. 

Sources Analytics HubSpot Google Chrome 2023 bad chart

This is not always easy if you’re a small business born from a unique passion. 

Small business models are more flexible than larger enterprises, in most cases, due to the flat leadership and decision structures. 

If you need to pivot, do it. Make sure you do your research. 

Consult with industry peers and experts to ensure your radical ideas legally comply with your filings

Market trend “traps” that you need to monitor weekly.

Just because the train moves slowly doesn’t mean it can’t severely injure you (or worse) on impact. 

These industry disruptions are responsible for the deaths of giants like Blockbuster, Kodak, Nokia, Toys ‘R Us, and many more.  

Paying close attention to industry innovations could mean the difference between life or death for your small business. 

Is Your Business Model Incompatible with Emerging Trends?

Non-Tech Retailers: Brick-and-mortar retail stores that don’t use e-commerce, personalized shopping experiences, or omnichannel will not make it in the future economy.

Conventional Taxi Services: Taxi companies that continue to resist the transition to ride-sharing and app-based services will be largely ignored by savvy investors.

Are You in a Dying or Declining Industry?

Specialty Bookstores: Independent bookstores facing declining foot traffic will need a new way to engage the digital native generations. 

Print Photography Studios: Smartphone cameras and digital photography offer a more convenient way to experience memories. With LIVE editing features, images have become so much more dynamic and engaging. 

Digital transformation isn’t a strategy anymore; it’s the start of entire business models. Innovate or die will be the mantra of 2024 as these new models sweep through traditional mom-and-pop industries. 

All business owners need to explore ways to innovate traditional business models by augmenting tech strategically over time.

You’re Terrible with Documentation and Record-Keeping

Inadequate records raise concerns about financial accuracy, legal compliance, and operational transparency.

Your investors will perceive higher risk and may offer a lower valuation or avoid purchase altogether.

Common examples of poorly managed financial records that affect your small business’ attractiveness:

Inaccurate Financial Records

  • Unrecorded Expenses: Omitting or inaccurately recording business expenses can distort the proper financial health of the company and undermine investor confidence.
  • Overstated Revenue: Inflating sales figures can create a false impression of the business’s performance, leading investors to question the accuracy and credibility of other financial statements.
  • Undisclosed Liabilities: Failing to report outstanding debts, legal obligations, or pending lawsuits can result in unexpected financial burdens for investors and impact their willingness to invest or buy.
  • Misclassified Costs: Incorrectly categorizing costs reduces expense transparency, making it difficult for investors to assess profitability and investment opportunities.
  • Unaccounted for Depreciation: Neglecting to accurately account for asset depreciation can distort the company’s asset valuation and misrepresent its overall financial value.
  • Inaccurate Inventory Valuation: Over or underestimating the inventory value can lead to discrepancies in the balance sheet, affecting the accuracy of financial ratios and critical indicators.
  • Missing Revenue Recognition: Failing to properly recognize revenue based on accounting standards can lead to inaccurate financial projections and raise concerns about ethical practices.
  • Non-GAAP Adjustments: Improperly applying non-GAAP adjustments without clear rationale can obscure financial performance and lead to skepticism.
  • Lack of Audit Trail: The absence of a clear audit trail for financial transactions can raise doubts about data integrity and the business’s ability to track and verify financial information.

Addressing these inaccuracies and maintaining transparent financial management is crucial to gaining investor or buyer trust. 

Keep this in mind daily as you expand your operations over time. Keep key acquisition documents handy just in case you receive unsolicited interest for your business that you don’t want pass up. 

You Use Ineffective Marketing and Sales Strategies

Investors love examining vital metrics such as customer acquisition cost, lifetime value, conversion rates, and ROI on marketing initiatives. 

As the Head of Marketing for a FinTech SaaS company that was acquired in 2022 and the Head of  Demand Generation for a Cybersecurity SaaS that was acquired in 2023, making these pretty was the only job I truly had. 

You’ll need to pay close attention to your metrics for each go-to-market activity. 

Additionally, investors or buyers seek well-defined target markets, a clear value proposition, scalable sales processes, and evidence of adaptability to changing market dynamics to determine the potential for sustainable and profitable business expansion.

Avoid weak Sales Funnel Metrics and operations and inadequate marketing investment if you want to appear attractive to buyers and investors.

Signs of a Weak Sales Funnel

Low Conversion Rates:

Calculation: Divide the number of converted leads by the total number of leads at each funnel stage. 

Benchmark: Industry-specific conversion rate benchmarks vary, but a low conversion rate compared to the industry average indicates weakness.

Long Sales Cycle:

Identification: Monitor the average time for a lead to move through the funnel from initial contact to conversion.

Benchmark: Compare the business’s average sales cycle with industry standards; a significantly longer process may indicate inefficiencies.

