A Profitable Exit: A Study of Sold Businesses

A Study of Sold Businesses

A Study of Sold Businesses compared businesses with lender financing (SBA, etc) and without lender financing.

The study showed that businesses that qualified for financing generally made more profit as a percent of sales. These businesses with financing tended to get more money as a percent of revenues and earnings. In the case of the higher selling businesses, owners took time to make sure their businesses were running well. Additionally, their financial documents had to clearly showed their profits after normalization.


More money for higher business valuation. Sit with your business broker and SBA lender and business valuation specialist.

In early 2024, our business valuation and business broker team initiated the “Sold Business Study”.  They analyzed business sold from January 1, 2013, onwards. The business valuation and business broker team focused on two distinct categories of businesses.

They  first group of sold businesses was referred to as the “Prequalification Group.” This consisted of businesses that had secured financing, often through SBA loans, prior to selling. This group’s financial representations were backed by tax returns, substantiating their earnings claims and marketing strategies.

The second category encompassed businesses with similar annual revenues, ranging from $1 million to $10 million. Unlike the first group, these businesses lacked lender prequalification. Their financial statements were typically based on owner estimates, owner-provided proofs, pro-forma statements, or annualized data. This was referred to as the “Non-Prequalified Group.”.

Our  business brokers, experienced in business valuations, and business sales, were keen to compare the outcomes of businesses with Lender prequalifications to those without. This interest stems from the recognition that many businesses face challenges in achieving successful exits.

between 70% and 85%, fail to successfully sell their businesses

Our review incorporated data from organizations like PeerComps, Business Brokers of Florida, and the Exit Planning Institute. Historical data and reports, including those published in Forbes and Inc. Magazines, indicate that a significant portion of business owners, between 70% and 85%, fail to successfully sell their businesses when they go to market.

In our study, we operated under the assumption that most business owners file their taxes diligently and employ accountants to strategically minimize tax liabilities while complying with IRS regulations.

However, we recognized that many business owners, often preoccupied with day-to-day operations, may not fully leverage the critical insights that their financial data can offer. This led us to hypothesize that businesses which present their financials based on tax returns and have secured lender prequalification might demonstrate distinct advantages in the market compared to those relying solely on readily available financial information.

Robust financial records are more likely to obtain SBA

Our analysis further suggested that businesses with robust financial records are more likely to obtain SBA or lender pre-qualification. We posited that such prequalification could be a significant factor in facilitating smoother business sales. However, our data did not clarify whether businesses without initial lender prequalification were able to secure SBA loans post-finding a buyer.

Our study meticulously examined three key financial ratios for both groups. By analyzing these ratios, we aimed to glean deeper insights into the financial health and market positioning of these businesses, particularly focusing on themimpact of lender prequalification on business sale outcomes.

The scope of our “Sold Business Study” encompassed over 1,300 businesses.  We identified 718 businesses in the Prequalification Group and 689 in the Non-Prequalified Group. The similar size of these groups over a decade suggests a relatively equal distribution, with a marginal numerical advantage of the business selling in favor of the Prequalification Group.

We focused on the average performance metrics of each group. The Prequalification Group showed average sales of $2.3 million, while the Non-Prequalified Group averaged slightly lower at about $2.1 million.

Additionally, we observed a subset within the Prequalification Group with gross sales averaging $2.1 million, included for a more comprehensive comparison.

Our analysis involved a detailed comparison of Discretionary Earnings (DE) to Gross Sales. DE represents the normalized financial earnings generated by a working owner, adjusted for factors such as depreciation, amortization, owner’s salary, and other relevant adjustments. This metric provides a clearer picture of the actual earning power of a business.

Furthermore, we compared the Sold Price to Gross Sales and the Sold Price to Discretionary Earnings. These comparisons were aimed at understanding the relationship between the sale price of a business and its financial performance metrics.

