Author name: Hamel

Hamel
Owner(s) Sale Objectives, People Considerations, Strategy/Business Model

Entrepreneurship Through Acquisition (ETA) Thoughts From a Current Owner -It’s Worth It But…

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Fit is Narrower Than He Once Thought Part of preparing to transition your ownership is viewing your business through the eyes of potential buyers. Last week, I came across a post from Alexander Nadtochiy, President & Co-Owner of General Assembly and Manufacturing in Illinois, USA. With his permission, I wanted to share what he wrote because I believe you will find it both interesting and educational for both existing and aspiring business owners. Since I imagine most of you may not be familiar with Entrepreneurship Through Acquisition, I’ll begin by sharing a brief definition. Entrepreneurship Through Acquisition (ETA) is a path where someone becomes an entrepreneur by buying an existing business rather than starting one from scratch. A common version is the “search fund” model, where an entrepreneur (often called a searcher) spends time looking for a business to acquire, then operates and grows it after the purchase. Now here is the post as it was written: Three years ago, I bought a contract manufacturer in Northern Illinois with about 50 people and 40,000 square feet. After 20-plus years of operating experience, I became President and co-owner of my first entrepreneurial venture. It was a welcome change after 15 years in logistics and transportation and 5 in manufacturing, where I was running P&Ls and leading teams of 500-plus across multiple locations. Searchers ask me all the time whether buying a small business is worth it. Here’s the real answer: it depends almost entirely on whether you are the right fit, and on whether you buy the right business. That second half matters more than people think. The worst-case scenario in ETA isn’t failing to buy a business. It’s buying the wrong one, and the gap in damage between those two outcomes is not close. Three years into co-owning my firm, I still believe ETA can be one of the most rewarding paths available. But my view of who’s actually suited for it has narrowed a lot since I first learned about it during my MBA at Northwestern Kellogg. Back then, I thought anyone who was motivated, smart, and entrepreneurial could make this work. I don’t think that anymore. The Operator-Versus-Dealmaker Catch-22 This tension gets discussed, but it deserves more emphasis than it usually gets. To create value after closing a deal, you have to be a good operator. But to close in the first place, you need deal experience, credibility, financing, and the ability to navigate sellers, brokers, and lenders. Those are two entirely different muscles, and most people are not strong in both. A strong operator often needs help getting a deal across the line. Strong dealmakers can wire the money and then discover how hard it is to actually run the thing, which is arguably the more dangerous failure because now they own it. Long term, operating ability matters more, but that’s irrelevant if you can’t buy a business to begin with. Be Honest About Your Candidacy I see posts on SearchFunder from people frustrated that brokers won’t take them seriously. I get it, but often the broker is just making a practical call about whether you’ll close. If you haven’t run a P&L, operated in a similar environment, or built credible investor relationships, be realistic about how sellers, brokers, and lenders will read your candidacy. SBA financing exists, and there are creative ways to get deals done, but ambition alone doesn’t close anything. If the operating background, deal credibility, and capital aren’t there yet, the market tells you fast. That’s not cruelty; it’s information. The community here is supportive, which is one of its best qualities. But encouragement without realism can hurt people in the long term. Sometimes a broker isn’t dismissing you because the system is “broken”; he’s looking at your background and concluding you’re unlikely to close. That doesn’t mean never. It likely means that you need to build more experience, find the right business partner, lock down committed capital, or narrow your search to a space in which you truly have an edge. Make Sure You Want the Actual Job Some people are drawn to ETA because they want to be President or CEO: the title, the autonomy, the LinkedIn update, and the ability to say they bought a company. I understand it; ownership is a real milestone. But the novelty wears off fast. Pretty soon you’re not “the CEO” in the abstract. You’re the person handling a quality escape, a late shipment, a difficult employee, a supplier who let you down, a bank covenant, an angry customer, or a facility problem that nobody else can solve. If what you actually want is the title and prestige, this path will disappoint you quickly. You have to want the job that comes with running the business: the responsibility, the ambiguity, the unglamorous work, and the pressure of being the last stop. If you’re doing it for the announcement, the business will expose that in a hurry. The Reality Check I run a 40,000-square-foot assembly operation. It’s a solid, presentable plant, but it’s no gleaming corporate headquarters. It’s full of real people, real equipment, real problems, and real crises. When consultants, executives, or MBA grads visit, especially ones used to polished offices, I can sometimes watch the question form in their heads: Is this what I’d be doing every day for the next five to ten years? For a lot of them, the honest answer is no. That’s not a knock on them; it’s just a matter of fit. ETA in manufacturing, as well as a lot of service businesses, isn’t for people who need convincing that they will enjoy walking the floor, working with blue-collar teams, and living inside the business. If you have to be sold on that life, it’s probably not your path. I graduated in a Kellogg cohort of 77 students. When I first learned about ETA, I figured each cohort might have two to five people genuinely suited for it. I’m more sober now: I’d say one or two. Not

Business Continuity, Owner Conversations, People Considerations

Owner Conversations: Six Essential Documentation Areas Every Founder Should Focus on Before a Business Transition

