Ted Knows More Than Me. There, I Said It
I’ve been a small business owner for 25 years, with the last 15 being immersed in the “sell a small business” space. It’s been a passion and a discipline for me, and I know I’ve learned a lot.
I was just reminded how much more I have to learn.
I started reading the section called Starting, Buying or Selling a Business in Ted Leverette’s book How to Get All the Money You Want For Your Business Without Stealing It.
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In a few short minutes I read insights that I know would have saved deals that I saw die in the past. At Exit Oasis we stress that small business owners need to Learn to Leave. Ted’s book can help you do that. Real world items, clearly explained, that provide direct value.
Here are just two examples. First, how would you have liked to figure out the move described here?
Actual Case — No-Money Down Deal (p. 171)
The company is a very old moving and storage business that generates $150,000 annual profit.
The buyer did not have enough cash to meet the seller’s demand for the down payment.
While analyzing the company’s financial statements, the expense category, Maintenance of Vehicles, caught our attention.
The company owned 8 trucks. The average age of the fleet was 9 years old. Most of the trucks had been fully depreciated, so there was no write-off against income.
Two mechanics worked full-time maintaining and repairing the trucks. Their payroll, benefits and employment taxes amounted to $80,000 per year.
Nearly 3,000 square feet of the company’s warehouse was devoted to the repair shop. The rent on this space was about $15,000 per year.
$10,000 in spare parts was on hand, because when a truck breaks down, there is no time to try to find parts; customers demand on-time delivery.
Unfortunately, sometimes the trucks were not fixed in time and the company suffered late-delivery penalties. These ran about $5,000 per year.
Here’s how we structured the deal:
First, we saw the wasted cash flow:
- $80,000 for wages, $15,000 for rent
- $10,000 in spare parts, and nearly
- $10,000 per year for parts and subcontracted labor
This amounted to $115,000.
- Sold all the trucks and used the proceeds for a delayed down payment
- Laid off the mechanics
- Returned the spare parts to the supplier and got a refund
- Avoided $5,000 a year in late delivery penalties
Freed up 3000 square feet of wasted space to create revenue-producing space. This enabled us to earn $10,000 each year from customers’ to store their goods. After all, we were in the moving & storage business
We increased cash flow $125,000 per year! That is about $11,000 per month!
We then leased brand new trucks, which came with a maintenance contract, for $8,000 per month.
Subtract $8,000 for the lease payment on the trucks from the $11,000 cash flow we created—
and we were ahead $3,000 every month.
$36,000 every year! $250,000 in 7 years!
The buyer of this business was very happy! He got more profit than he expected. The business could afford to make larger installment payments to the seller to pay off the business sooner
(I can think of two deals that could have been saved with this simple idea)
Inventory Retained by Business Seller (p. 164)
If the business seller believes the value of inventory is higher than you (the business buyer) believe is fair, to avoid controversy, you can let him keep the items which you disagree about value.
Subtract the amount he thinks is its value from the price for the business. Then you agree to store it for him, rent free.
You further agree the company will buy inventory (which you believe the business can sell) from him until his inventory is exhausted.
Do the same for excess inventory, especially if it would be hard to return the inventory to its supplier for a cash refund.
Ted knows more than me, and probably you, but it doesn't need to stay that way.
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