There are two distinct types of business sellers - one is a green light, the other you should avoid at all costs... Here's how you should decide whether to pursue an opportunity within the first 15s of a call:
Today was a full day of seller meetings (all generated with cold email, as mentioned in yesterdays post. Our cold email is CRUSHING right now - I'll break this down another time).
Within the high volume of prospective seller meetings, two clear seller profiles emerged.
The first is the young-ish (under 50) business owner who wants to sell, in order to free themselves up and work on their next big idea. These guys are terrible to get into bed with (no homo) and should be avoided like the plague. They're not bad guys, they're just not in a position that would render them constructive, reasonable sellers. A couple of things here:
1. They are trying to free themselves up: The best deals you do will be the ones where the sellers remain involved, and are still passionate about the business. They see you as a partner, and you need them as a partner. It also keeps you out of the weeds, free to continue working on further acquisitions. The idea that you can just hire a GM and throw them in there to take over, without you getting involved, is a romantic one, and should be treated with extreme caution.
2. Their priority is to maximise value: They want to sell their business 'to get rich', and not because they are trying to solve a succession problem. They will ask for an unreasonable multiple, and likely won't come down to the reasonable price you need them to be at, in order to reduce your payback period enough for the deal to make sense (certainly not to the banks).
3. They want it all NOW! These guys don't even want to entertain the idea of a structured deal. They want all their cash upfront, again, making it near impossible to fund. But that's not the only reason paying everything upfront is a bad idea - if you ask for their ongoing involvement, but pay them upfront, all incentives to stick around are gone, and you can kiss your General Manager goodbye (again, no homo).
The other seller is the golden goose. They're the "I know I'm reaching retirement age, and want to plan this out ahead of time" guys. These are the ones you want to work with, for a few key reasons:
1. They are planning out their exit ahead of time: Meaning that they know and understand that they are essential to the business, and will work with you on succession planning - to hire and train a suitable replacement. This is critical, for the reasons discussed above.
2. They have a fixed timeline on their sale: It may not be this week, month, or even year, but they know they need to sell, if they're to get anything at all for their business. This means they are incentivised to do a deal, instead of just parking on a ridiculous valuation in the hopes that a buyer comes along and pays it to them (which never ends up happening).
3. They're nearing retirement: This is really important if you want to pitch seller-finance. It's a much easier pitch, telling someone who is old and concerned about their retirement, that they will have consistent cash flow coming in from the deal they are doing today, than trying to convince the guy who's 35 and wants to start his next business that he needs to wait for his money. And before you ask if seller finance is actually realistic - we are doing a deal right now seller financed over 10 years (for a strong, growing business). The guy needs to retire - time comes for us all...
My calls last as little as 5 minutes - if I happen to get on the phone with seller 1, I politely explain to them that our model won't be right for them, and move on immediately.
Seller 2 is easy to pick - these guys just ramble and ramble on the phone about the decades they've put into building the business. And I love it - it means we're onto a potential deal...