I listened to this Podcast with Carl Allen on https://www.thesaleswhisperer.com/blog/carl-allen-entrepreneur hosted by Wes Schaeffer.
As always I enjoy Podcasts and conversations about buying and selling businesses.
Some of this Podcast is great, and one all business owners should listen too and the reason I am recommending is that he is going to give you some rather harsh reality of selling your business. This Podcast was telling buyers how to take advantage of people selling their business.
Reference point 1 – Carl Allen quotes a statistic there are 20 million business in North America and at any point, 2 Million are for sale, he claims roughly 1 in 13 sells. Wither it is higher or lower is always debatable, I would say he is drumming home the point though, most businesses don’t actually sell they close.
Reference point 2 – He covers Business Brokers and how they actually hurt the process of a business owner selling their business by overvaluing it. This is a true point, if you have decided to sell your business you get a professional 3rd party valuation so you can understand the true value of your company. Brokers are transaction specialists, not valuation experts.
Reference point 3 – This is more for buyers than sellers – he speaks glowingly the SBA Loan. I have been part of multiple deals with an SBA Loan, and I stop short of using the SBA loan myself. It is a great program, but Carl Allen makes it sound like the Government just created the fund and will loan anybody money to buy a business. That is incorrect, the loan itself is crippling, the SBA will freeze your assets, collateralize everything you own, and you will not be able to touch any assets you have while you have this loan. If you need a loan try your local bank or a bank familiar with the business first.
Reference point 4 – He talks about a The Leveraged Buyout—LBO. I have personally been part of over 50 deals, I have never seen one in a small business. What he is talking about is the business financing itself on its assets and receivables. If you are NECCO and you are a $100M dollar company failing maybe this can work. In a small business, I don’t see it.
Mr. Business owner this is what he is teaching people to do to you-you have a $1M business that you make $100K EBITA from. He says the value is 3X EBITA or $300K. He says on average your receivables would be $250K or 25%. He wants his students to get an LBO loan of 75% or $187,500 to help buy the business and do a combination of Cash and owner financing for the remaining $112,500. I would agree that in most sales owner financing is a reality.
I sold 12 of my own businesses and never once I did I offer to “Give Away” the receivables and receive almost no other value. If you do this you are basically selling your business for the receivables. You may be better off liquidating it and collecting the receivables. Typically, in a sale, you keep the receivables and get paid an additional value.
He is specifically talking about distressed businesses and teaching people how to find them.
As an owner of a business, I would recommend listening to this because this in many ways is your reality. At some point in time, you will be faced with exiting the business. It could be health, boredom, new opportunities, retirement, partner issues, ect . . . and you will be facing a long journey with a Business Broker and most of those journeys end without a sale, then a possible distressed sale as Carl Allen is talking about.
There is another way. Start planning your exit today even if it is years away. Find your buyer long before they even know you are looking at them to buy your company so you don’t end up in a predatory situation from one of Carl Allen’s Students.
I listened to this Podcast –