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Why Such a Topic is so Vitally Important if You Disappear Years ago, I worked a corporate job that opened my eyes to the importance of documentation. I was transferred to a division that, over the next six years, grew by roughly 60% year over year. When I came on board, we had maybe 500 customer accounts. Six years later, we had more than 8,000. When I left, our internal operations staff consisted of only six employees. When you grow that fast, a lot of things tend to break. Much of my memory from that time feels like a fog of stress, long hours, and very little vacation. In fact, I know I must have taken vacations, but to this day I couldn’t tell you where I went or what I did. I can, however, tell you that we took the team to several professional baseball games just to relieve the tension. I also remember working through the flu because there simply wasn’t another option. I felt like a wildland firefighter, putting out one fire only to be called to the next one over the hill, with little sleep or food. The one skill I picked up, mostly out of necessity, was documenting constantly and monitoring everything. It was almost ridiculous how many useful and useless things I documented and tracked. But the reality was that I had never been in a situation like that before. I had no idea what needed to be documented or monitored. I only knew I was tired of working from a place of uncertainty every time something broke. Over time, I realized that many of those disasters could have been prevented if I had better documentation and stronger monitoring in place. That’s why I place so much importance on documentation. I’ve also seen this often-neglected and easily dismissed discipline prove its value during business acquisitions. I’ve personally watched documentation determine whether a buyer moved forward with purchasing an otherwise profitable company. I’ve also seen weak documentation result in millions of dollars being negotiated off the purchase price. Believe me, I understand that documenting and monitoring take an enormous amount of time and patience in the beginning. It often feels like you’re sacrificing today’s growth for tomorrow’s stability. And it always seemed to me that documentation became most important during the most stressful seasons, when there was the least amount of time to do it. It often meant digging deeper, pushing through exhaustion, and arriving at work before sunrise only to leave after dark. So, believe me when I say I understand what I’m asking you to do. But if I didn’t believe this was critical to your long-term success, and one of the best ways to delay burnout, I wouldn’t emphasize it so often. So, let’s segue into a hypothetical conversation that highlights a few ideas I’d like you to consider as you develop your documentation process. Business Owner: You’ve been telling me that documentation should be one of the first things I focus on if I want to sell my business. I understand it’s important, but why does it matter so much? Consultant: Because documentation is what transforms your business from being dependent on you into an organization that can operate without you. Right now, a lot of your knowledge probably exists only in your head. A buyer doesn’t want to purchase your memory, they want to purchase a business that can continue succeeding after the transition. Business Owner: So where do we begin? Consultant: We start by determining the current status of your documentation. Before we improve anything, we need to understand what already exists, what’s outdated, what’s missing, and what knowledge only you possess. That gives us a baseline and tells us where the greatest risks are. Business Owner: I suppose I’ve never really thought about how much I know that I’ve never written down. Consultant: That’s very common. Most founders don’t realize how much experience has become second nature. You know why one supplier is more dependable than another, which customers require extra attention, why pricing is different in certain markets, why a product was discontinued, and why certain policies exist. Those decisions represent decades of experience, but if they aren’t documented, that wisdom disappears when you leave. Business Owner: I’ve always thought documentation was just creating binders that nobody ever reads. Consultant: That’s one of the biggest misconceptions. Documentation isn’t bureaucracy. Good documentation exists to help people make better decisions in the future. Every document should answer one question: “Will this help someone make a better decision?” If the answer is yes, it’s valuable. Business Owner: What exactly should we be documenting? Consultant: There are six major areas every founder should focus on. First is operational documentation, how orders are processed, how work is performed, quality standards, shipping, billing, and inventory. Buyers want consistency, regardless of who performs the work. Second is decision documentation. It’s not enough to record the decision, you should also document the reasoning behind it. Five years from now, someone shouldn’t have to repeat months of analysis because no one remembers why a decision was made. Third is relationship documentation. Customer histories, supplier preferences, partnership agreements, key contacts, communication styles, and commitments shouldn’t exist only in your memory. Fourth is technical documentation, your equipment, software systems, maintenance procedures, recovery plans, and anything else that reduces dependence on one individual. Fifth is cultural documentation. Your mission, values, leadership philosophy, customer service standards, and the stories that define your company culture deserve to be written down. Finally, there’s governance documentation, who has decision authority, succession plans, emergency procedures, ownership information, and governance policies. Buyers gain confidence when leadership responsibilities are clearly defined. Business Owner: That sounds like a lot of work. Consultant: It is, but it doesn’t happen all at once. More importantly, we don’t just document procedures, we document principles. Instead of simply saying, “Approve refunds this way,” we explain the philosophy behind the decision. For example, “We protect long-term customer relationships, even when it

Business Continuity, Emotional Readiness, Negotiations, Owner Conversations, Owner(s) Sale Objectives, People Considerations

Owner Conversations: The Third Dimension Scenario That Will Consume Your Retirement if You Ignore

