(by Eric Gilboord, author, speaker to Family Businesses and CEO, WarrenBDC for Help Buying, Selling & Enhancing Companies)
It’s not necessarily a bad thing if you’re doing what you love. Work the hours you want and make the money that affords you the life you desire.
This is commonly considered a lifestyle business. The owner grows the company only as far as he/she is comfortable managing. Typically, but not always, lifestyle companies do under $3 million in annual sales. That doesn’t mean they couldn’t do significantly more, just that the owner(s) have chosen not to.
What owners think: When it comes to selling, they have an idea of how much more cash can be taken out of the business and what they think it could sell for. Owners think they’ll stay around for a little while and that should be all the new Owner needs to transition the company.
What buyers think: To a buyer this is considered a lifestyle business and a risky investment. The big question they will be asking is this. Can the business survive or thrive without the owner? The buyers are thinking, what if the owner gets hit by a bus or gets sick or just quits?
Need to do: What owners must do is make sure the business runs without them.
More to do: What else can an owner do to evolve beyond the lifestyle stigma? Execute on the ideas placed on the back burner. Look into buying one or more of their competitors. Provide incentives for staff to help with the growth plan.
Why bother? Mostly because none of us really know how much is needed to live out our life in real comfort. When you think beyond your immediate requirements, the needs of parents (senior care and medical bills etc.) children and grandchildren enter into the mix. Who knows what our government will do to make things even more difficult. How much is needed to retire? I don’t believe anybody really knows and erring on the side of more is not a bad idea.
Sell for more: For owners of companies, with annual sales, in the $3 million and under range; which is the bulk of small business, this is what you might want to consider. As you run things now, you will likely be able to sell for 3-4 x ebitda. While that can be a considerable amount of money to supplement your retirement fund it isn’t the whole enchilada.
What both want: Buyers are typically looking for companies with at least $10 million in annual sales. If you can grow your business to over $10 million in annual sales organically or via acquisition and increase the value by improving each of the departments you may be able to sell for possibly 6-7 x an even bigger ebitda.
I don’t know about you, but that’s life-changing money to me and my friends.
So what are you going to do? Sell at the size and operating style you are currently or put some energy into the company and go out on an amazing high?
Email Eric at Eric@WarrenBDC.com