“You’re telling me my business makes $250,000 a year and I can’t sell it? That makes no sense to me.”
Jack (not his real name) was moving to Cincinnati because his wife had just received a promotion that required her to move. “I love what I’m doing here,” he told me, “but I want and need to be with my wife. That’s why I’m selling a business that I love.”
I normally don’t get involved in the sale of businesses this size, but Jack’s CPA is a good friend of mine. He had asked me to give Jack some guidance on how to sell his business.
The problem was, Jack’s business wasn’t actually a business. I had to explain to Jack that being self-employed, and even making good money doing it, does not mean you have a business. Here was the conundrum. Jack made good money helping high school golfers improve their game and navigate the process of getting a college golf scholarship. Parents of high school-age golfers would retain Jack when their son/daughter was a freshman or sophomore in high school. Jack would mentor the student through the process of getting their golf game ready for the collegiate level. Jack started the business a few years ago after helping his son and a friend of his son go through the process, and he realized there was a market demand for what he could do. For the first few years, Jack did all the work himself, but in recent years, he started to retained college golfers in the area who were more than happy to make extra money. These young college golfers would follow the basic principles Jack used, so he was able to essentially double the number of high school students he could help.
Jack’s golf coaching and scholarship advisory services were highly regarded in the area. He could charge about $80 per session while paying his independent contractor college students about $40 per session. Between the work he did himself, and the profit from the work done by his independent contractors, Jack had built a nice steady business.
Except it wasn’t a business, it was self-employment. Jack had the expertise, the relationships with referring sources (high school coaches), and the management sensibility to pull together all the necessary parts. Without Jack doing the work, there was no business.
When I told Jack he didn’t have a sellable business, he had a perfectly sensible response: “There are plenty of guys who’d love to make $250,000 a year teaching others to play golf, surely we can sell this.” But that’s when I pointed out to Jack the difference between having willing buyers and a sellable business. I knew there would be lots of potential buyers. Heck, who wouldn’t love making $250,000 a year hanging around a golf course? But I explained to Jack that a potential buyer would need to be assured the business was sustainable once he (Jack) was gone. You see, Jack was the business. His reputation, his skill set, his relationships.
I suggested to Jack that he look for a potential buyer amongst the high school coaches he knew and the parents he worked for (past and present). I said, “I bet a potential buyer is already in your orbit.” Then once he identified the right person, Jack would need to train him/her to do what he does, then transfer the business with some kind of earn out plan. Fortunately, Jack plans to finish out the 2018-2019 school year, so he has some time to pull this together. If he finds that perfect person with his knowledge, energy and personality, Jack can begin a long process to take over his job. But selling a business, not likely to happen.
JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. Jim is the author of Home Run, A Pro’s Guide to Selling a Business. http://www.amazon.com/Home-Pros-Guide-Selling-Business/dp/1599329239 . He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee. The story above is true, but the names and fact patterns above have been changed to preserve the parties’ identities.
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