From St. Louis Small Business Monthly’s Interview with Terry Lammers, published in the November 2018 Issue:
What are the challenges facing business owners when it comes to M&A?
Lack of knowledge, period — drop the mic! That’s why I titled my book You Don’t Know What You Don’t Know: Everything You Need to Know to Buy or Sell a Business. In my professional experience, sellers and buyers generally don’t know what they don’t know when it comes to completing a transaction. It’s not their fault; most business owners will only sell one company, and if you have never done that, it can be an intimidating process. Both buyers and sellers need a team of people behind them, including but not limited to a banker, attorney, financial adviser and broker. Transferring a business is a complicated process, but with the right team, it can be a rewarding process. My partner, Steve Denny’s book will be out in a couple of months, and he details two real examples he has had with clients — one who used a broker and one who did not. Don’t be afraid to ask questions and get the right people on your team.
What is the No. 1 piece of advice you would give to business owners, either those about to purchase a business or an owner selling his or her business?
Let’s start with those about to sell their business. Start early; there are financial and non-financial things that will affect the value and sellability of your business. The value of your business is not about what your sales or net income is; it is about what cash flow your company generates. If you don’t understand that sentence, call me. There are also non-financial things that can kill the sellability of your business, such as having contracts that are not transferrable or that nobody can run the company except yourself.
If you’re about to buy a business for the first time, make sure you have asked the proper due diligence questions. The seller is obligated to answer your questions, but if you don’t ask and there is a pothole out there, don’t expect the seller to bring it up. If you are a current owner and are looking to expand, an acquisition is an excellent way to grow. It was key to my success. Sad but true, oftentimes the seller is not doing the things that we have talked about in this article, and there is a great likelihood that you can acquire a company at a bargain price. I did several times. I have valued two companies for buyers within the past year that illustrate this. I valued one for $15 million and it sold for $8 million. I valued another company for $2.4 million and it sold for $800,000, and the owner was tickled pink because he was just going to close the doors and walk away. Ugghh!
What is the biggest mistake you see business owners make when it comes to selling their businesses?
Besides a general lack of knowledge about the whole process, leading the list has to be an overly high expectation about what the value of the company is. Have your company valued now by a professional so when it comes time to sell, you have a realistic expectation of what it is worth. The saddest thing I see is when I get approached by someone wanting to sell their business, their lifelong investment that they need the sale of to fund their retirement, and the company is worth less than what they thought it was worth. Oh, and that was before taxes. Taxes — oh, yes, Uncle Sam. Welcome your silent partner to the table. We often hear sellers say, “This business is unique and won’t be sold based on the financials.” This is completely wrong, and sellers need to appreciate that even for strategic acquirers, the financial performance always matters. Second on the list has to be lack of planning. Build your team, ask questions and don’t start six months before you want to exit. I call this the ostrich syndrome! Don’t stick your head in the sand — your retirement is coming whether you like it or not. Have you ever heard of the term “going out boots up”? Think about that.
You can reach Terry Lammers at firstname.lastname@example.org or (618) 688-2018. His book, You Don’t Know What You Don’t Know, can be purchased from Amazon here: https://amzn.to/2KQJVJ0 (the ebook is free!)
Click here to review the full November 2018 Issue of St. Louis Small Business Monthly: http://bit.ly/2OiydYF