Mergers & Acquisitions Advisory

A Neumann & Associates, LLC

September 8, 2014

What Could Possibly Go Wrong? The Seller with No Time

By Joseph Eneldas

what-business-owners-and-buyers-need-to-know-about-seller-financing

Last month, I addressed one of the two worst things we’ve seen happen in the M&A world.  In that article, I talked about the worst one: the buyer with no money.  In this installment, I’ll discuss the other awful situation we run quite often – the seller with no time.

The “seller with no time” story begins like this:

The owner has had his business for many years and has built up both a loyal customer base and a loyal cadre of employees.  In many ways, the business is his pride and joy.  Except for his nice home, the kids’ educations, and a few toys, just about every spare nickel has been reinvested in the business to make it better – to build a new facility, to take on a new product line, to invest in a new computer system.  He has a life insurance policy, but he hasn’t really created a separate IRA or 401(k) or any other retirement vehicle.  His business IS his retirement.

Not that retirement is a big deal.  He thinks about retirement from time to time, but it always feels to him that retirement is something to be done “later,” at some undefined point in the future.  Inevitably, though, something happens.  He could have a medical issue, or one of his friends could get seriously ill.  His family and friends may start bugging him to retire to Key West.  Or one day he may wake up to realize he’s pushing 70, or simply decide that the business just isn’t as fulfilling as it once was.  He decides to explore selling the business.  He meets with a financial advisor, who both helps him determine a target nest egg ($3 million, let’s say) and suggests that he enlist a business broker to help him sell the firm.

“On the face of it, we’re very happy to meet such a guy,” says Achim Neumann, President of A Neumann & Associates, a New Jersey-based M&A Advisory and Business Brokerage firm.  “He’s got a successful business, a good track record, and is motivated to sell fairly soon.”  So we begin to work with him to establish a value, obtaining a lot of information about the business and its financials, then “re-casting” the financial statements to determine the amount of “seller’s discretionary cash flow” the business is generating.  We provide the recasting to an independent valuation firm, and they come back with a fair market value.  Unfortunately, the fair market value is only $1.5 million.  Now what?

There are two variants to the “seller with no time” scenario.  In one, the seller decides to go through with the sale.  However, instead of retiring to Key West, they may have to retire near to their current home.  Instead of living a soft retirement after years of being responsible, they’re left with pinching pennies harder than ever.

In the other variant, the seller decides that he has no other choice than to continue working.  What caused him to want to retire – medical issues, family pressure, or a desire to just step back from the stress of owning a business – hasn’t gone away.  But now, he’s forced to go on, even though he doesn’t want to and it may not be good for him.  In some instances, we’ve seen people in physically demanding professions like construction be forced to continue with back-breaking tasks into their seventies.

So what could that business owner do?  “We tell all of our clients – and our prospective clients –  that it’s critical to obtain an independent business valuation at least 3 – 5 years before they would even contemplate retirement,” says Michael Gersten, Managing Director of A Neumann & Associates’ North Jersey Region.  “If you find out early enough that your business isn’t worth what you need to retire, you can take steps to fix it.  If you wait too long, you’re stuck between a rock and a hard place.”

“Many business owners balk when we tell them to get a valuation early – because it costs a little money,” says Gary Herviou, ANA’s Managing Director for Central New Jersey.  “But put in perspective, a professional valuation can cost only about one-quarter-of-one-percent of annual revenues – an insignificant drop in the bucket compared to the risk of being blindsided later.”

Steve Wrubleski, Managing Director for Southern New Jersey, puts it a little differently: “Not knowing what your business is worth is like not opening the envelope with your 401(k) report until the day you retire.  You may be in for a surprise – and not necessarily a pleasant one!”


About A Neumann & Associates, LLC

A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732-872-6777 or info@neumannassociates.com

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“ I appreciate your diligent approach to screening buyers and sellers as well as the high quality CIM that you produce.”

Andrey O, Investor

“Finally enjoying retirement after recently selling my business using the services of A Neumann & Associates. Joe Oddo provided the conduit to a successful transaction. Joe knew when to inject input and when to simply listen and allow the buyers to vent, step back and regroup. The outcome met our expectations and got us to the finish line, which included my staying with the company six months in order for the buyers to get their footing and keep our workforce in the loop. He helped at every step by providing his expert guidance & resources. Thank you!”

Emily Parker Myers, Co-Owner - Myers McRae

“I had been in touch with Karin and Gary from A Neumann & Associates regarding some opportunities and was looking forward to meeting with them. Hence, when they organized a seminar in Princeton, NJ, I was quick to sign up. The seminar was very informative as the team walked the attendees through various scenarios and referenced real life buying/selling situations they had been through. The sessions by Gary, Karin and Achim were crisp and focused and brought clarity to potential seller and buyers. I strongly recommend the team and look forward to continue working with them.”

Gaurav Tyagi

“Thank you for your Event on "How to value, Sell, and Buy A Business for Maximum Profit" and the insight into ANA’s approach on what is involved in the Business Exit for sellers. Garys Hervieiou's "Business Valuation", Achim's "Deal structure" presentation and Karin’s "Preparing the Package" are real street knowledge shared. They answered attendees questions which makes it more interesting for learning from others. Great for small businesses like us. The presentations were totally worth our time and travel for the event to Princeton, NJ from Rockville MD. Ravi Bhutani, President, CIPS”

Ravi Bhutani

“Gary, this is to thank you for an excellent job done in selling our business. We could never have done it without your professional expertise, dedication and time put in without reservation to make it happen. We will gladly and highly recommend you to anybody in our position.  It was a pleasure to work with you.”

Pat Iammatteo, Owner

“Your vetting is simply outstanding, among the best I've seen from a broker.”

Eric H., Investor

“I recently contacted A. Neumann and Associates about getting a valuation of my business done. I spoke with Marc, who explained the process in detail. After meeting with Marc in order to get a clear understanding of my business, and what I was hoping to accomplish. His patience in answering all my questions and his knowledge of the proper way to market my business gave me great confidence that this is the firm I will be using to sell my business for max value. Working with Marc at A Neumann & Associates was very easy and professional. I did not know all that was going to be involved in selling my business but they helped me through the process. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. I highly recommend this firm to anybody who wants to sell now or down the road. Marc not only knows his stuff, but actually is a real nice guy.”

Double Diamond

“Used A Neumann & Associates to sale my business. could not imagine having done it with out the patience and experience Gary provided. Thanks Gary,”

Dennis Frazier

“Working with Marc and his company was a pleasure. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. Marc handled most of the interaction and he has one of the greatest demeanors. Again, it was a pleasure working with him and his firm.”

Douglas DiCeglio

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If you are considering selling your business, please contact us to learn more about our comprehensive service spectrum. Our experienced professionals will answer all your questions about selling a privately held business in complete confidentiality. Please fill out our contact form, or call us at 732-872-6777. We will contact you directly and will never identify ourselves to your employees.

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