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Attorneys and investment bankers explain the terms, structure, and risks of a transaction, but few share what it’s actually like to live through the experience after the deal closes. Podcast Host : Welcome back to After the Keys podcast, where we talk with entrepreneurs about the decisions, risks, and lessons behind building and transitioning out of a company. Today’s conversation is about what happens after the celebration, after the closing documents are signed, and after an owner thinks they have finally reached the finish line. My guest today is Susan, a woman who built a successful food manufacturing company, grew it into a $22 million revenue business, and sold it four years ago. After 28 years of ownership she thought the sale would give her the freedom to spend more time traveling with her husband and enjoying the next chapter of life. But the reality turned out to be much more complicated. Susan, thank you for joining us. Susan (seller): Thank you. I appreciate the opportunity because I believe my experience is valuable to other business owners who are considering selling but don’t always understand what life looks like after the transaction. Podcast Host: Let’s start there. You sold your company to someone who wasn’t a stranger to the industry. In fact, the buyer was an industry president who had successfully run a $500 million revenue food manufacturing company. That sounds like the ideal buyer. Susan: It did. And that was one of the reasons I felt so confident. This wasn’t someone coming from outside the industry trying to learn the business from scratch. He understood food manufacturing. He understood customers. He understood operations. He had a proven track record leading a much larger organization. So, from my perspective, I thought, “This company is in great hands.” And honestly, I still believe he has the capability and intelligence to succeed. What I didn’t fully appreciate was that running a $500 million company and owning a $22 million company are two completely different experiences. Podcast Host: Explain what you mean by that. Susan: In a large company, even a very successful executive has layers of support. There are people handling human resources, finance, operations, purchasing, quality, sales strategy, recruiting, and all the daily fires that come up. When you become the owner of a smaller company, suddenly you’re wearing multiple hats. You’re not just the president making strategic decisions. You’re also dealing with an employee issue that morning, the customer concern that afternoon, the equipment problem, the cash flow question, the staffing challenge. Those responsibilities consume time. And I think that transition was harder than either of us expected. Podcast Host: You had an earn-out as part of the transaction, correct? Susan: Yes. The earn-out was 12% of the deal. And when we structured the deal, I understood the basic concept. If the company performed at certain levels, I would receive additional payments.  The attorneys and advisors explained the mechanics. They explained the targets. They explained the structure. But what I didn’t truly understand was the practical risk. The earn-out wasn’t just about whether the company was capable of succeeding. It was about whether the new owner could execute the plan, manage all those additional responsibilities, navigate unexpected challenges, and still hit the performance goals outlined in the agreement. Those are very different things. Podcast Host: That’s an important distinction. The business may have been strong, but the transition itself created new variables. Susan: Exactly. The company had a great foundation. We had talented people, strong customers, and a reputation built over many years. But ownership transition is its own business challenge. The buyer had been successful at a very high level, but this was a different environment. He was moving from leading a large organization with extensive resources to personally carrying many more responsibilities. And those extra hats took time away from some of the very things needed to achieve the earn-out goals. Podcast Host: Then there was the seller financing component. Susan: Yes. The seller note was 20% of the transaction. At the time, I viewed it as a positive. It demonstrated confidence in the buyer. It helped bridge the transaction. It gave me additional value beyond the initial payment. But again, I didn’t fully understand how it would feel to become the lender after you’ve sold your company. Emotionally, you have moved on. You’ve handed over the keys. You’re supposed to be entering retirement or your next chapter. But financially, you’re still connected. Podcast Host: And the original repayment timeline has changed significantly. Susan: Yes. The original expectation was a five-year repayment period. Going into year five now, it looks much more like a nine- to eleven-year repayment timeline because of multiple renegotiations and adjustments made along the way. The economy slowed down. The business faced challenges. The buyer needed exceptions to the original seller financing terms several times. And I understood why. I wasn’t interested in seeing the company fail. But every adjustment extended my financial uncertainty. Podcast Host: That’s a difficult position because you’re both a former owner and a creditor. Susan: That’s exactly right. You’re emotionally invested because you built the company. You want the buyer to succeed. You want employees protected. You want customers taken care of. But financially, you also have to think about your own future. That was the conflict I didn’t anticipate. Podcast Host: How did those challenges affect the company? Susan: The financial pressure created stress. The buyer lost some key employees along the way. And because I was concerned about protecting the value of the company and ultimately recovering the seller financing, I became involved in helping find replacements and supporting the transition. That was never part of my vision. I thought I would help for maybe six months after closing, help transfer knowledge, introduce relationships, answer questions, and then quietly step away. Instead, years later, I was still connected. Podcast Host: How did that affect your personal plans? Susan: That has probably been the hardest part. My

Emotional Readiness, Owner Conversations, Owner(s) Sale Objectives

Owner Conversations: “Life After the Deal: The Unexpected Personal Lessons Owners Learn After Selling Their Company”