Some Summarizing Thoughts

While the data from our study offers intricate details, its broader implications for business owners and advisors are profound. It suggests a crucial need for proactive financial evaluation and benchmarking well before the intended sale of a business.

 This is especially pertinent given the alarming statistic that 70% to 80% of businesses fail to sell when they enter the market, a reality that can significantly impact an owner’s financial security.

Get a Valuation Now

For business owners who haven’t had a formal valuation in the last two years, it’s imperative to act now. This valuation, coupled with benchmarking against industry standards, is more than a mere exercise in numbers. It’s about understanding your business’s true worth and positioning it favorably in the market. Remember, a well-timed and well-executed exit strategy can profoundly affect your wealth and personal satisfaction.

A comprehensive exit plan is not just a safety net in unforeseen circumstances, like health issues, but also an opportunity to capitalize on favorable market conditions. Such preparation benefits not only the owner but also their family, employees, customers, and the community at large by ensuring a smooth transition of business ownership.

Business owners can create remarkable legacies through their enterprises. They deserve an exit strategy that reflects the value they’ve built, ensuring the best possible outcome for themselves and their successors.

Despite the busy nature of running a business, it is crucial to start this process now. Over 80% of business owners lack a written plan, waiting for a less busy time that seldom comes.

The key is to begin by getting informed about your options, understanding your business’s real and potential value. This proactive approach is the cornerstone of a successful exit strategy, providing peace of mind and securing a legacy.

Increased Profit Margins & Higher Profitability: Businesses that qualify for lender financing typically have higher profit margins as a percentage of sales. This suggests these businesses operate more efficiently and are better at converting revenue into profit. If your business is below the industry averages and you wish to be in the top 50% or even the top 25%, you might do well to sit with a qualified business coach.

Clear and Well Documented Financials Matter:

Buyers will often pay a premium for businesses that have undergone rigorous financial scrutiny required for lender financing. Banks are able to provide loans when the records clearly show consistent, clear profits. Sit with your accountant or Fractional CFO to get you last few years’ records in order.

 Understanding Business Value: Owners who achieved the highest sale prices took the time to understand what drives business value and how the market evaluates this value. They made strategic improvements to enhance their business’s attractiveness. Get a business valuation that also explains the various elements that drive value in your business. A Certified Business Intermediary, CMAP, or Certified Valuation Analyst trained at NACVA is a good start. Getting a valuation now lets you see how you can increase value if you want and where to focus for the best return.

Smooth Operations: Ensuring that operations run smoothly and efficiently was a common trait among these successful business owners. This operational excellence made their businesses more appealing to both buyers and lenders.

Clear Financial Documentation: It’s essential to have transparent, accurate financial statements that clearly show profits after normalization. Normalization involves adjusting financial statements to reflect the true earning capacity of the business, excluding one-time or unusual expenses.

Take time to review your financials on a regular basis. Look not only on how your Profit and Loss statement looks. Be sure to see it from a normalized standpoint. Normalization considers that some expenses are not required (i.e. personal car, pay to non-working spouse) or are one-time occurrences (i.e. remodel of offices after 20 years). These expenses need to be adjusted to show the true profit. Sit with a CBI or other professional for insights on what additions (or subtractions) may be considered. More on this in our Normalization articles.

Steps to Take:

To maximize your business’s sale value, consider the following actions:

Optimize Your Operations: Invest time and effort into ensuring your business runs efficiently. This will not only improve profitability but also make your business more appealing to potential buyers.

Prepare Your Financials: Work with financial advisors to prepare clear, accurate, and normalized financial statements. Transparent documentation is crucial for both lender approval and buyer confidence.

Understand Market Drivers: Take the time to understand what drives value in your industry and how the market perceives this value. Make strategic improvements to enhance your business’s market position.

Qualify for Financing: Aim to qualify for lender financing, such as SBA loans. This can significantly enhance your business’s value and attractiveness to buyers.

By focusing on these areas, you can increase the likelihood of a successful and profitable sale. If you need assistance or have any questions, please feel free to reach out.


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