Fitting the Pieces Together – A Recent Success Story

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SuccessStory-PuttingPiecesTogetherWe enjoy sharing success stories about the buyers and sellers that we work with. We had a business owner with a technology based company that wanted to sell. They were asking $950K for the business based on the current revenue stream. (This was all happening in the middle of 2011.) Potential investors were concerned that the core technology might be outdated, so they kept passing on the opportunity.

The seller continued growing the business through new implementations of the technology. Over the next six months, they also bought a competitor. (Interestingly, our buyers had a chance at that business as well, but passed again because they were still nervous about the technology.)

Fast forward to January 2012. The asking price went from $950K to $1.9M because of the acquisition and overall increase in revenue. The increased asking price was justified based on performance. The happy ending is that the seller just accepted an offer for close to the full asking price.

Everyone wins in this story:

The seller had bought the business with a plan to grow it and sell it for a profit. Accomplished.

The buyer had been looking for a business for 4 years. It is a husband and wife team that really liked the clean cash flow and growth potential of the business. They had experience with the core technology and are excited to own and grow their own business. Success.

Connecting buyers and sellers so that everyone wins is what we do best. If you are on either side of that equation, we would love the chance to talk about how we can help.

Capital Gains Taxes Set to Raise in 2013

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Capital-Gains-Taxes-Are-Going-Up-SMALLERCapital gains taxes will be going up from 15% to potentially 25% in 2013. If you are doing a deal that is valued at $1M, that can make a big difference in what you are able to put in the bank after selling your business to the tune of $100K. If you are close to retirement or thinking about selling your business, you should move aggressively to prepare your business. You will realize a substantial savings if you close by December 31st of 2012.

The shocking thing to us is how little this is being talked about in Kansas City. If you are reading this and you know someone who owns a business, please consider forwarding this on to make sure they are in the loop… you never know when they are considering a sale of their business.

There are many sources on the internet documenting the potential rise and we especially liked the article from Forbes discussing how the increase could go based on various legislation. (Source link: Forbes, January 24, 2012)

Too Much Revenue for ONE Customer?

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TooManyEggsThis is another real world story of the interesting situations that we find when brokering deals.

We had a great business with great cash flow and great products. On the surface, everything looked like this was a business that could be sold at 3 or 4 times cash flow. When we dug deeper, we found that there was one huge customer. Yes, the customer was profitable, but they made up two-thirds of the business revenue. That is challenge enough, but it got worse. The account manager for this major customer was a family member of the owner, and was being paid twice the market rate for their position.

The price of a business gets discounted for each of these situations separately, but when combined, it makes it almost impossible to get a deal done. In this situation, the person that would benefit the most and have the best chance for success, as a buyer, is the family member. But they are also the individual with the most leverage to influence business price.

What could the business owner have done to have a better chance at selling? The business owner needed to be making strategic changes at least 12 months before trying to sell. The first move would be to get a new account manager involved with the major customer to minimize the risk of the relationship with the family member. In addition, it would be a good idea to have an employment agreement in place with the new account manager that includes a non-compete. The harder thing is to expand the business so that one customer doesn’t represent so much of the revenue stream. Not easy, but this can be done.

If everything can be fixed except for the customer concentration, you could probably sell, but be prepared to finance the buyer.