In general, my partners and I enjoy what we do – selling businesses. Like any occupation however, events occasionally conspire to create a truly rotten day. This was on one of those days.
Fortunately it wasn’t my day this time. My partner Fred had the honor. He got a call a week ago from a business seller. This business had about $4 million in revenue. They sent their 2006 and 2007 profit and loss statements and they looked good. Using rules of thumb quicky analysis, Fred thought the business was likely worth around $2.5 million. Had he known just a bit more, he would have known the margin of error on that analysis was about $2.5 million.
Fred made an appointment with the seller in order to do an interview so he could work up a proper valuation. He spent hours the day before doing research on the industry, and the day of the appointment got up at 5:00 am in order to drive the three hours to the meeting.
During the meeting Fred mentioned that it takes six to 18 months to sell a business. The seller was shocked. He said he had to sell “now” and didn’t have six months. It absolutely had to sell right away. That is rarely a good sign, so Fred pressed for more information.
The business, unfortunately, had the bad luck of getting hammered with the rising fuel costs, and at the same time had some financing problems. The seller admitted the business was about to be shut down, and sometime during the conversation he also mentioned he was preparing to leave the country (“flee” may be a better description). And oh, by the way, could we possibly just get the listing up on the Internet tomorrow? Fred is thinking that he just wants to go home. Which he did.
It is part of our job to spend significant amounts of time analyzing businesses and assisting business owners before we enter into a representation agreement. Sometimes over a period of years. We don’t mind, except when we are being manipulated by a business owner. Although it is certainly a shame that the business is in such a dire situation, the owner was not exactly honest about his situation, and it certainly seems he didn’t intend to be forthcoming with all this information when dealing with a buyer. Not a good deal for anyone.