Jim McManaman owned Solution One, an accounting and tax firm that handled business and personal accounts.
At its peak, he had six employees and had just added a fee-only financial planning practice to the company.
The company was very much a “main street” business, and for Jim, apart from tax season, it was a lifestyle business as well.
This was mostly because he had read The E-Myth early on and ensured that his entire company was systematized, even down to having an internal wiki that had hundreds of pages.
Out of the Blue
Jim had no plans to sell. One day a letter came to him out of the blue from a competitor in town with a soft offer to buy his firm. Jim didn’t think this person was a good cultural fit for his clients, so he unhesitatingly turned it down.
But a few months after that, he got a second letter, this time from someone who he considered a friendly colleague more than a competitor, and he took a meeting with her.
He had a productive first meeting, but spent most of the time politely thanking her for the interest, but reiterated that he had no intention of selling.
And yet, as it often does, even the thought had pushed forward one domino. Within a couple weeks, he started a series of meetings with her that lasted six months, with only a delay for a few weeks during the peak of tax season.
At the end of the day, the potential buyer didn’t have the finances put together to really make the deal happen, and so the deal collapsed.
Ball was already rolling
Jim wanted to take the momentum from that deal and move it in another direction. Soon, he became the hunter instead of the hunted.
He reached out to another respected colleague and let him know he was interested in selling. There was a clear meeting of the minds. They started the process in midsummer and closed on December 31 of that year.
The buyer was very slow and methodical. Jim is an A-type personality and at times he mistook their difference in styles for a lack of seriousness about the deal.
But they got their communication style down. The buyer was so impressed with how Jim’s operation worked that he vowed he wouldn’t change a thing, from the name to any of the employees or operations. The buyer even had the humility to say he would be taking some of the best practices and applying them to the two offices he had.
Jim worked off a 1.25X multiple on gross revenue. This was something he saw in the two previous offers and the buyer himself had used that approach in a previous acquisition.
It’s a number that’s often used in regards to accounting practices. However, sometimes those sales are subject to earnouts and financing, but Jim held firm. If he had a good business, he wanted to get paid. He ended up getting an all-cash upfront deal, with no financing.
Jim went through six months with one buyer only to find out at the end she didn’t have the funds to even be having the discussion in the first place.
One of the things we ensure at APEX is that you’re not dealing with a potential buyer who doesn’t have what it takes to buy your business. We do our diligence so you don’t have to.
Keep in mind that whatever your personality is, your correspondent – be he/she the buyer or seller, may not have the same personality.
A broker can stand in the gap and help ease those communications so that a text or email doesn’t get misinterpreted and blow up a deal for absolutely no reason whatsoever. It’s happened, believe us. Lean on our experience to help you manage the communication flow.
Finally, remember that it’s important to manage how you tell your employees and customers that a sale is happening.
Ironically, Jim mentioned that months later some clients still thought he was involved in the business because it was running how he’d always run it…in a lifestyle manner.