By: Tom Houle
01/14/2020
As a former business owner, I found myself on the receiving end of that phone call at least five times a week, so much so that I stopped answering any of the calls. But, what if there was an opportunity that would benefit my stakeholders, or would be advantageous for my family?
When determining whether to answer the call, I asked myself many of the questions that I am sure have crossed your mind. I hope my comments will help you with your answer.
How did they find me?
It is not hard to find a list of business owners, either by location, industry, or SIC code. Competitors and suppliers are also sources of information. If you are running a successful business, you are well known to those both in or outside of your industry. The caller will usually not possess any information that is not in the public domain. Yet there is a treasure trove of information available.
Does the caller REALLY have a buyer?
Most likely, the caller does not have a specific buyer in hand. However, many business brokers and financial intermediaries have relationships, whether formally or informally, with private equity firms, serial acquirers or actual companies that are looking for opportunities. The easiest way to determine the legitimacy of the call is to ask the caller the specific entity they are representing. If they are not straightforward in identifying their firm and their affiliations, it would be best to leave them with a dial tone.
With the large amount of capital committed to private equity firms, the limiting factor is the lack of target companies willing to sell, not buyers lacking cash. Legitimate firms are calling companies to gauge interest. Before giving any information, check out the caller with your financial advisor, banker, lawyer or accountant. Your professional team will be able to help in this area.
With these considerations in mind, most of your quality financial intermediaries will likely come from personal referrals, or industry relationships developed over a number of years. A friendly competitor might also inquire.
Other questions to consider.
Is the business capable of keeping up with the changes occurring in the industry? These could be innovation, technology or compliance demands, all of which require management and financial resources.
Am I losing business to more efficient providers, or are we losing to a profit destructor? Am I a mid-tier manufacturer taking price from larger more efficient organization, or am I a niche player who can set price?
If I expand, am I now competing with a different group of competitors?
Do I want to take on additional personal guarantees to expand facilities or add additional equipment?
Is our product or service part of a growing category, or are we competing in a flat or declining market?
Is there a family member or key employee that I am grooming to be part of the next generations of leadership?
Are my financial records accurate and up to date?
Am I ready to sell the business or am I having a bad day?
Do I have enough financial resources to retire, with or without the proceeds of the sale?
I have found that, as an owner, if you start listening some part of you wants to explore a sale. I would take a step back and give thought to your professional and personal reasons for exploring a sale. Your team should go through a thorough SWOT analysis, and answer these and other strategic questions.
The long term profitability of your business maybe out of your control, it might be the right time to maximize value.
So, do you answer that call from someone looking to buy your business? The answer, unfortunately, is maybe. But understanding what you want and why you want it are critical before answering the call.
It is my experience that business owners can get caught up in the process of the sale, and overlook many important factors that will determine long term positive outcomes for themselves and their family. Also, going through the process of a sale can result in a lack of focus on the business itself, causing irreparable harm. I would make a rational decision to engage after consulting with my full financial and legal team. After you have made the informed decision, it might be time to answer that call.
Tom is the director of business development for Homrich Berg, an independent Registered Investment advisor based in Atlanta, Georgia. He successfully purchased and sold two manufacturing businesses based in Jacksonville, Fl.
