Buyer Lost Due to Poor Planning

Article Posted on 10/24/2019

You've worked hard to build your business with the hopes of selling it someday to fuel your retirement.  Countless hours of hard work, sweat and tears.  Many times you're the first one that arrives and the last one that leaves each day.  You've been so involved in the day to day you've forgotten to think about the future.  Or maybe that's not it.  Maybe you think about retirement all the time but just can't find the time to take the steps to really prepare for it.  Are you asking yourself these questions?  What are my financials going to look like to an outside buyer?  Will I have enough to live off of after I sell?  What about taxes?  A good succession plan doesn’t happen quickly.  Make sure that you're asking questions to professionals like your accountant, attorney & insurance broker.  It takes a team to help you achieve your goals.  Let me share a story. 

In mid-2017 we were contacted to provide due diligence on a business they were interested in buying. They had been working with an attorney on the legal side of things - this is important.  An attorney drafted buy-sell agreement is really worth its' weight in gold when it comes to business transition.  We focus on the numbers.  After looking at the businesses last 3 years of tax returns and operations we realized that there really wasn't any room for compensation to a non-active owner.  That was a problem for our buyer.  This was going to be an investment for him and he'd planned to hire a manager to run the day to day.  Not only was there not enough to pay the manager a reasonable wage but nothing left for him…. No return on his investment.  We recommended against the purchase.  What could have the current owner done differently?  In the years approaching the sale it would have been in their best interest to work with a skilled accountant that knows their industry.  Through that process this Red Flag would have been identified and steps taken to improve the situation.  Now, the owner has to keep working or close shop taking pennies on the dollar and our investor is looking for another opportunity.  Smart work by the investor…not so fun for the current owner.   Lesson - Don't fail to plan for the inevitable.  Some day you'll want to sell.      

Kopsa Otte
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  • York, NE 68467
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