The Math of Being Sellable

“I’m nearly 70 years old and I want to retire and move overseas to be closer to my family. I’ve started and grown this business by myself for 20 years. I’m tired. I had to put up with so much hostility and discrimination – especially as the only woman in my industry during the late 1990s and now I want time to relax…  I have had offers but they were too  low…   not even  $2 million for my business that  has been profitable for ages and can run without me…”

This was my discovery conversation with one of my first clients.

She had a good business with streamlined operating costs and a just in time inventory system that kept wastage to a minimum and gross and operating margins high.

She had consistent profits – took a significant hit in Covid but had rebounded and was on track for double digit growth.

The business had grown by word of mouth. Had a niche with blue chip clients but plenty of room to expand both locally in Dubai and throughout the country and the region.

She had done some things right.  She had mostly taken herself out of the day to day operations and had empowered a team to run the business without needing her constant supervision and feedback.

She had a good book of business with valuable and loyal customers who bought from her year after year.

And she ensured  that no  supplier, employee or customer could take the business hostage or extract money at its expense.

But she was not receiving the offers she wanted.

In fact they were $1 million or more below what she wanted and felt was fair.

Her risk was low, her documentation was fair,  her transferability was excellent and  the growth paths were excellent.

So that is where we started.

We highlighted her growth paths and put in place the strategy and solutions that a new buyer could  start running to capture quick growth.

She didn’t market or advertise so we put together the plan  that the new buyer could use to double market share in both Dubai and expand into new markets across the region.

We also focused on the products that had the biggest bang for the buck and she accelerated growth in those attractive segments.

Finally, we put together the material for investors highlighting her excellent cash rich business and the growth paths open to a buyer.

But one area she didn’t listen was in the financial reporting – specifically the incompetence of her in-house accountant and external auditor.

I urged her to replace the auditor (who in one report had 3 different starting dates for the business to give you an idea) and outsource the accounting (the in-house accountant couldn’t produce PNL for the last 36 months so I had to do it manually) at least six months before going to market.

But she refused as she didn’t want to pay the fees or have delays.

So the growth story captured the offers she wanted – in fact she went into due diligence with two offers $1 million above her target..

But the financial reporting got her stuck in due diligence.. for months..

And so take a lesson from the math here.

The offers represented a pay day 5x greater than what the company paid her over it’s entire life cycle (wages, perks and dividends combined).

So making your business sellable is the key strategy to focus on from today.

But the poor financial record keeping quality cost her hundreds of thousands if not millions.  A completely avoidable issue that just a couple of thousand dollars would have addressed.

So neglecting to make your business sellable by cutting corners on proper financial recordkeeping is a killer… and a brutal math lesson hard to forget.