About 15 years ago, I was called in to evaluate a construction company and help them create an estate plan. They already had 3 evaluations completed and all came in around 30 million. Danny advised he was 60 years old and really would like to step out of the business, as neither of his two kids wanted to run it either. I gathered the information and then obtained permission to run it by a very well versed CPA and estate planning firm. We worked closely with his own CPA and designed a plan to sell it in 3 to 5 years. 3 years later Danny sold it to one of the largest construction companies in Oklahoma for 100 million.
What was different? As business owners, we pay a ton of taxes, so we design our plans to pay the least amount of taxes each year. If you want to sell a business, you need to document the best cash flow and profit, which is what we helped Danny do.
Think of it this way. I’m currently working with a business owner who is wanting to buy another business. My first question to Tom was, how quickly should the business you buy pay for itself. He immediately responded 3 years. My next question was, what is the net profit each year. Tom quickly responded 1 million. We were at lunch, so I just took another bite and waited and Tom immediately did the math in his head and smiled. Tom then stated, if I pay 10 million for it and its only netting 1 million a year, then that’s a 10 year breakpoint. I simply nodded, and Tom immediately realized the asking price was most likely more than it was worth. These are the things that have to be evaluated closely and why I specialize in helping business owners like yourself make wise, very well planned out decisions.