Selling Your Business When It Isn’t for Sale: Pt 2

04 October 2021: Selling Your Business

In last week’s post, I asked business owners if they would be ready to respond should someone – one of the brokers in our network, for instance – show up and say to them, “I have a client that would like to buy your business.” Our 20 years of business brokering experience suggests that only a tiny minority – a VERY tiny minority – of owners would be. But there’s a reasonable chance it will happen, especially during the current frenzy in the business brokering marketplace and given that we’re at the beginning of the much-heralded Baby Boomer business sell-off, the phenomenon of this impending tidal wave of Baby Boomer business owners heading off into the sunset to dust off their aging guitars and drum sets, apply some CBD cream to their aging fingers and wrists, try to remember the chords and back beat to In A Gadda Da Vida and fire up a doober which, to their utter amazement, is suddenly legal! But I digress…

It May Be One of Us

Though most of our work is done on behalf of business owners that are ready to sell, we are constantly contacted by well-financed buyers; generally, small private equity firms, modest family offices and high net worth individuals looking for businesses with adjusted or true net – Discretionary Earnings – of between US$500,000 and US$10 million. We’re also contacted by companies seeking a strategic acquisition. Occasionally, one of these potential buyers hires us to find just what they want. They do so for several reasons.

1. They know that finding what they want will take time and energy, both of which can be better spent operating their business;
2. They know that, with our two decades of experience, we’re pretty well-connected in our field; and
3. Hiring a brokerage firm to find, vet and narrow the target field helps maintain a level of confidentiality that would otherwise be impossible.

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Our course, “Learn How to Value and SUCCESSFULLY Sell Businesses“, teaches you how to value and sell businesses.

Become a Professional Business Broker…

A unique example of this from our own files is an assignment we received a couple of years ago from a regional security firm in the United States that I’ll refer to as Top Gun Security. One of Top Gun’s clients was a national distribution firm specializing in the storage and shipping of some pretty important stuff – or so we were told – with facilities in a dozen U.S. states. Top Gun was handling security at their client’s facilities in three states but the client wanted Top Gun to take over the security at all the client’s facilities. The problem was that Top Gun needed to be licensed in each of the states where their client had a facility. And to compound that problem, the licensing procedures, costs and time necessary to complete the licensing requirements varied widely from state to state. The solution was to buy a properly licensed security firm in each of the states that Top Gun needed to be licensed in. Enter us.  That’s right. We started showing up at small and not-so-small security companies in the far reaches of the continent asking the owners the inevitable question: “Would you consider selling your business? We have a buyer.”

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We’ve launched a coaching program specifically tailored to Realtors that want to sell businesses, business owners and to anyone that wants to become a business broker.

If you’d like to learn more, email me at joe@WorldwideBusinessBlog.com

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This assignment was a bit unusual in that Top Gun didn’t care about the target companies’ financials or client lists. They were concerned only about the license. If the license was the correct one and transferable, they were interested in acquiring that business. This is a perfect example of a strategic acquisition. But the fact remains that during this process we found that there was not one instance where the business was ready to sell. Not one of the owners had any idea what their business was worth. Not one had thought about what they’d do if the business sold. Not one was running the business as if someone who wanted to buy it might show up. Not one was making sure the client lists were organized, the financial statements clean and comprehensible, the contracts were current, making sure all taxes were paid, etc., etc., etc. One might argue that, what difference did that make in this instance? The buyer wasn’t interested in any of that. True. But as I mentioned above, this was a unique example. The far more likely scenario is that the buyer wants to acquire a profitable security business. But my point here is that the unexpected happened to each of those business owners – all of whom were willing to sell. The security industry is perfect for a “roll-up”, a technique whereby a well-funded company buys up dozens – or hundreds – of its competitors. The buyer wants the cash flow and profit that, given the economies of scale that flow from size, are sure to grow. This is exactly what the late Wayne Huizenga did when he grew Blockbuster Video stores and the trash-hauling company, Waste Management.

The Bottom Line

If you’re the owner of a profitable business, it’s not a stretch to think that someone might want to buy it – and show up at your door to find out if they can. Will you be ready to respond intelligently if that happens? I doubt it. When selling your business, it’s important to always know – not guess – its approximate value. It’s just as important even if your business is not for sale. And that’s not just so you can respond intelligently to somebody making an offer. It’s also so that you know whether selling your business will result in enough money to allow you to do what you want to do post-sale. Whether you plan to sail around the world or retire to a hammock in the backyard, every level of living costs money. If you’re 50 years old, will the proceeds of the sale of your business afford you the lifestyle you want for the next 30-40 years? If not, have you got a plan to replace your business? If you have any questions or comments on this topic – or any topic related to business – I’d like to hear from you. Put them in the comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.

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Searching

This week’s “Searching” item comes from a single buyer looking for a consumer products business generating $200K- $500K in Discretionary Earnings with opportunities to expand product offerings. The buyer is willing to relocate anywhere in the U.S. If any of you know of something that might fit, please let me know.

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I’ll be back with you again next Monday. In the meantime, I hope you have a safe and profitable week.