As a business broker, I’ve come across all sorts of unique situations, many of which have helped illustrate a number of life lessons.
Growing up, I could never figure out the saying “You can’t have your cake and eat it, too.” When I met a rural Northern Nevada retailer who for years was experiencing double-digit growth but not showing it on his tax returns, I came to understand what this phrase meant. He was disappointed that he could only secure an offer based on his “official” books, not the dusty ones he kept in the credenza behind his desk.
We’ve all been told, “Don’t look a gift horse in the mouth.”
Consider the example of a Reno business owner who had been in business for two decades. After three years of solid growth, he wanted to take advantage of strong market conditions to sell the business.
While a qualified buyer was drafting an excellent offer, the seller caught wind of a potential increase in business from a key customer, shrugged off the buyer, and decided to keep the business. Well, as it turns out, the extra business never materialized, nor did the buyer.
We have all heard the saying that, “if it sounds too good to be true, it probably is.” There was a Reno retailer who learned this the hard way from an out-of-state broker who told him that his business was worth $7 million.
This large number was hard not to notice. Unfortunately, this seller didn’t notice the $35,000 bill that went along with this “appraisal.” The “appraisal” also did not bring forth a buyer — at least not at that price. It sold three years later for about half that amount.
Remember “Know when to hold ‘em, and know when to fold ‘em”? A Carson City service business seller didn’t. He received three offers for his business in a relatively short period of time, the last one being almost exactly what it was listed at.
The seller knew this last buyer had deep pockets and decided to try and grind out a few thousand more dollars with one last counteroffer.
The would-be buyer recognized this and canceled the offer and bought another business. The would-be seller still has the business two years later.
On a more positive note, I’m fortunate to come across many owners who “don’t cry over spilled milk.”
The business owner I respect the most is the owner of a Reno manufacturing business who had about 80% of his revenues from one key account. When that key account went bankrupt, his business almost did the same.
However, instead of turning off the lights and closing the doors, he has made up this lost revenue by securing a number of smaller accounts, which has actually increased his prospects for sale in the last three years.
Fortunately for us all, Northern Nevada has many more of these types of clients that we can all learn from.
Finally, business sales are not the same as residential or commercial real estate sales (Real Property). Most buyers purchase businesses based on four things: steady or growing sellers cash flow, good employees, larger customer base, and opportunities to grow.
The residential real estate market is driven by demand, and currently, housing is a limited resource, hence the inflated prices of homes and land. This is not the case with most businesses.
Buzz Harris is a Licensed Business Broker with The Liberty Group of Nevada. Contact him at BHarris@TheLibertyGroupofNevada.com.