Selling a Business When Sales Are Down

A slower year doesn't mean your business can't be sold. It does mean buyers will look harder at the numbers and ask why. Sellers who name the cause, show what they've done about it and set a realistic price usually do far better than those who wait for questions. This guide walks through how to do that calmly.

How buyers read a drop in sales

Buyers aren't only asking how much you sell. They're asking whether the business will keep earning after you leave. A decline raises three questions in their mind:

• Why did it happen? A road closure, a lost contract or a bad season reads very differently from customers slowly drifting away.
• Is it over? They'll look at recent months to see whether sales have levelled off or are still falling.
• Can they fix it? Some buyers like a business with room to grow, as long as the path is clear and the price reflects the work.

Find and write down the reason

Before you list, work out what actually changed. Go through your sales by month, product, service and customer, and compare them with the year before. Common causes include:

• A big customer or contract that ended.
• Higher prices, new competition or a shift in what customers buy.
• Staff shortages that limited how much work you could take on.
• A one-off event such as construction, a move, illness or a slow local economy.
• Less owner time, because you've already started stepping back.

Write a short, plain note on what happened, when, and what has changed since. You'll use it in your listing, your conversations and due diligence.

How a down year affects price

Most small businesses are priced on earnings, often a multiple of recent profit. Our guide to what your business is worth covers the basics, and the EBITDA multiple explained shows how the number is built. When profit falls, the price falls with it, and a falling trend can also lower the multiple a buyer is willing to use.

Two things can soften this:

• Honest add-backs. If part of the drop came from one-off costs or owner expenses, showing them properly lifts the earnings buyers work from. See add-backs and normalized earnings. Keep every add-back documented, because buyers will check.
• Assets that hold their value. Equipment, inventory, a good lease and a loyal customer list still count, even in a slower year.

Terms that bridge the gap

When you believe sales will recover and the buyer isn't sure, deal terms can meet in the middle:

• An earn-out. Part of the price is paid later if the business hits agreed targets. See earn-outs when selling a business.
• A vendor take-back loan. You finance part of the price and are paid over time, which can help a buyer whose bank is cautious about a falling trend. See vendor take-back financing.
• A longer handover. Staying on for a set period to keep key customers can reassure a buyer. See handing over your business.

Steps that can help before you list

1. Bring your bookkeeping up to date so the current year is clear month by month.
2. Fix what's quick and cheap: follow up with lapsed customers, tidy your pricing, refresh your website and reviews.
3. Cut costs that don't help the business, so profit holds up even if sales don't.
4. Steady the team, since buyers worry when staff are leaving at the same time as sales.
5. Gather proof of any recovery, such as recent months, new contracts or a growing order book.
6. Set a realistic asking price based on current earnings, not your best year.

Our guide to preparing your business for sale has a fuller list.

Sell now or wait?

Waiting can make sense when the cause is clearly temporary, you can fix it, and you're happy to keep running the business for another year or two. Selling sooner often makes sense when the decline is part of a longer trend, when your energy or health is fading, or when another slow year would lower the price further. If neither feels right, our guide on whether to sell or close your business may help you weigh the options.

What to say in your listing

Keep it short and factual. For example: "Sales were lower last year after our largest commercial contract ended. We've since added two new accounts, and the last four months are ahead of the same months last year." Then let the numbers speak. Our guide to writing a business-for-sale listing shows where a note like this fits.

Be ready for due diligence

Expect buyers to ask for monthly sales, customer lists with sales by customer, and bank statements to match. Have them ready, and keep your explanation the same every time you tell it. Consistency builds trust. See due diligence when selling and documents needed to sell a business.

A note on advice

This guide is general information, not legal, tax or financial advice. Every business and sale is different. Please talk to your accountant about your numbers and have a lawyer review any agreement before you sign.