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Learning From Conversations Podcast Host: Welcome back to the show. Today’s conversation is a little different. We’re talking about what happens after the transaction, after the congratulations, after the wire hits the account, after everyone tells you that you’ve reached the ultimate definition of success. My guest today is a 64-year-old entrepreneur who sold the company he built after decades of hard work. It has now been 14 months since the sale, and he’s here to talk openly about something many owners don’t spend enough time thinking about: what happens when the company you built is no longer yours. Thanks for joining us. Frank: Thanks for having me. I think this is an important conversation because when you’re building a company, almost everything is focused on the business, growth, employees, customers, solving problems, creating value. The idea of selling becomes this finish line. But what I’ve learned is that selling the company isn’t the finish line. It’s actually the beginning of a completely different chapter, and I don’t think I spent enough time preparing for that chapter. Podcast Host: Let’s go back to the day after the transaction. You had accomplished what many entrepreneurs spend their entire careers working toward. What did you think life would look like? Frank: Honestly, I thought I had it figured out. I thought, “I’m going to play golf six days a week. I love golf. I’ve always loved golf. Finally, I’ll have the time.” But what I realized was that my relationship with golf was different when it wasn’t a choice, when it wasn’t squeezed between business meetings, customer visits, and responsibilities. During my career, I probably only played about one round a week, and many of those rounds were with customers or business relationships. Golf was connected to the business world. After I retired, I had unlimited time, but I didn’t necessarily have unlimited motivation. I found that I wasn’t motivated to playing six days a week. Sometimes I play a couple of times a week. That was a surprise. Podcast Host: Why do you think that happened? Frank: I think I underestimated how much purpose came from the business itself. The company wasn’t just a job. It was my identity. It was relationships. It was challenges. It was waking up every morning knowing there were problems to solve and people counting on me. For 38 years, I had a reason to get up. Now, I can sleep later if I want. Nobody is waiting for me to make a decision. Nobody needs me to solve the problem of the day. And while that sounds great when you’re working 70-hour weeks, when you lose that structure, you realize how much energy came from being needed. Podcast Host: You mentioned before the show your wife wanted to travel more, and you’ve done more traveling together. How has that transition been? Frank: Actually, it’s been good. My wife always wanted more travel, and we’ve definitely done more of it. The challenge is that travel means different things to each of us. My whole career involved a tremendous amount of business travel. Airports, hotels, meetings, being away from home, I did that for years. So when I retired, I was thinking, “I finally get to be home.” My wife was thinking, “Great, now we can go everywhere.” (Laughs) She loves exploring new places. I enjoy it, but I don’t have the same appetite for it because I spent so much of my life traveling. Podcast Host: You’ve also talked about how your wife has adjusted to having you around more. Frank: Yes, and that’s been an interesting part of this transition. For years, I was gone a lot. She had her routines, her friends, her activities. Now I’m home much more. She loves me being around, but I think the reality is that going from having your own separate rhythms for decades to suddenly sharing almost every day takes adjustment. She has weekly groups and activities with friends, and sometimes she feels guilty leaving me home alone. I keep telling her, “Don’t stop doing those things. You need your friendships and your independence.” But I understand why she feels that way. We’re both learning what this new version of life looks like. Podcast Host: You mentioned mornings have been difficult. What does a typical day look like? Frank: The interesting thing is I still do things I’ve always done. I get up early. I take our dogs for a three or four mile walk every morning. That routine has stayed with me. But I’ll admit there are mornings where I wake up and think, “What am I really getting up for today?” That’s something I never experienced when I owned the company. There was always a mission. Now I’m trying to create a new one. Podcast Host: Do you miss the business? Frank: More than I expected. I miss the challenges. I miss the people. I miss the employees who were part of the journey for years. I miss sitting across the table from customers and solving problems. You spend decades building relationships, and then overnight, you’re no longer part of those conversations. That’s been harder than I anticipated. Podcast Host: Looking back, do you think selling was the wrong decision? Frank: I wouldn’t say that. The transaction was successful, and I’m grateful for the opportunity. But I do question the mindset that led me there. There was a lot of outside messaging: “You need to sell now. The market is strong. This may be your last opportunity. You need to maximize your value.” And I listened. What I wonder now is whether I was making the decision because it was truly what I wanted, or because I was trying to meet other people’s definition of success. Was I trying to prove something? Was I trying to show the world that I had made it? Those are questions I’ve thought about. Podcast Host: Do you think you could have continued running the company longer? Frank:

