Incentive to sell driven by financial payoff or personal reasons? - Searchfunder

Member resources:

Member directory

Searchfund list

Company contacts

Industry reports

Transaction multiples

Frequent asked questions:

What is Searchfunder.com?

Searchfunder.com is an online community of searchers, investors, lenders, brokers and other professionals. Over 80% of those involved in searchfunds maintain a Searchfunder account to help them network, hire, and mentor others.

What are the benefits of membership?

In addition to accessing the most active online network of business buyers, Searchfunder licenses research that is simply not cost effective for individuals. Access over 15,000 industry reports and 50,000 transaction financials. You also get monthly credits for contact information for your company sourcing campaign with the option to purchase more at drastically discounted rates. Searchfunder has pre-purchased access from these data providers in order to empower individual buyers and to help searchers level the playing field versus private equity.

Do you have deals?

While we are primarily a buy-side network, we do have hundreds of brokers that regularly post deals to the community.

Can I find an internship on Searchfunder?

Absolutely! We have the industry's largest intern job board. If you are considering a search, the first step is to help another business buyer so you can hit the ground running.

What does it cost?

Searchfunder is a subscription service. We offer flexible monthly, annual and lifetime memberships.

Monthly

$79 / month

Annual

$19 / month

Lifetime

$432 / once

Those who maintain an account with us for over 4 continuous years are permanently added to the community without the need for a membership.

Do I need an MBA to join?

While a large number of our members come from dedicated programs at Harvard Business School, Stanford GSB, Chicago Booth, and other top programs, searching is no longer reserved for the elite. With the current abundance of dry powder in private equity, and an increasing number of business owners reaching retirement age, good deals rarely go unfunded.

Post a question, deal, job, etc...

Make a post...

Complete registration to post.

by a searcher from University of Notre Dame
in Notre Dame, IN 46556, USA

4yrs ago

Incentive to sell driven by financial payoff or personal reasons?

For a smaller (~$500K in SDE), "eternally profitable" businesses, it seems that personal reasons would be a much more common driver to sell versus the financial payout, especially given lower multiples and subsequent capital gains taxes. I've seen conflicting views, but given this will largely shape my search, anyone see something I'm missing on that?

Share

0 Likes

127 Views

Login to read all 7 comments

reply by an intermediary 4yrs ago
from Oklahoma State University in Memphis, TN, USA

You are absolutely right. Unless you are in some kind of rocket sector, somebody has to have a reason to sell at prevailing valuations for that size business.. Who wants to trade $1.5 to $2 million pre-tax and pre-debt payoff for a $500k continuing cash flow.. that doesn’t make any sense unless the owner is older, tired, sick, has other family or personal reasons, or, yes, knows something you don’t.

Not addressing a potential target’s reasons for selling early on can be a flaw in the search process, potentially wasting lots of time and money.

It is also why growing a company with add-ons Is often a lot harder to execute than it first appears.

reply by an intermediary 4yrs ago
from New York University in Menlo Park, CA, USA

These businesses are properly sold due to the lifestyle choices and concerns of the owner. It makes virtually no financial success to sell a business for 3x cash flow if the owner is willing and able to keep working. They can always hire a manager for $200k and continue to keep the remaining $300k for themselves for many more years.

That being said, life does happen and people burn-out, get sick, get divorced, need to move, or just desperately need a lifestyle change.

Keep in mind that managing a staff of $40k-$75k employees is a very different challenge from working in the corporate world. Employees sometimes just don't show up for work, quit without notice, make mistakes with potentially catastrophic financial implications, upset clients, etc.

While all of these things happen in any business, a smaller business will typically be more dependent on each individual employee. If the Bookkeeper decides to quit without notice, now the suppliers aren't paid in a timely fashion, the company may also be late with payroll. If the Sales Manager gets upset and yells at a client and the client goes to the competition it could take months or years to replace the revenue. If the warehouse worker crashes the forklift, it may take a few days to get it replaced. Since the business only owns one forklift, now the warehouse can't receive new goods or ship large orders efficiently.

Many times, it isn't financially possible to create redundancies considering the size of the business.

All of these concerns add considerable stress to the owner's working life.

Some will decide it just isn't worth the worries anymore. Enough money has been made and saved over the years and perhaps now is the time to do something else with their life. These are the ideal businesses to purchase if you can bring the energy and drive that is likely missing from the current owner due to his burnout.

I consider these types of lifestyle choice clients to be legitimate sellers. It is far easier to find a buyer and put together a transaction at a reasonable valuation than the person who thinks they'll get 'rich' from selling their small business. The 'get rich' types typically have unrealistic ideas about what their company is actually worth in the market. The lifestyle choice clients are aware that most businesses fail to sell (~80%) and are excited to receive fair value for an asset that has afforded them their income and work related identity for many years.

More on Searchfunder