High Abandonment Rate:

Calculation: Divide the number of leads lost at each stage by the initial number of leads. 

Benchmark: Generally, a high abandonment rate (e.g., above 50%) at any funnel stage is a concern.

No Lead Nurturing:

Identification: Assess whether leads are consistently engaged with relevant content and communication throughout their journey. 

Benchmark: A strong lead nurturing process should result in higher engagement rates and increased conversion.

Limited Upselling/Cross-Selling:

Calculation: Measure the percentage of customers who upgrade or purchase additional products/services after the initial conversion. 

Benchmark: A lower percentage of upselling/cross-selling compared to industry norms may indicate untapped revenue potential.

Low Customer Retention:

Calculation: Divide the number of retained customers by the total number at the beginning of a specific period. 

Benchmark: A higher churn rate than industry averages suggests may indicate a poor product and service experience. Monitor this closely, as it indicates your business’s long-term viability.

Insufficient Lead Tracking:

Identification: Evaluate how the business tracks lead from multiple channels. 

Benchmark: Robust lead tracking should provide insights into engagement patterns and help optimize reach.

Ineffective Follow-Up:

Identification: Assess the quality of follow-up activities at the lead and customer levels.

Benchmark: Compare engagement rates on these communication campaigns (emails, social media, etc.) to determine effectiveness.

Poor Sales Funnel Alignment:

Identification: Analyze how well marketing and sales teams coordinate efforts to drive revenue. 

Benchmark: Successful alignment results in higher lead-to-customer conversion rates. Focus on improving this metric overtime as this varies by industry. 

Identifying these characteristics and benchmarking against industry standards helps diagnose weaknesses in the sales funnel, guiding efforts to optimize and improve customer engagement, conversion rates, and overall revenue generation.

Inadequate Marketing Outreach

Low Website Traffic:

Calculation: Monitor the number of visitors to the company website over a defined period. 

Benchmark: Compare website traffic to industry peers; a significantly lower number may indicate an inadequate seo program for your small business.

Limited Brand Awareness:

Identification: Do you need to explain what your business does to everyone whenever you communicate with a new prospect? This can indicate a weak brand presence.

Benchmark: Conduct brand awareness surveys and compare results to industry averages to gauge recognition.

Low Social Media Engagement:

Calculation: Track metrics like shares, likes, comments, and followers on social media platforms. 

Benchmark: Compare engagement rates to industry standards; low engagement may signify inadequate outreach.

Declining Leads Generation:

Calculation: Measure the number of leads generated over time. 

Benchmark: Benchmark lead generation against industry averages; a significant decline may indicate campaign ineffectiveness.

Poor Search Engine Ranking:

Identification: Check the business’s position on search engine results pages (SERPs) for relevant keywords. 

Benchmark: Use SEO Tools to compare rankings with competitors; a low rank may suggest an inadequate SEO program.

Content Engagement:

Calculation: Monitor metrics such as time spent on content, bounce, and click-through rates. 

Benchmark: Compare content engagement metrics to industry benchmarks; low engagement indicates inadequacies.

Inconsistent Email Open Rates:

Calculation: Divide opened by sent marketing emails. 

Benchmark: Compare open rates to industry averages; a lower rate may indicate an unengaged contact list, low trust, or weak offers.

Poor Referral Traffic:

Calculation: Website traffic coming from external web sources and partners. 

Benchmark: Compare referral traffic to industry peers; a low percentage may suggest a need for more brand partnerships.

Minimal PR Coverage:

Identification: Evaluate whether the business receives media coverage and press mentions. 

Benchmark: Awards, nominations, recognition, and industry data aggregators are places you find brands with a strong PR presence. If you do not populate a few of these, it’s time to invest in a PR program.

Identifying these characteristics and benchmarking against industry standards helps reveal inadequate marketing outreach. Addressing these issues through targeted strategies can improve brand visibility, lead generation, and overall market reach.

Final Thoughts

Importance of Addressing These Issues

The success of your small business in attracting investors or buyers hinges on numerous factors. 

A lack of digital integration, unresolved legal disputes, and ineffective marketing and sales strategies can significantly impact the business’s valuation and appeal. 

You’ll need to address inconsistent revenue patterns early. Debt issues cripple scalability concerns, and overdependence on owners, too, are highly unattractive ventures for investors.

Make embracing digital transformation, mitigating legal risks, and optimizing marketing and sales funnels a weekly if not daily, practice.

Also, never neglect market perception and branding. 

Businesses should proactively manage their online reputation to solidify buyer confidence. 

Do your future self a favor and take the necessary steps to enhance small business salability as soon as possible.

You don’t want to be saddled with a failing asset that no investor wants when you’re ready to retire.

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