Cautionary Tale #2: No Systems in Place

/in /by

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

/in /by

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.

Apex Success Stories #2: Process and Motivation Always Win

/in /by

Process and MotivationThis is an ongoing series of stories from our own clients about their experiences selling with us.  

We recently were on both the buying and selling side of a local dog-walking business. The business had a manager in place, as the owner lived out of state. The buyers were local, a couple who were looking for a “starter business” in which the wife would take over a managing role while the husband kept his job.

What made this transaction a win/win/win was the motivation and helpfulness of the buyer, and the process-orientation and seriousness of the seller. Put those together with two brokers from the APEX team, and things work out well, and quickly.

Funding

We’ve mentioned the importance of developing a relationship with a banker, and you’ll be happy to know, we take our own advice!

The buyer went to one of our bankers to get an SBA loan, as they didn’t want to use up their cash on hand. Our banker told them it would be more expensive to get an SBA loan, and it was smaller than the amounts they usually would fund, but they would do it if necessary because they’ve done so many deals with us and know that the diligence would be in place. But the banker said it would be a much better option for a number of reasons to simply get a home equity loan for the amount they needed to finance the purchase of the business, which was the option they ended up taking.

Diligence

Once an offer to purchase was agreed to, both parties started the diligence process.

The seller, though out of state, was consistently on the ball and helpful. The buyer had a demanding day job, and hence could only usually get to the requests on the weekends, but we came to expect emails on Mondays with all the questions we needed answered. The buyers had looked at a number of businesses prior to this one that just weren’t good fits for one reason or another. When they saw that a business was already being run by an absentee owner in concert with a manager, they saw a great opportunity to use all the manuals and processes that made such an arrangement possible, and leverage it to grow the business with local ownership that was also involved in operations.

Closing and Transition

The buyers and seller didn’t meet until the day of closing. The seller scheduled five days of in-person, intense training to help the buyers get started, and they have a clear transition plan for future questions. Every part of the sale, from the listing, to the offer, to the diligence, to the closing, and even to the transition, went “according to plan,” in great part due to a great match of buyer and seller. As brokers, we don’t create these solid, well-operated businesses, but we do know how to find the right people to buy them and take them over. This was one of those times when everyone checked their egos at the door, realizing they had a “job” to do in order to make this transaction happen, and then they did it.

We sell businesses of all sizes, from a local dog walking business to national construction firms.  Whether you’re looking to buy or sell, we are certain we can help!

Case Study #27: From Side Hustle to Millions

/in /by

Dog WashingAnthony Amos started playing professional rugby right out of school in Australia. But he knew he couldn’t do that forever, and anxious to build something for himself, he decided to start a dog grooming business with his brother – and not just an ordinary one – but a mobile one called HydroDog. He put an ad in the local paper on a Friday, and on Saturday morning he had nine bookings at $10 per dog. He knew he was on to something, and he and his brother excitedly went to their first appointments, accidentally bringing dishwasher detergent instead of the dog shampoo for those first nine dogs.

Goals

Anthony had never planned on washing dogs forever, but he stayed in that technical role for a long time, relatively speaking. The first six years in the business he and his brother worked “on the front lines” washing dogs while also signing up franchisees. Anthony notes that many franchisees were really edified and inspired to see the franchisors still very much “in the tools.” The business grew and Anthony and his brother soon hit 100 franchisees. “That’s fine for me,” Anthony noted, “I want to sell.”

But then he learned about master franchising, from the gentleman who had helped him set up the HydroDog franchises. He could sell territories – in the case of Australia, five states and two territories – and have master franchisors that reported to him. Within 18 months, he had sold all of Australia and hit another ceiling. He wanted to sell again.

Diligence Tests Relationships

The acquirer that Anthony found was looking for any reason to pay less than market price and used the due diligence portion of the process to do just that. This kept Anthony and his team buried in obtaining affidavits to cover documents that were missing but both parties agreed had existed. Anthony had made a practice of really getting to become friends (“mates” as Australians say) with the franchisees and master franchisees, and as a result, when this extra paperwork was needed for a sale, they were willing to do the extra work.

He couldn’t let the entire organization know, because, like telling employees before a sale is finalized, great instability could be caused. In the end, both parties got what they wanted. The acquirer got his due diligence “discount,” and Anthony got the sale that he wanted.

Not quite the end

Anthony took all the earnings he had and put them into Australian property development in 2007. The developer was US-based. You can guess what happened next. Anthony lost all that money and got lured to start HydroDog in America. He did, with the help of some financial partners. But they wanted to corporatize while he wanted to franchise and this led to his being bought out. Anthony ended up being right about the model and was able to buy back the business for pennies on the dollar when they went into liquidation.

He’s now continuing to build HydroDog, but in a new country, a little wiser but with the same hustle and passion.

Lessons

Anthony, like many Aussies, is very no-nonsense, and it was his instinctive, “time to sell,” feeling that drove each of the liquidity events that he experienced. What was important to him was being true to himself, especially when he hit a ceiling that he didn’t think he could grow beyond personally or professionally, whether that was 100 franchisees or 7 master franchisees.

He also learned a lesson we’ve seen in many of these case studies: success in one field does not necessarily translate into success in others. He had grown a franchise to 100 franchisees and sold it at the top of the market, but also managed to invest in real estate development, something he knew nothing about, just before the market bottomed out.

But in another recurring theme, he didn’t feel sorry for himself and wallow in self-pity. He got right back up and went after where he had been successful before, and where he carries on today.

Apex is actively searching for top quality candidates to join our team of Advisors. If you’re interested in a career helping people buy or sell a business, think you have relevant experience, and want to find out more, please call Doug Hubler, President of Apex, at (913) 433-2303.