I wasn’t about to say it out loud, but this place sort of gave me the creeps. Ben (not his real name) was showing me where they hid the weapons, a few handguns and baseball bats. Though the business was perfectly legal, the nature of their clientele required they think in advance about protective measures. Under these kind of conditions, Ben’s ability to make money was especially impressive, but it wasn’t the kind of place where I would like to hang out.
Ben had asked me to visit to discuss selling the Missouri-based business he started in 1987. His son Kevin (not his real name) was in the business with him, but Kevin wasn’t interested in buying it for reasons which soon became obvious.
After a tour of the 5-acre facility, Ben and Kevin took me into their office and I said, “Before I can give you an estimate of your valuation, I’d like to see four years of financial results.” Ben looked puzzled as he replied, “Well, I have these results or I have these results, which one do you need?” One set of results were tax returns and the other set of results was a box of loose papers. Ben could obviously anticipate my question as he said, “In case you’re wondering, we don’t keep very good records here, no reason sending a third of what we make to Uncle Sam, but this box tells a pretty good story, if you can figure it out.” He seemed proud of himself. I then asked the obvious question, “How do you do your tax returns?” to which Ben replied with a twinkle in the eye, “We sort of make an estimate.” “Have you ever been audited by the IRS?” I asked. “No” Ben said “I guess that makes me lucky.”
Lucky indeed. Ben’s business was quite profitable, so he assumed it would sell for a tidy sum. Ben was in poor health and Kevin was ready to get out from under the headaches, not to mention the always-present potential visit from the IRS. Kevin summed it up this way, “Thirty years doing this, they’re bound to show up eventually.” But I had to tell Ben and Kevin their business could not be sold for a dime more than its asset liquidation value. In the absence of financials, no buyer would be agree to a price based on an estimate of the business’s financial performance. I also told Ben I would not be able to help him. I assumed if he had been lying to the IRS for 25+ years, there is no reason he would not lie to me and/or a potential buyer.
Every now and then I come across a difficult situation like this. Ben and Kevin had built a business that could have been sold (likely for a lot of money), but the absence of financials was a complete non-starter. Fortunately, this kind of recklessness is the rare exception in my 20+ years working with entrepreneurs, but I will admit there are those occasional meetings when I am surprised, sometimes even scared.
Tennessee Valley Group
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