Emotional Readiness, Owner Conversations

Owner Conversations: Uncomfortable Thoughts

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Learning From Conversations Some of the most important subjects we should discuss dip into areas we try to avoid and often find boring until the day an event scares us into taking action.  The hardest part of planning for the future is that the future always feels far away.  You fought through the uncertainty of building your company.  The pain was immense and the sacrifices were many, but along the way you survived and built a profitable company.  More than that, it now supports employees and their families who depend on you for a portion of their financial security.  You finally reached a point where you could enjoy some comfort and satisfaction from accomplishing what many never do. Then along the way, someone starts asking you what you plan to do with your company when you retire.  Retire? You weren’t even considering retiring or leaving.  You were just getting used to the better vacations, more freedom, and perhaps that extra vacation home you promised your spouse years ago.  Your spouse endured all the late nights, missed dinners, weeks of travel, and the countless times personal bills came second to making payroll.  Retirement feels irritating to consider, but also strangely intriguing.  Maybe there is life after the company.  Maybe there are other dreams worth pursuing.  Still, the thought disrupts the rhythm you worked so hard to achieve. Then that little voice inside starts talking, “You’re getting older, maybe you should consider?”  But you shove the voice into your mental desk drawer, slam it shut and tell yourself, “This can wait, my retirement is 5-10 years off.  Why worry about it now?”   Then six years pass.  One afternoon, a vendor stops by your office and offhandedly mentions that one of the founders of a well known competitor drowned in a riptide while vacationing off the coast of Fiji. And suddenly, the future no longer feels distant.  In that moment, you are reminded that time does not continue indefinitely.  You try to push the thought aside, but it continues to play on your mind until, one day, you take action. Maybe that conversation starts on a golf course with your best friend. Conversation “Man, you ever notice nobody wants to talk about the important stuff until something scares the hell out of them?” Tom said, pulling a tee from his pocket. Rick laughed. “You talking business or life?” “Feels like they’re the same thing sometimes.” Rick smirked and lined up his ball. “Fair point.” Tom shook his head. “I had a guy asking me last week what my exit plan is. Retirement, succession, all that. I about rolled my eyes.” “You? Retire? I can’t even picture it.” “Exactly. Took me twenty years just to get to where I can finally breathe a little. Remember those early years? Making payroll before paying myself?” “Oh yeah. You looked ten years older back then.” Tom chuckled. “My wife stuck through all of it. Late nights, travel, stress. Now we finally take decent vacations, got the lake place… and suddenly people want me thinking about walking away from it all.” Rick nodded slowly. “That’s the hard part though. You spend your whole life building the thing, then one day somebody asks what happens when you’re not there.” Tom looked down the fairway. “I always tell myself, ‘I’ve got time.’ Five, ten years out. Deal with it later.” “Yeah, until later is today.” Tom paused. “Exactly. One of my suppliers stopped by last month. Told me the owner of a competitor drowned on vacation in Fiji. Guy was healthy too.” Rick stopped adjusting his glove. “Seriously?” “Yeah. And ever since then… I don’t know. Gets in your head a little. Makes you realize this thing doesn’t go on forever.” Rick took a breath. “So what are you gonna do?” Tom shrugged. “Honestly? Don’t know yet. Part of me wants to work till I drop. Other part’s thinking maybe my wife’s right. Maybe there’s more trips to take. More life outside the office.” Rick grinned. “Well, maybe start with surviving eighteen holes today.” Tom laughed. “Fair enough. Baby steps.” Conversations like this are uncomfortable to have because they remind us that one moment we’re here, and the next, it’s just over. I was once told by someone far wiser than myself that my life would unfold better if I imagined myself at the end of my life looking back, then live every day with that vision in mind. Staying true to that idea means recognizing that each day’s decisions will either move you closer to that vision or take you farther away from it. If you have read this far, I would truly love to hear your thoughts and comments in return. Austec Pre-Diligence Risk Exposure System

Negotiations, Owner Conversations

Owner Conversations: Negotiating Red Sky’s

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Learning From Conversations Maria (Owner): Thanks for coming in. I know you’ve both reviewed the numbers, so I’m happy to address the points you flagged. The company’s stable, profitable, and we’ve built this over 22 years. We’re over 200 employees now, and the operation has strong systems in place. James (Buyer 1): The business is impressive. The margins are strong, and the retention on both customers and staff stood out. But we need to talk about concentration risk. Your top two customers represent about 45% of annual revenue. That’s a meaningful dependency from an acquisition standpoint. Maria: It’s true. Two customers make up 45%, but they’ve each been with us over a decade. One for 16 years, the other 11. Contracts renew consistently, and our service levels are one reason they stay. That kind of loyalty isn’t easy to replicate. Daniel (Buyer 2): Longevity helps, but concentration still affects valuation. We have to underwrite the downside. If one customer shifts vendors or consolidates supply chains, the revenue impact is immediate. That kind of exposure pushes risk higher than a more diversified book. Maria: I understand that. But you’re also looking at a business with extremely predictable orders. Food manufacturing isn’t a speculative market for us. These are recurring accounts, and the customer relationships are institutional, not personality-driven. James: Understood. The second issue is capacity. You’re running at roughly 95%, correct? Maria: Yes, depending on the quarter. We’ve optimized the floor as much as we can. We can squeeze some scheduling efficiency and minor throughput gains, but not a major increase. Daniel: That means the next phase of growth requires capital expenditure. Probably a facility expansion or a second site. Maria: A second site would likely be the long-term answer. Expanding here is difficult. The building already occupies nearly the full footprint of the parcel. There’s some flexibility for minor additions, but not enough for meaningful production scale. James: That’s the concern. We’re not just buying cash flow; we’re buying future return. If the company is nearly maxed out physically, then growth requires us to deploy more capital immediately. That changes our model. Maria: But you’re also acquiring a very strong platform. The workforce is exceptional. Most of our supervisors have been here 10+ years. Turnover is low. Training is strong. In this industry, operational consistency and labor reliability are major assets. Daniel: We agree. Your team is one of the strongest parts of the business. It lowers transition risk considerably. We also like that customer retention is so deep. That has real value. James: Still, our investment criteria targets a 30% annual return. To achieve that, we have to factor in the concentration risk and the limited organic expansion. The purchase price has to reflect those constraints. Maria: What kind of adjustment are you talking about? James: Based on our model, we’d discount compared to a similar company with diversified customers and room to expand on-site. The business quality is high, but the risk profile narrows our acceptable entry point. Maria: You’re discounting for future risks, but the existing earnings are proven. This company generates strong cash flow now. You’re not buying a turnaround. Daniel: Absolutely. But from our side, if we’re paying full market multiple and then also funding a relocation or second plant within a few years, our ROI falls below threshold. We have to build in that expected capital cost up front. Maria: So in your view, you’re valuing the current operation but subtracting for the expansion investment you anticipate making. James: Exactly. If the business had 20% idle capacity and land to double the footprint, that’s a different valuation. Here, expansion is possible, but it requires a larger strategic decision and more capital. Maria: I can appreciate that. But I would also argue you’re buying something hard to build: a loyal workforce, long-standing customers, and a proven operating culture. That reduces execution risk significantly. Daniel: It does, and that’s why we’re still very interested. We’re not questioning the strength of what you’ve built. We’re just saying the structure of the revenue and physical limits mean our offer will need to reflect a more conservative entry multiple. Maria: I’m open to discussing structure if price is your issue. Earn-outs tied to customer retention or expansion milestones might bridge some of that gap. James: That could help. If customer concentration remains stable and revenue expands after capex, there may be a way to align valuation expectations. Daniel: That’s worth exploring. We see a strong company here. We just need a deal that meets our return requirements while accounting for the risks we’d be taking on. Maria: Fair enough. Then let’s work through a structure that recognizes both: the risks you’re pricing and the strength that already exists. Fade Out Sellers and Buyers Often View Deals Differently A common dynamic in selling a business is how differently sellers and buyers talk about value depending on which side of the table they’re sitting on. Sellers often present their company through the lens of blue-sky potential, emphasizing untapped growth, expansion opportunities, and all the upside that a new owner could unlock. At the same time, many sellers will say, quite reasonably, that a buyer should not expect to pay today for profits that may or may not happen tomorrow. Yet buyers often reverse that logic. They may not want to pay full value for what the company is earning today because they see red-sky concerns about tomorrow, customer concentration, facility limitations, industry changes, or future capital needs. It’s a convenient shift in perspective, and many sellers accept that reasoning without fully examining it. The reality is simpler: the seller has to determine what price reflects the years of blood, sweat, and sacrifice it took to build the company. The buyer has to decide what price makes more sense than acquiring a comparable company elsewhere or building one from scratch. Somewhere between those positions lies a deal, if both sides can reach it. Negotiation is ultimately a dance. Each side studies

