What’s wonderful about working with small business owners is that they allow me to learn how to be a better parent to my teenagers. All I need to do is take a call from a business owner and be amazed by their ”logic” and complete inability to listen to advice from someone who has been there before. Unlike my kids who don’t ask for my advice but have to hear it anyways, the business owner actually called and asked for my help.
Let me walk you though the call. The SBO is a referral who called asking for help in selling his business. Through a little Q&A, I learned that his company has had shrinking revenues for the last three years and they are down 30% since 2006. They have debt secured against the company assets in excess of their value and the debt service, along with lower revenue, has caught him in a cash pinch. He said he wants to sell his business so he can get out from under the debt. OK, I understand the reasoning, but… is selling the right strategy? Now, how many times have I asked my teenager that question?
Regardless of the current lending market, I explained to him that this is a difficult sale. Buyers and banks would not look kindly on a company’s revenue going down each year when the times were as good as they were over the last three years, and much less now that things are tougher. Right now, the market is terrible for financing. Banks are not lending, private equity investments are extremely limited, if available at all, and buyers are in short supply. I told the owner he couldn’t even give it away because the debt is secured against the only assets the company has and would be in excess of the sales price. On top of it all, the business owner has done no forward planning, no financial planning, nor ever sold a business before.
Yet he argues with me. He tells me I’m wrong, there is value and someone would want to buy his company. I suggested that instead of selling it right now, he should look at refinancing with the creditors and aim for a work out with the bank. He could then manage the debt payments, reinvest the cash back into the company, turn the sales around and build an exit strategy.
Like trying to negotiate with a teenager, using logic doesn’t seem to work. He would not listen to me, he went on and told me that he has been in business for 18 years, the market place has a lot of growth opportunity and he knows exactly what a buyer should do to turn it around. This is all fine and good, but if a buyer can’t finance a deal due to market conditions, his opinion on how the of the business opportunity, is beside the point. Wow, had he listen to anything I said? Unfortunately, he’s wearing the foggy seller’s glasses and can’t see straight. He is emotionally defensive and feels in his gut that someone will buy it.
Once again I tried to explain the current lending market and that buyers are very, very picky right now and that it might be better to wait, build an exit plan, evaluate the market place and then look to sell it. I tried to explain that selling a business is similar to selling a house. When you have peeling paint, carpet stains, holes in the walls and weeds in the yard it is a more difficult sale. He said he understands my position but he would like it sold anyways.
I give up. Like the two hemispheres of my teenagers which are not developed enough to use logic, so this seller’s emotional attachment to the business defies market realities. I must move on.
Business owners are like kids sometimes and they need an objective, fact-based explanation of “the way things are.” I told this owner the truth, he doesn’t agree, so I suggested that he move on to someone else who would better assist his goals. I only wish I could do the same thing with my teenagers, but they seem to keep coming home.
Tags: financing, lending market, market conditions, SBO, teenagers
