Is it Time – Part II
My last blog discussed certain business sale aspects, and today I’d like to get into more detail about two critical issues. Last time I had mentioned that before you actually put your catering business on the market, you have to be ready to be done. If you are sure that it is time to part with your baby, please consider the following:
Your dream buyer would need to have enough cash to pay you in full at the closing. If this is the case, you could just walk away and move on to your next project. Or could you? Would you be able to divorce yourself completely from the entity you have created and carefully nurtured to success? Would be you able to place your valued customers in someone else’s hands? Could you avoid the urge to “just stop by” and see what’s going on?
Note that, as part of your dream buyer’s required skill portfolio, I didn’t mention basic business acumen, or equally importantly, solid food service business experience. If someone pays cash for your business, should you really care if they destroy it in six months or a year? Those who know how to move on would say no. Those who cannot break the emotional bond they have with their company may have a problem here.
A few years ago a client listed his $900,000 social/corporate catering business for $300,000. He had a rented facility, a few vehicles, but a well-documented and detailed client list. His prospective buyer had received an insurance settlement because her husband had been killed in a construction accident. She knew how to cook at home, but had little genuine business experience. She was looking for a business that would provide a nice income, she was willing to work hard, and my client legitimately showed her how much money she could make, how soon she would be able to pay him off, and how she could set herself up for the future.
The buyer agreed to pay the full price in cash, and my client quickly retired to Arizona. The buyer took the business and quickly ruined it; it was gone within a year. I don’t think my client has ever looked back. Would you be able to react like this? If not, maybe it’s not the right time to sell.
Being the Bank
As I told you previously, more times than not you will be asked to finance part of the purchase price. If you are asking $400,000 for your $1.2 million business, a number of potential buyers will inevitably offer you $100,000 – $200,000 in cash and ask you to carry the remainder. Obviously, you need a good CPA and a competent business lawyer at this point to make sure your interests are protected. For example, you will need the ability to reclaim your operation if the buyer defaults, and you may want to require additional collateral to back your loan, like the buyer’s primary residence, for example. I’m not going to go into detail about the legal aspects of being the bank, however.
My point here is that if you do agree to finance the purchase, you are not only still married to your business, but you are also closely linked to the buyer. You are going to hold your breath each month as you wait for your monthly check to arrive, and you will generally worry about the way your business is being run.
What if your buyer is making payments but ruining your business? What if you find out that customers are unhappy and employees are quitting? What if you know that the business is on the way to disaster, but for now, your buyer is still making payments? While you could always terminate a bad manager, you can’t really fire your buyer until he or she breaches the contract you both have signed.
Doom and Gloom
Sorry if this post seems brings up a lot of negative scenarios, but believe me, I have seen all of these occur. My goal is for you to understand that while life after a business sale can be great, there are many issues to consider before you do decide to list. If you are thinking of selling, I would be happy to schedule a call where we could do a more in-depth situational analysis.
Please don’t hesitate to contact me! I am here to help you with all business aspects that concern you.
By the way, don’t miss the next member’s-only blog as we’ll look at the other side of the transaction-how you can rapidly grow your business by purchasing a competitor.