One thing I really like about my job of selling businesses is visiting companies
and witnessing their operation. What I hate
is delivering bad news, and today I did both.
A business owner had called me up a week ago, and said he had around
$3 million in sales and around $400,000 in earnings. He started and operates a food distribution
business and was thinking of selling. We arranged to meet.
I headed out early today as it was a three hour drive to get to
his place (my plane is having some maintenance done). He gave me a tour of his facility and I was
impressed with the cleanliness and organization.
However when we sat down and started to go over the books,
things didn’t add up. It slowly dawned
on me what was going on. The amount of
product he distributed over one year added up to $3 million. The commission he earned on distributing that
product was $400,000, which would be his revenue. His
expenses (drivers, labor, rent, etc.) would be deducted from his revenue to get
earnings, which were a lot less than $400,000.
This fellow had looked on a major business-for-sale web site
and had seen a food distribution company that had sales of $3 million and $500
earnings that was asking for $1 million.
He thought, hey, I’d take that.
Unfortunately he isn’t there yet, since small distributors go for around
2 times earnings and his earnings were probably under $200,000.
I felt terrible delivering that news. You can imagine the disappointment he
felt. However, it is a fine company,
well run and growing. He has some new
business coming on line, and the future looks bright. He is going to keep the company and continue
to grow it, and I’m confident in a few years he’ll be at that $500,000 earnings