I was recently talking to a business buyer about what he was looking for in a business. What he said all made sense; a B2B business, logical size range, wide geographic area, etc.
Then he said he needed a business on which he could pay off the debt (SBA, 10-year term loan) in half the time. That’s 25% annual growth, from day one. And yes, 25% can be achieved. A recent client grew 25% the first year. But over five years? If it takes one year to figure things out, all of a sudden, it’s about a 33% growth rate. But then came the kicker:
“And I don’t want to have to make any investment in the business (to achieve the growth).”
No new (additional) equipment, vehicles, marketing, or people. All the earnings go to debt reduction. This is fantasy land. And it makes me wonder what other fantasies are out there. Some that come to mind are:
- A business seller believing his or her business is so special traditional valuation methodologies don’t apply to their business.
- Owners thinking it’s easy to find good salespeople.
- Advisors (and salespeople) figuring because they know what they’re doing the phone will ring.
- Business buyers thinking an owner with no family in the business has no good options, other than selling to them with a low down payment (actually this owner has all the options).
- Company founders believing a bank will lend them money based on their great idea.
I’m sure you’ve seen many more fantasies.
“We are living in a world today where lemonade is made from artificial flavors and furniture polish is made from real lemons.” Alfred E. Neuman
