As always, I want to apologize in advance for my lack of writing skills should there be anything grammatically incorrect, but it is the principles and knowledge that I want to share.
Several weeks ago I received a call from a business owner. He said, “John, there is a small company up here (Small Colorado Mountain Town) that I just walked into and they are packing up everything. There is a sign on the door telling everyone they are closing up in 30 days and a great number of the community depends on this store.” Normally this just means that the business is just another statistic to add to the 80% of businesses that fail. But when that happens I don’t normally get a call from another business owner. So I started asking a lot more questions and digging for answers.
The business had been in business for over 20 years successfully navigating multiple recessions and impressively the last major one. The business was the only one like it in the community and everyone depended on it and really liked the owner. I picked up the phone, called the owner and she explained to me that she was closing up shop because she had decided to move out of state. I asked her if she had considered selling the company and she mentioned that a couple of people had expressed interest since she posted the “Going out of Business” sign, but eventually it did not work out.
Now the reason I got into helping business owners several years ago was that I saw way too many established companies close up shop, layoff numerous employees and destroy many more client/customer relationships because they simply could not find a buyer. Every time this happens it causes a ripple effect on the economics surrounding the company.
Like most conversations I have with business owners I had to explain that I was not a business broker or a merger and acquisitions professional, but rather that I only evaluated whether the business was ready to sell and if not, help them figure out how to improve or make necessary changes to get the business ready for sale. I even went so far as to explain that I was willing to help her build a quick package to show to my connections and see if someone wanted to buy a small retail store in a great location. She told me she would call me back.
After a couple of days, I thought maybe it was just another tragedy in a community that depended on this business. Then I received a call from California from a friend of hers that was calling to figure out what I was about. Then I thought maybe this was not going to end as a tragedy after all. So after explaining what might be possible for this owner, her friend told me he would convey this back to the owner. The following day I received the owner's Profit & Loss statements. I was expecting to see something wrong with the numbers but they looked very solid with a 70k net income. So I sent back an email requesting more financials like the Balance Sheet and Cash Flow Statement, but then I never heard back. So I sent a follow-up email a week later, but again no response.
So I decided to give it another week, but there was no communication from the owner. So I called back the business owner that originally called me in the first place to ask if they had any new information. Apparently, the owner of the retail store just closed the doors on December 31st and liquidated her inventory. So I called back her friend in CA and I heard the same information. So a business of 20 years disappeared in 30 days. Not exactly the story I was wanting to write.
I always understand and respect any business owner’s decision to do what they want with their business. But I couldn’t help but be a little sad that this course of action was taken without an attempt or effort to leave an established business to continue servicing the surrounding community.
I find it fascinating that the statistic of companies that fail in startup and the number of companies that fail to sell is around 80%. So if 1,000 companies are started then after a few years only 200 survive and out of those only 40 will eventually sell. Those statistics do not indicate that buyers do not look at those companies for sale, just that no buyer wants to buy them.
In another blog, I plan on writing here soon, I will reveal one current buyer's journey looking for a business to buy. When he shared with me his numbers and process it even surprised me. He agreed to let me share his journey.
Please share your comments and feedback below. I would love to hear from those who have read this blog..
John Hamel is the Managing Member of Austec Business Transitions, LLC. helping businesses optimize value relative to exiting their company.