On the surface it looked good. Peaking under the hood changed things.
- The business seller wanted $7 million. The buyer decided it’s worth $6 million. Sure, the recent earnings justified $7 million but then other factors came into play, including:
- Only 1.6 years of elevated earnings, much higher than the three years prior.
- The business needs a technology upgrade including an ERP system.
- They’re bursting at the seams – more space is needed, and soon. Not to mention in the cramped space there is surely obsolete inventory.
- Thin management and barely have enough people to cover what they’re doing now.
There’s the cost of additional systems, rent, and hiring plus the risk of things like if an employee leaves or gets hurt they’re suddenly in trouble. They won’t be able to meet customers timelines, new or temporary workers will lower productivity, burnout may set in, etc.
Or good news! Our sales team got a couple large orders. So, where do we put the stuff, who can devote time to these orders without it affecting other customers, etc.
It’s why when people ask me questions like, “What’s the multiple for this business?” I answer by saying, “I don’t know, I need to know more about the company.”
“Opportunity is missed by most people because it is dressed in overalls and looks like work.” Thomas Edison