Is Your Business Actually “Sellable”? What Every Owner Needs to Know
Not every business is ready for the market—at least not in the traditional sense. For some, the hard truth is that they may be more valuable in pieces than as a going concern. Before listing your business for sale, it’s critical to understand what actually makes a business sellable—and what doesn’t.
Let’s explore some common challenges that can render a business difficult—or even impossible—to sell.
1. When Asset Value Outweighs Business Value
One of the first red flags we often encounter during a business evaluation is when the tangible and intangible assets of a business are worth more than the income they generate. This scenario suggests that the real value lies in the assets—not the ongoing business and goodwill.
In one recent case, we discovered exactly that: the owner’s equipment, inventory, and real estate exceeded the value of the company’s annual earnings. Our advice? Sell the assets, not the business.
Keep in mind, not all assets are created equal. A business name, website, or phone number may hold little value outside of the current operation. But physical assets like FF&E (furniture, fixtures, and equipment), inventory, or a commercial property can retain substantial value—even apart from ongoing revenue.
In-Place vs. Relocated Value
Assets often have two distinct values:
- In-place value: What they’re worth as part of the current operation.
- Relocated value: What they’re worth if removed and sold separately.
Many assets lose value when separated from the operation—especially if dismantling or transport is involved. That distinction plays a key role in how the business is positioned for sale.
2. High Customer Concentration
Customer concentration is another major concern. If a single customer represents more than 20% of your revenue, most buyers will hesitate. This is especially concerning if the revenue is tied to a personal relationship between business owners.
One case we observed involved a wholesaler of specialty piping who built his company around a long-term customer. At its peak, that single relationship accounted for 90% of his revenue. When the customer retired and sold their company, the new owners brought in new vendors, cutting out the old supplier—our client. As you can imagine, this had a dramatic impact on the value and future of the business.
Diversifying your customer base can help mitigate this risk and boost buyer confidence.
3. Dependence on the Owner
If the success of your business hinges on your personal involvement, that’s a major obstacle in the sales process. Buyers don’t want to inherit a company that collapses once the owner steps away.
We recently valued a successful service company with strong financials and solid recurring revenue. On paper, it looked like a great opportunity. But a deeper look revealed that nearly all of the business activity flowed through the owner himself—he managed client relationships, operations, and even sales.
That raised some difficult questions:
- How much revenue would the business lose under new ownership?
- What would that mean for the valuation?
- What steps could the owner take now to reduce this risk?
Establishing systems, training a management team, and delegating client-facing roles are essential for businesses aiming to sell at a premium.
Other Factors That Affect “Sellability”
Beyond profitability, customer risk, and owner involvement, other variables also influence a business’s ability to sell:
- Is the industry growing or declining?
- Are operations streamlined and efficient?
- Is the customer base aging or expanding?
- Does the business have local or national appeal?
- Are there legal or regulatory risks associated with the business model?
- Is third-party financing available, and is the seller open to financing part of the deal?
Each of these questions plays into the buyer’s risk assessment—and ultimately, the price they’re willing to pay.
The Takeaway
Evaluating your business’s “sellability” should be your first step before going to market. If the value lies more in the assets than the earnings, the right approach may be to sell those assets directly. If the business depends too heavily on a few customers—or on you as the owner—those risks must be addressed before expecting top dollar.
As business brokers, part of our job is helping owners understand these challenges early so they can plan accordingly. Proper preparation can dramatically increase your chances of a successful—and profitable—exit.
Interested in Learning More?
We offer coaching and resources for:
- Business owners preparing to sell
- Buyers looking for quality opportunities