Our business is selling your business.
  • Home
  • About Us
    • Buyers
  • Sellers
    • You Need to Know >
      • Exit Strategy
  • Buy A Business
  • Our Blog
  • Contact Us
  • Newsletter Sign Up
  • Resources
    • Eric Gilboord Books for Sale
    • Module 1 Selling Overview
    • DIY Proxy Valuation
    • 75 Things To Do When You Exit Your Business
  • 'Sell Your Business 4 More'
  • Coaching
  • Home
  • About Us
    • Buyers
  • Sellers
    • You Need to Know >
      • Exit Strategy
  • Buy A Business
  • Our Blog
  • Contact Us
  • Newsletter Sign Up
  • Resources
    • Eric Gilboord Books for Sale
    • Module 1 Selling Overview
    • DIY Proxy Valuation
    • 75 Things To Do When You Exit Your Business
  • 'Sell Your Business 4 More'
  • Coaching

our Blog for Growing or 
selling your business

Selling Your Business - Crossing the Finish Line

7/3/2012

0 Comments

 
This article is from my friend John Warrillow author of BUILT TO SELL one of the Inc. 2010 best books for business owners.

How do you imagine life after selling your business? Are you travelling? Europe maybe? Patagonia, or somewhere nice and warm?

If you’re like most of the business owners I know, you imagine selling your business, having a going-away party, and riding off into the sunset.

Increasingly, it’s not working out that way.

In a shaky economy, with banks shy to lend, the proportion of cash that business owners get when they sell is sinking with the proportion of the sale price put “at risk” in some sort of “earn-out” or “vendor take back” loan is going up.
Recently, I hosted a workshop in Toronto and invited an M&A professional who spoke about the typical deals she is doing these days. She shared the story of one buyer who is acquiring marketing services businesses for as much as ten times earnings before tax. The fine print? They only pay three times earnings upfront and leave the possibility of the other seven in a five-year earn-out.
The seller sees the finish line; the buyer fires the starting gun

Buyers and sellers come at the M&A process from totally different points of view.

The seller is usually just willing their tired old body to the finish line. On the other, you have a buyer just about to fire the starting gun. But the buyer isn’t planning on doing any running; they expect you to hear the gun and run faster than you ever imagined possible.

Is it just me, or is there something wrong with this picture?

Note to buyers: we’re tired, not stupid

I think buyers need to stop being greedy. I saw a deal recently where a rental business had grown to twelve million dollars in sales and more than two million in EBITDA. They were being offered six million dollars upfront and another six million dollars available through a complicated, five year earn-out formula.

Are you kidding?

Do you know what it takes to build a business from scratch to a point where it is generating two million dollars of profit? Have you any idea how burned out and tired the business owner must feel? This owner has built the business to the equivalent of a Picasso and you want to steal it for three times earnings?

For a gem like this, you need to pay a decent multiple upfront and put a reasonable set of goals together for a one or two-year earn-out. I don’t care what your spreadsheet says; a victory lap is okay but indentured servitude is not.

Note to sellers: move up your “sell by” date

Sellers – I like you. A lot. I consider myself on your side, but you have to understand that the days of driving off into the sunset on closing day (unless maybe you own a technology business that runs itself) are over. As a seller, I would tell you to plan to sell WAY earlier than you think you want to, so that you still have the energy, ideas and passion for the business to get you through the earn-out.

Yes, if you do everything right (recurring revenue, management team, unique niche, double digit EBITDA growth etc.), you can increase the cash proportion of your take from a sale from maybe 40% cash upfront to something closer to 65 or 70%; but you’re still going to be leaving at least a third – if not much more – of your money on the table if you plan to take your foot off the gas after closing day.

If you think you want out in five years, my advice is to plan to sell in two, so you have some juice left to get you over the finish line, which is moving ever further away.

RSS Feed

0 Comments

Your comment will be posted after it is approved.


Leave a Reply.

    Picture
    Selling or growing
    ​your company?

    Sign up for Eric's weekly tips and insights.

    Click Here
    Picture

    Click Here

    Picture
    Picture
    Picture
    Sample & toc

    Picture
    Picture

    Archives

    December 2024
    November 2024
    October 2024
    September 2024
    August 2024
    July 2024
    June 2024
    May 2024
    September 2023
    May 2023
    April 2023
    January 2023
    September 2022
    June 2022
    March 2022
    February 2022
    January 2022
    November 2021
    June 2021
    April 2021
    February 2021
    May 2020
    April 2020
    January 2020
    December 2019
    November 2019
    July 2019
    May 2019
    April 2019
    March 2019
    November 2018
    July 2018
    March 2018
    February 2018
    January 2018
    July 2017
    April 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    June 2016
    May 2016
    April 2016
    March 2016
    December 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    September 2013
    August 2013
    June 2013
    May 2013
    April 2013
    March 2013
    January 2013
    December 2012
    November 2012
    October 2012
    September 2012
    August 2012
    July 2012
    June 2012

    Categories

    All
    Business Lessons
    Life Lessons
    Life Lessons
    Marketing
    Selling A Business

Powered by Create your own unique website with customizable templates.