Photo by KoolShooters
We have often shared in these pages that an average sale can take up to 12 months. But that average can be significantly affected by major events, like what happened in 2020. A business that closed earlier this year did so for $100,000 above the valuation. Sounds great, right? But originally, the seller listed in 2019, and we kept running into a cash flow obstacle. SBA lenders excluded COVID-era funds (PPP, EIDL, etc.) from recurring cash flow, which led to low net profit figures. Realizing he’d have to rebuild a narrative after Covid had passed, he went back to work and re-engaged with us in 2023.
A Parade of Wrong Buyers
For good businesses, there’s always interest, and this was a good business opportunity. Here’s the first five buyers who looked at the business:
- Inexperienced buyer who ended up pulling out after discovering she had misread the financials.
- Buyer unable to secure SBA financing because of COVID-era cash flow issues as well as lack of licensing (without this license there would be an 18-month delay in the deal closing).
- Buyer made an unjustifiably low offer after diligence.
- Buyer submitted an LOI above the asking price but never proceeded with due diligence and the LOI expired.
- Buyer moved forward into diligence after an LOI above asking but financing failed when a key group member lost employment.
A Strategic Buyer Arrives
At this point we’ve been back on the market for over a year after the first attempt the year before Covid. What we really appreciated was how positive and engaged the seller remained. He knew he had a good business, and it was just a matter of time before everything came together. The very next month after potential buyer number five dropped out, a strategic buyer with private financing offered $100k over the valuation and closed in 60 days. The total timeline was 27 months, as the business was listed in May 2023 and closed in August 2025.
Special Handling
Because of the state licenses required to operate this business, we identified early on that we would need a MIPA (Membership Interest Purchase Agreement) which would ensure a smooth transfer of the state licenses via a change of ownership. The ultimate buyer had no problem executing the MIPA in a timely manner. Without a MIPA, the waiting period for new licenses would have been 18 months, as we alluded to above.
More importantly, as we stated above, the market fell apart for the seller in 2020 due to events entirely unrelated to him or even his business, really. He simply got back to work and prepared his business to go to market in the future, when conditions were clearer, and his books would have more data than just the 2020 and 2021 fiscal years.
We wanted to share this deal because it highlighted patience and perseverance from both the seller and the advisor. We guided the seller through bad fits and lowball offers to the right buyer, at a premium over the original asking, which we were able to assert through the repeated interest we saw in the listing.
Would you like to be our next success story? We’d love an opportunity to look at your business and find the right buyer for you. Reach out today.