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Value of the Entrepreneur

I had a GREAT meeting with a very smart and successful business woman today. She single-handedly built-up a fantastic business over her lifetime and is now looking to retire. She now needs to sell the business and real estate to extract the value of her life's work. However, she has several employees. She would like her "Baby" to live on, continue in business, and her employees to continue with it. This is a normal preference for small business owners, when exiting. However, to accomplish that, the seller needs to be picky about who they sell to. Accomplishing that goal may mean NOT extracting all the value out of the company. The seller must understand and be willing to accept that they are now "trading" some of the cash value of the business for the value of the new owner operating the business in the future and protecting their employees jobs. In other words, the "like minded" buyer may not be the best offer.

The second important discussion that came about was that the Real Estate was very special . . a beautiful 12.000 square foot, timber framed, exposed beam, custom creation from the mind of the owner, herself. She was already aware that she will not be able to sell that property for what she believes it's worth. Why? Because commercial Real Estate is valued based on “Comps” . . comparable properties price per square foot. A prospective tenant can rent your space, or the space down the road for less . . which will he/she rent? Almost always the cheaper one! Why? Because commercial RE is leased to BUSINESSES working towards a BOTTOM LINE. In most cases, the businesses renting cannot afford added expense for features that don’t add to their TOP LINE. Any additional cost to a business must “pay for itself”, or it has to go. So, IF a business seller can find another business and business owner that recognizes the value of the special features of the space and can also make use of them to increase income . . then there is a chance of extracting that special real estate value. Unfortunately, the odds of that “Perfect Match” business and business owner finding the seller’s business for sale at the exact right time for them (to be expanding/merging/moving) is highly unlikely. So, more value “lost” here, unable to be “extracted”.

Lastly, and the point of this Blog is the value of the business owner herself retiring, and thus, being LOST. Most entrepreneurs have spent their lifetime, or a good portion of it, building their business from the ground-up, putting their blood, sweat, and tears into it, along with their heart and soul. Yet, they still often fail to recognize they are a HUGE part of the value of the business. Their business is simply far less valuable without them there to do what they’ve always done. Many buyers also don’t realize this and end up purchasing a business and then running it into the ground while wondering why it’s just not operating like it used to. Any way you slice it, again, this is a loss in value to the business. It is just not as valuable with the founder, passionate leader, visionary, and prime spokesperson there every day for the employees, the customers, the partners, the suppliers, etc.

In this case, the special buyer this particular owner is looking to sell to can only be successful if they understand this from the beginning and have a plan to mitigate the impacts of the loss of the founder. This often means extended transition plans where the seller “stays on” for a period of time to “Train” the new owner and slowly and carefully hand-over the business. This can also be done with a Joint Venture where the Seller is slowly “bought-out” as the business transitions. Other mechanisms can also help in this regard like Seller-Financing, and/or maintaining a Consulting Relationship with the Seller, long after the sale, and/or signing a contract with the seller where they become a supplier, or a customer, etc. There are many ways to “crack this nut”. However, first you must be aware this particular nut exists in the bag of mixed nuts you’re purchasing and have a plan to crack it.

However, is the founder’s experience and knowledge, as it contributes to the bottom-line of the business the only value they represent? Not even close. This particular business employed several well paid professionals. Jobs are not only valuable, they are invaluable to the employees and their families! Then there are the taxes being paid by this business which contribute to local and national social programs, infrastructure, schools, etc., which we all benefit from. What about the economic impact this business has to the local community? The money paid to the employees, suppliers, and contractors gets paid on to the local restaurants, schools, hotels, grocery stores, and the vast array of other small businesses, which then pay it on to their employees, and so on. Entrepreneurs and small business owners ARE THE BACKBONE OF OUR COUNTRY AND ECONOMY. This is not an opinion, this is a mathematical FACT.

I left the meeting with a great deal of respect for her and what she has built over her lifetime. Most important of all, she has built a large and wonderful family she now wishes to spend time with. I wish her, and all the entrepreneurs out there, much luck finding that “Perfect Match” buyer for their business. When that is not in the cards for them, I wish them the understanding that what they have built is not and cannot be measured alone by the money they walk away with, in the end . . it is so much more than that, and they take a great deal of it with them, wherever they go, every day!


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