Business Continuity, Owner Conversations, People Considerations

Owner Conversations: How Hard Can It Be To Replace The President?!

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Business Owner (Mark): I’ve been thinking a lot about the future of the company. Right now, everything runs through me—customers, vendors, decisions. That’s not sustainable, especially if I want to position the business for a sale. Executive Recruiter (Dana): That’s a common inflection point. You’re looking to bring in a president who can step into those relationships and shift the company away from being owner-centric. Mark: Exactly. I need someone who can take over day-to-day leadership and become the face of the business. But they also have to fit our culture—we’ve built this company on trust and long-term relationships. Dana: Culture fit is usually the hardest part. Finding someone with the right experience is one thing, but aligning with your values and leadership style—that takes time. Realistically, you’re looking at 6 to 12 months just to find the right candidate. Mark: That long, huh? Dana: For the right person, yes. And even then, hiring is just the first step. Once they’re in the role, it typically takes another 12 to 24 months to truly know if they’re the right fit—whether they can build those relationships and lead effectively. Mark: So, this is more like a two- to three-year transition, not a quick fix. Dana: That’s the right way to think about it. It’s a process—search, onboarding, relationship transfer, and then proving performance. But if done well, it significantly increases the company’s value and makes a future sale much smoother. Mark: I’d rather take the time and get it right than rush it and regret it. Dana: That mindset will serve you well here. Fade out The Overlooked Thought to Leadership One of the largest reasons I attribute to why 75% of business owners regret selling their company is the prior lack of understanding of all the selling process complexities and the time needed to make adjustments to their business, personal, emotional, and financial aspects prior to selling.  One of these obstacles is that the value of the business increases as the owner-centric dynamic decreases.  For a new owner, one of their toughest challenges is quickly transitioning relationships that were likely built on years of trust between the original owner and key employees. This transition has to happen in a matter of months to ease concerns and prevent negative discussions that could drive customers or employees away.  Of course, if those relationships are already secured with a new president or key manager, the risk of losing customers and employees is greatly reduced.  These are key assets on which the company’s value is based.  I often hear from owners the phrase, “I’ll just leave that up to the new owner.”  However, comments like that often quickly scare off the majority of buyers, if not at all.  If a buyer has to go through the trouble of securing a key manager or president with a new contract, it’ll often cost more than if the seller had handled it themselves.  And where do you imagine the new buyer will place the extra cost?  They simply reduce the purchase price in the negotiations.  Another important point, unless the buyer wants to be the president, the risk of buying a company and finding a president to run the company that they do not fully understand can be a huge risk.  If, say, a private equity firm does go through with the purchase because the company is large and worth the risk, they will likely offer a significant discount to account for that uncertainty. Not many private equity firms have CEOs with the industry-specific experience needed to step in immediately. Think of it like selling a home.  If you have to replace the old water heater, it may cost you anywhere from $600 to $2,500, depending if you or someone else installs it.  But imagine the buyer learning the house needs a new water heater, well, they just reduce their offer by 5-7k.  Why?  Because the inconvenience of replacing it after the closing comes with a price tag.  Now consider the conversation above.  It’s not so easy to find a leader replacement who has experience but also fits the company culture.  Also, the owner may need to go through two or three candidates before finding the right fit. This process is similar to a Navy SEALs Hell Week; all new potentials have qualifications, but only real world experience in your company will reveal the right fit. This is not an issue to be left up to business brokers or investment bankers, unless you wish to ask the broker or banker to just negotiate a large discount in the price of your company.  Their role is not to fix your company, but rather assess its value, clean up what they can, and present the business in the best possible light to find a buyer who will stomach both the price and existing flaws.  The regret often shows up once you realize that you could have earned significantly more  (in some cases millions) had you taken the time to understand the complexities of the selling process, assess your business and personal (emotional, financial, taxes, etc.) situation prior.   Instead, you realize that maybe you rushed through the sale because of business burnout, pressure from attorneys, bankers, and buyers to close, or the desire to achieve a certain sale price to prove your success.  That’s not to say those are all the reasons, because they’re not, which is exactly why I write these newsletters.  Thank you for reading. If you have a moment, I’d appreciate it if you could, like, subscribe, and leave a comment. Austec Pre-Diligence Risk Exposure System

