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When Buying a Good Business, Don’t be Good Deal Focused

几年前我是 retained to sell a profitable business 在肯塔基州. The owner was ready to retire, but fully committed to helping the buyer make a smooth transition. The 50-year-old business had a positive reputation in the community, 忠诚的客户群, 位置也很好.

I located a prospective buyer through a referral from a banker. Once I showed this prospect my client’s business, he was soon engaged in a deep-dive evaluation. His banker told him they would fund 60% of the acquisition, meaning he would need 40% equity, 他有可用的. He was tired of the travel in his corporate job, but he made a nice salary so he had rather high expectations for what he’d need from a business acquisition. 这笔交易符合他的条件. The business had sufficient cash flow to fund the bank note, 支付他期望的薪水, and give him a reasonable return on his equity investment. 有什么不喜欢的,对吧?

问题是, the business was overpriced by about $500,000, and the prospective buyer and his advisers couldn’t escape the belief they were paying too much. 所以,这笔交易失败了. 他们想要一个“好交易”.”

As I reflect on what happened, I’ve learn there are at least three reasons when it might be okay to intentionally overpay for a business.

#1 The cash flow is strong and meets the buyer’s financial needs. It’s the essence of “penny wise, pound foolish” when a business meets all your expectations. Don’t fixate on whether the 卖方 is getting a windfall, 就去做吧, especially if you plan to own the business for a long time

#2 There is a sustainable record of cash flow stability. 就我个人而言, I would rather overpay for a business I know I can count on, as opposed to get a “good deal” on a business that has unstable cash flow.

#3 There is immediate low-hanging fruit opportunity to grow the business. I bought a business 22 years ago that had tremendous upside because it had an ineffective sales effort. By simply increasing the quality of sales machinery, I increased the revenue fivefold in one year. 是的, I overpaid for the business relative to its performance at the time I acquired it, but I was quickly able to make the business perform well beyond the level when I acquired it. I’m not saying you should value a business based on its potential (that can be dangerous), 但同时, don’t ignore potential when it comes to seeing a good deal.

So, back to the story of the prospective buyer of my Kentucky based client. I understand that prospective buyer is now looking at a “good deal” that will require a relocation. I hope it works out for him; he’s a great guy and should do well at whatever he decides. I just think in this situation he made a mistake trying to find that “good deal” which can come disguised as an over-priced business.


JIM CUMBEE is President of 田纳西河谷集团, Inc. a retainer-based business brokerage and transition mediation 公司位于田纳西州富兰克林. Cumbee is an attorney and has an MBA from Harvard Business School. He has a wide range of corporate 和企业家ial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee. The names and fact patterns above have been changed to preserve the parties’ identities.

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吉姆Cumbee established 田纳西河谷集团 to help business owners fulfill their dreams for life after business ownership. It’s a mission that his 30+ year career history had prepared him well for—in addition to being an attorney, transition mediator and business broker, 吉姆是一个买家, 卖方, 和企业家. His broad range of experience gives him unique insight into how business buyers and 卖方s can achieve their goals.

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