Real-Life Story: from If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want?)
Context: As the song says, it’s a family affair. Especially in a community property state.
Our client was two months or more into the selling process with a buyer. He’d had a valuation done on the business; we had packaged information about the company and had an outline of an offer. He then said, “I guess I better talk to my wife about this.” Boom! The process came to a screeching halt, and his wife felt betrayed that he hadn’t discussed selling with her. (The buyer and I both had heard from the seller that all was OK with his wife regarding selling.)
Once she agreed, her next issue was that she didn’t want him around the house all the time. That issue was (somewhat) solved when he reminded her that he hadn’t been going into the business every day for quite a while, and with a new general manager on board he would be around more than ever. (“So get used to it, honey.”)
Real-Life Story: from If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want?)
Context: Business buyers want to see growth, or they’ll discount the value of the business. These two examples are what happens when the business is “coasting.”
Often, I talk to owners (sellers) who tell me they don’t work too hard, they are coasting, and so on. They speak of this as a positive, but it isn’t always positive. Keith bought a company that was truly coasting. The owner was seventy and sales had peaked when he was sixty-five. One thing that attracted Keith to the business was he saw that the owner took numerous vacations of up to four weeks every year. He knew that just by his being there the business would do better, and it did after he bought it.
Scott, on the other hand, discounted the value of a company he really wanted to buy because it was evident that not only was the owner coasting but also there was a culture of not working hard in the firm, a culture of working just enough to make the level of income the owner and salespeople wanted. Scott realized there would be resistance to the energy and drive he would bring to the company. It was an aging employee base; it’s a lot easier when the employee base is younger, as was the case with Keith’s company.
Real-Life Story: from If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want?)
Context: owners need to build a management team and it doesn’t matter if it’s family or non-family. The following short story is an example of what happens when it’s the owner that has all the responsibility.
A business owner died and his son, the shop foreman, inherited the business. He was not capable of running the business, and over the next two years, it declined to the point that it was unsalable.
Just because a company is seen as a strategic buyer doesn’t mean it will automatically pay more. As I write this, I’m involved in negotiations for a large industry player to buy a “small” business in the same industry. The buyer’s starting point for pricing is the value of the assets. Like with my friend’s situation, they’re just not throwing money around.
If you want your children to have the skills to run the business, then groom them in the management of the firm; don’t wait until it’s too late.
Real-Life Story: from If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want?)
Context: many feel a strategic buyer is always the best buyer (meaning will pay the most). That’s not always true. One owner retreated from selling to a competitor once it was pointed out they would know where to look for all the “secrets,” i.e. the spooks and goblins every business has lurking around.
A friend was selling his business that did about $20 million in annual sales and was quite profitable. He told me there were three potential buyers, including one strategic buyer and one pure financial buyer. The financial buyer made the best offer!
Just because a company is seen as a strategic buyer doesn’t mean it will automatically pay more. As I write this, I’m involved in negotiations for a large industry player to buy a “small” business in the same industry. The buyer’s starting point for pricing is the value of the assets. Like with my friend’s situation, they’re just not throwing money around.
