Why Buy and Own a Business?

The March 1, 2021 comic Non Sequitur by Wiley gives us a great answer (to the headline). You can see the comic here* and in the second panel one of the characters answers the question, “If you could go back knowing what you know now, what would you do differently?” with:

“I wouldn’t be so self-conscious in high school and I’d work toward the career I really wanted instead of settling for a job I can’t wait to retire from…”

Something you want to do as a career verus “just a job” is what it should be about, right? This is why people leave their corporate jobs to own a business, whether by starting one, buying one, or getting a franchise. But this is not a rah-rah for ownership, because that’s not needed for those serious about it. Rather, here are a few things out of the news that all business buyers should watch out for and sellers should correct, if it’s an issue with their company.

  • Greensill Depended On a Few For Much Revenue,” Wall Street Journal, March 8, 2021. Customer concentration can be a killer. Greensill had 90% of its revenue from five clients in 2019. There’s a reason buyers and banks get nervous about concentration. Often the seller (and sometimes the broker) will dismiss this by saying things like, “They’ve been a customer for years.” Yes, a customer of the seller and what happens when there’s a new owner? Or a change in the customer’s management, or how a problem is handled?
  • UPS’s new CEO is focusing on the bottom line by weeding out less-profitable customers (Wall Street Journal, March 6, 2021). This is where good job-cost accounting comes into play, so you know your customers profitability. An owner I know was approached by his top (30%) customer about buying his business. For a variety of reasons, he turned down the offer, said he realizes he will lose the customer at some point, and pointed out the 30% of revenue was only 10% of gross profit so it won’t be that big a hit (and he works daily to diversify the customer base). If you’d like a slide deck on customer loyalty and due diligence from a ACG webinar send us an email.
  • Boeing has been in the news again as a couple Pratt & Whitney engines lost parts while flying. Note to buyers, inspect the equipment, the inventory, and the technology. Owners thinking of selling in the near future are notorious for not investing in assets as they did in prior years. Owners should invest in the business as if there’s no plan to sell. The price can only go down if anticipated capital expenditures are higher than normal.
  • Microsoft Exchange customers, at least 60,000, were hit by an aggressive hacking operation that saw stolen emails and malware installation. A client of ours was recently hit by ransomware. Owners need to keep the technology up to date, have protections, and really pay attention to all aspects of cybersecurity. Our podcast series features (separate) discussions with Jennifer Hill and David Henderson on cybersecurity and Dan Weedin on crisis management. Spoiler alert, cybercrime is one of the top two risks businesses face.
  • Trust is the currency that is most valuable in this uncertain moment” is on the front page of the March 5, 2021 Puget Sound Business Journal and it’s a quote from KD Hall. I disagree. Trust is most valuable at all times, especially in a buy-sell situation. No trust, no deal. What seller or buyer would sell to or buy from someone they don’t like or trust? Who would make or accept a job offer to or from someone they don’t like? Not a sane person, that’s for sure.

Business ownership, especially via buying a mature, profitable, and fairly priced business, is the best thing for a lot of people. Just make sure you buy the right business the right way and you pay attention to the above (and all other details of the business).

* Due to copyright laws, I can’t publish the comic’s panel.

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