Negotiations, Owner Conversations

Owner Conversations: You Won’t Pay for Customers?!

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Tom (Seller): Alright, Steve. I think we’re close, but I want to make sure we’re on the same page with a few points before we move forward. First off, we’re talking about an inventory transfer of about $1.2 million. However, there are some items that we’ve been phasing out and may be outdated. I’m sure we can agree that the remaining inventory has some solid value—around $900K—but we’ll need to figure out a fair way to address the less valuable stock. Steve (Buyer): Right. And, look, Tom, I’m aware of the inventory, but I think we both know that a good portion of that stock is essentially dead weight. Outdated product, expired materials—things I’m not going to resell. I’m not going to pay full value for that. I’m happy to accept a reasonable write-down on the total. Maybe, we cut the valuation of the inventory down to half—call it $500K? I’m sure you can understand that I need to protect myself here. Tom (Seller): I can see your point, Steve, but we’ve been working hard to move through those outdated items. I’d say a fair reduction would be closer to 30%, and that’ll reflect the items we’ve been clearing out over the last few months. But if you want to go lower, we can work something out on the back end, maybe in future performance terms or an earnout structure. Steve (Buyer): Hmm. I’m not opposed to some flexibility, but let’s not get too far from reality here. Now, about the customers—I’ve looked over your client list. We already have over 90% of those accounts. We’re effectively competing for the same customers, and there’s no way I’ll pay anything for those accounts. No goodwill. No transfer of value. Your customers are already my customers. Tom (Seller): But, Steve, my company has a well-established brand, and I’ve spent years building those relationships. Surely that has some value? Even if you already serve many of them, the transition is going to require some level of goodwill. I’d expect something for that. Steve (Buyer): Tom, I understand where you’re coming from. But honestly, my team has been handling those customers for years as well. There’s little incremental value in those relationships for me to justify a purchase price. And frankly, many of your clients might just stick with me because we have more competitive terms. There’s no tangible transfer of goodwill here. So, I’m not paying for customers. I’ll only pay for the assets, the inventory that I can actually use, and the employees that add value. Tom (Seller): Alright, I can live with that on the customer side, but let’s talk about the employees. I’m hoping that the key personnel will stay on board. I’d expect that there’s some value in them—especially the senior team. You’ll get stability for the transition. What do you think? Steve (Buyer): Employees are definitely important, but let’s be honest: not all of them are valuable. We’ll keep the core team, for sure—your sales manager, your operations guy, the lead technician. But I’ve heard there’s some tension, especially with your key manager, Kyle. You know as well as I do that he’s not exactly a fan of mine, or of my company. I’ve dealt with him before in direct competition and it’s been rocky. That’s a concern for me. Tom (Seller): Ah, Kyle. Yeah, I can see how that might be a sticking point. He’s been a top performer for years, but he’s definitely got a chip on his shoulder when it comes to you. I’ll have to have a serious conversation with him about the future, and if we’re going to close this deal, we may need to work out some kind of incentive to keep him on board. I’ll talk to him, but I can’t guarantee he’ll play ball with you right off the bat. Steve (Buyer): Look, I’m not trying to make this personal. But we’ve been competing for these customers, and now you want me to pay for an environment where the key manager doesn’t even like me? That’s a red flag. If Kyle doesn’t want to work for me, that’s a real problem. His team follows him, and if he’s not on board, then his department could fall apart quickly. Tom (Seller): Fair point. I’ll make sure to have a conversation with him. If I can’t convince him to stay, maybe we’ll have to adjust his compensation package or negotiate his exit, but I can’t have him being a thorn in your side, either. I’ll take care of that. But the rest of the team is solid. If we’re going to move forward, I think the employees—most of them—will be happy to join your company. Stability is a big part of what they want. Steve (Buyer): Alright, Tom, I appreciate your effort on the manager situation. Let’s circle back to the inventory then. If we agree on a reduction, say down to about $500K, and we’re on the same page with the customers—essentially, no goodwill there—I think we can move on to finalizing the structure of the deal. But I’m still not seeing the full value on the table. I’d need the inventory terms adjusted, some level of flexibility on performance post-sale, and a clean handover of the employees that matter. Tom (Seller): I think we can work with that. I’m not going to leave any stone unturned here. I’ll have those conversations with Kyle and the team. And I’ll also get with my accountants to adjust the inventory numbers and work out that reduction. But we’re close, Steve. Steve (Buyer): I agree, Tom. Let’s get this done right, and we’ll both be happy in the end. Tom (Seller): Sounds fair. There are countless variations of conversations around buying and selling businesses—and many of them end with the deal quietly slipping into the trash bin. But every so often, a conversation stands out for a different reason. Based on my experience, the more optimistic outcomes tend to come from a deeper

