What does the owner really want?
By Ed Mendlowitz
77 Ways to Wow!
A friend just sold his business and retired. The price he received was not a life-changing sum, but the future time he gained was priceless.
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People who own a business make their livings from it while also accumulating savings for their sunset days. Many work until they drop. Some have foresight to leave earlier. Some don’t contemplate ever retiring, but a health scare delivers a reminder of their mortality and then they decide that life is more than just working. After all, the purpose of working is to make a living. When wealth is secure, why continue working?
For some it is an identity issue, not imagining themselves separate from their business. Others never developed interests outside of their business and need to keep working, they feel, to maintain sanity and keep the juices flowing.
If a client owns a business and want to keep working, that’s okay for them. However, if they want to start a new phase of their life that could last 20 or 30 years then consider the following.
What they receive for the business is not important when measured against the new life being given. I know people who say they want to sell and retire only to keep raising their price or setting terms that are not viable for the buyer. The serious sellers get a reasonable price and walk away. I am often asked to negotiate or evaluate a proposal. With rare exceptions every deal ends up within a ±20% range. Twenty percent is a large amount and no one should be flippant about it or settle for a giveaway price, but it is probably not large enough for a client to hold off starting a new phase of their life. A phase that will be without concerns or worries about cash flow, personnel, suppliers, inventory, customers, bad debts, deliveries, competitors, bank covenants, leases, disaster planning or the credit markets.
The ±20% is pre-tax and pre-broker-commission. The other added costs are based on the price received. The net from the extra 20 percent can be further translated into the reality of about a 4 percent cash flow from the remaining additional amount. That is the difference holding up a sale. The big picture is gaining 100 percent of their time. It seems to me for most people the small reduction in potential cash flow is simply not worth it.
What does the client want? They need to decide and then either do nothing or get it done – their life or an extra 4 percent per year on the difference.
Work Hard and Retire When You Are Able – A Little Story
About 290 years ago, a 17-year-old boy ran away from home with barely enough money to live on. He got a job as a printer and worked very hard and became pretty good at it.
About six years later, after a series of mishaps, he decided to go into his own printing business. At first, he did everything himself – wrote the articles, set the type, prepared the paper, mixed the ink and worked the press. One time, he had everything ready to print and he dropped the type that he set and had to do everything over. Not only was he very upset, but he had to work through the night doing it. Neighbors noticed the candle lights on when they went to sleep and noticed the lights on when they woke up. The neighbors didn’t know that everything was being redone and they thought how hard a worker the printer was, so they started giving him their printing business. He learned from this that it was very important to work hard but just as important to make sure people knew it. He became a good “promoter” and busied himself with many volunteer activities to network and meet people who would become his customers.
His business grew so much that he was able to hire people to assist him and even invested money with printers in a dozen other places to form partnerships with them. He also leveraged his conventional printing business to writing and publishing a newspaper and books. One of his books was an annual almanac that became the largest selling book in the American Colonies for 25 years!
His investments and publishing made him so rich that he was able to retire from the printing business when he was just 42 years old.
This man died 42 years later as one of the richest men in America. However, he isn’t remembered for being wealthy or for the businesses he started. He is remembered for what he did after he retired and got time to devote to non-business activities.
One of those things was to help create the United States of America by signing the Declaration of Independence and the United States Constitution; he also formulated the theory of electricity and invented bifocals. His picture appears today on the front of the $100 bill and the back of the $2 bill along with Thomas Jefferson and John Adams. His name was Benjamin Franklin. By the way, his “Poor Richard’s Almanac” is still being reprinted today.
