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For anybody daydreaming of a nice payday from selling their small business, @BrentBeshore’s “The Messy Marketplace” is a must read. Here are my five biggest takeaways:
1. You might be better off not selling: A business owner with more runway for growth is often better off holding and growing the business.
To illustrate, if your biz would yield a 3x earnings multiple, rather than sell, you could... (cont.)
To illustrate, if your biz would yield a 3x earnings multiple, rather than sell, you could... (cont.)
run your business for three more years, make the same amount of money (roughly), AND still own your likely bigger and more valuable business at the end of it
2. Not all valuations are comparable: a seller might say your biz is worth $20m, but the key is in how it gets paid.
If most of the sale price is paid out as a seller note or an earn-out (versus cash up-front), you are shouldering the risk that your “payday” might never come
If most of the sale price is paid out as a seller note or an earn-out (versus cash up-front), you are shouldering the risk that your “payday” might never come
3. Selling a business is difficult: it can take months or years to qualify buyers, conduct due diligence, and close, with plenty of potential pitfalls along the way.
I was shocked to read that 75% of LOI’s never close
https://abs.twimg.com/emoji/v2/... draggable="false" alt="😱" title="Face screaming in fear" aria-label="Emoji: Face screaming in fear"> Selling is an emotional rollercoaster, to say the least
I was shocked to read that 75% of LOI’s never close
4. Not all buyers are created equal: sometimes the buyer offering the highest price up-front will also be the one dragging you through a painful diligence and retrading process, hooking you with the high offer and then nitpicking their way to a lower number. Instead of... (cont.)
just looking for the seller who will offer the most $M’s, look for sellers with a track record of integrity, good communication, and the ability to design a payment structure that matches your priorities
5. Good partners are worth their pay: the book of proverbs says, “Plans fail for lack of counsel, but with many advisors they succeed.”
Get a good attorney, accountant, and intermediary to walk through the process with you. If they’re good, they can save you $M’s
Get a good attorney, accountant, and intermediary to walk through the process with you. If they’re good, they can save you $M’s
A side note: I’m a slow reader. But I read this book in a day. It’s short and concise, and is probably the best “by the hour” educational value I’ve gotten from a book in a long time
Another note: most of the book is written from the standpoint of a single seller, versus selling a 50/50 or 3-sided partnership. I would have appreciated learning more about navigating the challenges of selling a business without a majority shareholder
To conclude, Brent’s book gave me a crash-course in selling a business and it was hugely worth the time and money invested. To any business owner who’s ever thought about an exit, I can’t recommend a better place to start