Calls

Buyer Attorney Calls – Hold Please… I’m Losing a Customer

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[Phone rings — click] Owner: Hey, this is Mark. Attorney: Hi Mark, this is Susan, counsel for the buyer. I’m following up on the HR benefit documentation—we still need the last three years. Owner: (exhales) Yeah… I’ve been pulling that together. I sent over 2025 already, and part of 2024— Employee (muffled, in background): Mark—sorry—there’s a customer out front asking for you, they’re upset about the order delay. Owner: (covers phone) Give me two minutes, I’ll be right there.(back to call) Sorry. It’s been like this all day. Attorney: I understand you’re busy, but we do need complete files—plans, amendments, enrollment summaries, everything—for 2023 through 2025. Owner: Right, and I’m trying, but every time I send something, I get another list of questions about why we changed providers or adjusted contributions. That’s hours I’m not on the floor. Employee (louder): Mark, he says he’s leaving if he doesn’t talk to you now. Owner: (frustrated) I said two minutes!(back to call, voice tight) Look, this process has been going on for two months. I’m running a business while digging through archives every night. Attorney: I hear you. But the buyer needs clarity—especially given some inconsistencies we’ve noted. Owner: (dry laugh) And now I’m hearing “price adjustment” because of it? Attorney: It’s just part of due diligence. Nothing final. Owner: It doesn’t feel like “nothing” from my side. I’ve already got customers noticing I’m distracted. I might lose one today because I’m on this call. Attorney: Understood. If you can prioritize the remaining documents, we can minimize further back-and-forth. Owner: I’ll send what I have tonight. But I need this to stop being a moving target. Employee (urgent): Mark—he’s walking out. Owner: (firm, exhausted) I have to go. I’ll follow up later tonight. Attorney: Okay. I’ll look for your email. [Call ends — silence for a beat] Owner (Mark, to himself):(quietly) When does this actually end… (pauses, looking toward the floor where the customer just walked out) Two months of this. Every document turns into five more questions. Every answer turns into a new problem. (shakes head) At some point, it’s not even about running the business anymore—it’s just feeding the deal. (sighs, tired) And now they’re talking about lowering the price… after all this. (under his breath) What if this thing doesn’t even close? Fade Out Austec Pre-Diligence Risk Exposure System

Stories

When the Deal Is Not the Deal: Distribution Story

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A business owner in Chicago decided it was time to sell his manufacturing company. After 30 years of hard work, he wanted a “fair deal” and a smooth exit. One day, a polished buyer approached him—well-spoken, respectful, and clearly experienced. The buyer praised the company, called it “a legacy operation,” and said he wanted to “protect what you’ve built.” The owner was impressed. The buyer offered $8 million. Not the highest number the owner had heard, but close—and with something even more appealing: simplicity. “No messy earn-outs,” the buyer said.“No risk to you. Clean deal. Quick close.” The owner felt reassured. Other offers had higher numbers—$9M, even $10M—but they were full of contingencies, performance clauses, and long transition periods. They negotiated a little, settled just under $8 million, and signed. At closing, everyone congratulated the owner. His lawyer called it “a solid deal.” His accountant said the taxes were manageable. The buyer thanked him for his trust and promised to “take care of the company.” A few months later, the owner heard things had changed. Production had slowed. Then stopped. Most of the employees—people he had worked with for decades—were let go. Confused, he reached out to someone still connected to the business. “They didn’t really want the operation,” he was told. “They kept a skeleton crew for a bit, but that wasn’t the point.” “The point?” the owner asked. “The distribution.” It turned out the buyer already owned a competing product line—one that struggled to get shelf space and reliable market access. What they saw in his company wasn’t the machinery, or the team, or even the brand. It was the network. Decades of relationships. Contracts. Shelf placements. Logistics pipelines. Trusted channels that took years to build. Within months, the buyer had replaced his products with their own—moving through the very same distribution system he had spent a lifetime creating. The company, as he knew it, was gone. But the channels? More valuable than ever. That’s when it clicked. The buyer hadn’t been buying a business. He’d been buying access. And the $8 million? That was the price of a shortcut—one that would have taken years, and far more money, to build from scratch.

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