Cautionary Tale #2: No Systems in Place

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PlanThis is a continuing series of stories we want to share with our clients so they don’t make the same very costly mistakes.

We’ve discussed before that if you do well in one industry and decide to come back to it after a non-compete has ended, that there’s every likelihood you will do well again. You’ve already have a good position in knowledge and network against your competition. One of our recent clients had a seven figure exit from an equipment company over a decade ago. Once his non-compete ran out, he got back into the same business and in only six years he had grown the company from zero to $100M in annual revenue, against a 20% net profit.

That sort of business and that kind of profitability gets a lot of attention, and before too long he had an offer for a cool $100+M on the table from a serious buyer.

There was only one problem, the seller wasn’t serious. The reason we know he wasn’t serious was twofold.

Firstly, he wasn’t responsive. There was a period of eight weeks from when the offer came in before he even responded.

As we’ve said numerous times in various articles, successful transactions aren’t born, they’re made from cooperation, communication, and responsiveness to requests. If he was serious about selling the business and not just testing the waters, he would have reacted more appropriately to an offer that paid such respect to the hard work he had put in for the last six years (and even longer, as he didn’t mentally start from zero, but was building on previous experience, when he started the second business.)

Second, his lack of responsiveness didn’t come from a lack of seriousness alone. The reason he was gone for weeks at a time was because he was very busy working in the business instead of on the business.

He had a “management team” but it was really more for show than for go. He had a stranglehold on operations and no systems in place. This had already spooked the buyer early on, but the buyer thought about requesting an extended transition time, perhaps over a couple years, in order to ensure a successful handover.

Multiple Buyers

We encourage having multiple potential buyers looking at your business at any given time so that we don’t have to bet on one candidate.

In this case, the seller refused to allow us to market his business more broadly. He put restrictions in place about who could be shown the business. Also, he had to pre-approve every person we wanted to show the business to before we could move forward, waiting weeks for an approval. When the buyer withdrew his nine figure offer after a lack of responsiveness on the part of the seller, as well as an unanswerable fear about inability to transition, we had no other buyers we could offer to the seller… even if we believed he was serious, which we had come to realize he wasn’t.

This all goes to show that a successful build and exit in an industry can and does put you in the driver’s seat to do it all over again, but with that increased success can sometimes come a detachment from hard truths:

1) A business that can’t run without you is just a job you own. It’s not a sellable asset.

2) Your actions, not your words, dictate how serious you are about selling your business.

3) Your best chance of selling a business comes by having it be available to the largest number of serious buyers.

Want to avoid being part of a cautionary tale?  Give us a call so we can discuss implementing better systems in your business so you’ll be in a position to sell when you want.

Cautionary Tale #1: No Transition Plan… Ever

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Time for ChangeThis is the first in a series of stories we want to share with our clients so they don’t make the same very costly mistakes.

“Look, maybe it’s not time, let’s talk in another 4 months.” This is a quote we’ve heard many times before, and in itself, it’s totally neutral. But once you understand the context, you realize how strange it really is.

The call came from someone we had been speaking to for the last three years, who has a printing business in the Midwest. He’s in his early 80s, as is his wife. He has a daughter who is on the board of the business, who was only told about the idea of a sale in the last year. She has expressed a lack of certainty as to whether she would want to take over the business. But even if she did, there is no transition plan in place.

This is a failing that is common in family businesses, but in this particular case, we had been talking about a possible sale for three years already.

Because we’ve been doing this for many years, we can tell you the likely ending of this story.

We will get a call from a family member or from the client from a hospital bed, informing us that we need to sell the business quickly, or worse, that the client has already passed. Unfortunately, we will be working with a probate court to sell the business. It’s not our place to tell this client what to do with his life. If he thinks, in his early 80s, that with no transition plan, no clear family succession, and a wife who just had a second major surgery, that it’s “not time to sell,” then clearly it isn’t.

What we can do is use his story to caution our clients: have a plan or plan to fail, and don’t think you have guaranteed time. Every moment in this life is a gift. Take opportunities and options when they come your way.

Want to avoid being part of a cautionary tale?  Give us a call so we can discuss your transition plans.

Selling Your Business without an Intermediary: A Cautionary Tale

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Recently, when a buyer handed us his financial statement along with his completed nondisclosure agreement, we realized that he was severely undercapitalized.   Even if we considered the backing promised by his father-in-law he would hardly be eligible to acquire a business bigger than a lemonade stand.

Surprisingly the same buyer described extensive conversations he’d had with a business owner who was seeking a buyer for his $1 million business via a blind online ad.  The business owner spent a significant amount of time discussing the prospect of selling his business to this supremely unqualified buyer.  Time wasted.

Worse still, in relating his story the buyer supplied adequate details about the target business for us to identify the business for sale.  Not only had the seller wasted his time talking to an unqualified buyer, but he had inadvertently granted this buyer the privilege of broadcasting his intention to sell the business.  Potential jeopardy.

What is your time worth?  How important is a confidential process to you? Apex Business Advisors applies a rigorous process in marketing, vetting buyers, and maintaining confidentiality throughout the transaction.  Having sold hundreds of businesses over some 16 years we know how to achieve the seller’s objectives; efficiently and with reduced risk.

Contact us if you would like additional information about buying or selling a business.

Paul Temme
Senior Advisor