Why Most Small Businesses Don’t Sell—and How to Avoid the Top 5 Mistakes

I've been talking to a lot of brokers, M&A advisors, and transaction M&A lawyers in the past few months and had some truly wonderful conversations. A common theme among most is the difficulty in sharing the reality of selling a business.

All business owners exit - it's hard to imagine, but you will not run your business forever because you won’t be around forever. The fact that exiting or succession planning revolves around the conversation of aging and death makes it emotional and challenging.

Here's another "fact" (the data is lacking on the true percent, so don’t be fooled - no one is tracking this number): 

75%-80% of businesses will not sell; they will close.

The more business owners can face the reality that their business is more likely to close than sell - the better off you'll be preparing for either path.

Many of that 75-80% that don't get sold, have some common mistakes that are preventable.

Common reasons businesses don't get sold - once they're in the transaction phase:

• Messy financials

• Unrealistic pricing (of the business)

• Declining performance

• Owner dependence

• Outdated systems

Let's go through each and talk about what you can do to prevent these from being a bottleneck for your exit.

Messy Financials

Without actually running any data, I'd estimate that 95% of the financials I see are messy in some capacity. Usually these fall into 3 main buckets of mess:

1. Balance sheet errors - These are pretty common with owners doing it themselves, in-house bookkeepers that aren't really bookkeepers, and often when there's more than 1 shareholder. These errors are the most costly to fix, and should be fixed inside the bookkeeping software prior to going to market with your business.

2. Combined locations or multiple businesses on 1 bookkeeping software account - Sometimes these aren't truly messy or wrong financials, but can get unclear with a buyer that's only looking to purchase one part of the business. This is something you want to split out before going to market and is required when a buyer is using a bank loan to make the purchase. (My team can help with this!)

3. Inconsistent categorization or no categorization - This is just impossible for a buyer to understand what's going on. Your transactions should be categorized the same way year over year to get to a true gross margin, gross profit, and to see consistent owner compensation. This can cost a lot to fix, so don't wait. Get this cleaned up at least 2 years prior to selling so you can show a buyer the true value of your business.

Other things I see - Owner personal expenses combined with business, owner compensation not on its own line, and not putting the right things in COGS.

All of these things are items a bookkeeper may not fully understand or take care of, this is where a CFO or controller can help direct the team to show the most value.

Unrealistic pricing (of the business)

If you're even slightly considering selling - I recommend getting a 3rd party valuation done as soon as possible. This can cost $2,000-$5,000 and is worth every penny. 

The last thing you want is to think your business is worth $5M when realistically it's only worth $2M, but you're convinced it's worth $5M so you stick to that and get no buyers. 

OR on the flipside, I recently had a client think their business is worth almost nothing when it’s actually in great shape and should be valued higher. 

Most owners think their business is worth more than it actually is. Let a professional be a wet blanket and be open to your baby being called ugly. It will help the entire process.

Declining performance

Declining revenue isn't necessarily a no-go for a buyer. In fact, there are many buyers that want to see that because they have some secret sauce for getting revenue back up and see it as a deal for them. HOWEVER - if your sales are declining because of something the new buyer can't control or you can't explain why revenue is declining, that can break a deal. It also can make it harder for a buyer to get financing which can break a deal.

Ideally, don't let your revenue decline and then expect to get a high market value for your business.

Owner dependence

This is a big hang up with what you're selling. It doesn't mean you can't be involved with the business and then go to market, but if you as an owner are doing all the things to keep the business running, the new owner may not want that job or see a way to grow your business.

Where I've personally seen this the most is in construction businesses where the owner knows the entire roster of clients, and if they leave the business, there's no more business to be had by the new owners. This is an unsellable business.

Outdated systems

Outdated systems can be a red flag OR it can be a selling point. New buyers need to have something they can improve on when buying a business. I talked to an owner of an insurance firm last year who was acquiring smaller insurance firms all on paper processing. His entire strategy was to upgrade to paperless, eliminating a huge amount of margin and keeping an 80% renewal rate. He wanted the outdated system.

On the flip-side, my team recently conducted a due diligence report for a manufacturing facility and in that case - if the equipment had a high requirement for repairs or the system was too costly to upgrade for the buyer, this might have broken the deal.

Start Preparing Now, Not Later

The best time to start preparing your business for sale is 3-5 years before you actually want to sell. This gives you time to:

• Clean up your financials (my team can do this for you!)

• Build systems that don't depend on you

• Optimize your performance metrics

• Get realistic about valuation

Remember: your business is likely your biggest asset. Don't leave its value to chance by waiting until the last minute to prepare for sale.

One of my favorite client stories to date, is a long time client who was never planning to sell. But we still worked towards  - clean financials, systems that don’t depend on the owner, and looking at the right performance metrics. This client had a big life change and I suggested she consider selling. You know what? She had a soft offer from someone she knew and was able to close the deal in 3 months with little to no headache.

This advice is for EVERY business owner even if selling isn’t on the table. No harm can come from having clear financials, great systems, performance metrics and knowing your business's worth. 

Need help getting your business ready to sell? [Book a consultation] to assess your business's sell-ability and create an action plan to maximize your value.

About the Author:

Natalie Cook is the founder of Finance Fight Club, an Outsourced CFO & Financial Services firm dedicated to empowering small business owners with strategic financial guidance. With 5+ years of experience as a fractional CFO, Natalie specializes in due diligence, cash flow optimization, and preparing businesses for sale. Her insights have helped countless entrepreneurs confidently navigate complex financial decisions, from scaling operations to achieving successful exits. Connect with Natalie on LinkedIn for more expert advice on business finance, or explore Finance Fight Club’s resources at financefightclub.com to transform your financial future.

Q&A:

1. Why do most small businesses fail to sell?

In my opinion, the primary reason is an unprepared seller. Sellers often overestimate the ease of selling their business and when they start the process they may be 2-3 years out from the business being ready and not wanting to put in the work. 

2. What are the most common mistakes that stop businesses from selling?

The top mistakes are:

• Disorganized or unclear financials

• Overvaluing or undervaluing the business

• Relying too much on the owner for daily operations

• Using outdated processes or technology

3. How can I make my business more attractive to buyers?

To increase your chances of selling:

• Clean up and organize your financial records

• Get a professional business valuation

• Build systems that don’t depend on you

• Modernize your processes and technology

4. When should I start preparing my business for sale?

Start preparing 3-5 years before you want to sell. Early preparation gives you time to fix financials, reduce owner dependence, improve performance, and maximize your business’s value.