Can You Handle the Truth?
“I could easily sell to private equity. I get their calls all the time.”
Before I met Charlie (not his real name), I had been told by his wealth advisor that he was a brilliant mechanical engineer who was ready to sell his company.
After analyzing his company, I told Charlie his market valuation was $8 to $9 million.
When a business owner has an over-inflated view of their valuation, the truth can hurt.
But it’s not until a potential buyer dissects the business’s financial history and growth prospects can you assess its true sellability, not to mention its true valuation.
His willingness to handle the truth has put him in a good place to see his personal and financial objectives fulfilled.
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“I could easily sell to private equity. I get their calls all the time.”
Before I met Charlie (not his real name), I had been told by his wealth advisor that he was a brilliant mechanical engineer who was ready to sell his company. I was one of several intermediaries Charlie was interviewing for the assignment. “This is my one shot to fund the retirement I want,” he told me, “I damn well better get a good deal.”
After analyzing his company, I told Charlie his market valuation was $8 to $9 million. However, it seems several other intermediaries told him his business was worth $15 million, or more. That’s when he told me how popular he was with private equity buyers, who would ostensibly buy his company “anytime.” Knowing my valuation was way off from what Charlie was expecting, I was surprised when he called a couple of weeks later to ask me to take his business to market.
Telling the truth can sometimes get you in trouble. Ask any man who’s had to answer the question “does this dress make me look fat?” When a business owner has an over-inflated view of their valuation, the truth can hurt. While I was confident my valuation was more reliable than those given by others, I wasn’t confident Charlie could handle the truth.
I also had to break it to Charlie that the sellability of his company was not related to the number of calls he was getting from private equity. I explained there are thousands of private equity buyers all using interns and junior associates to call business owners. Since all these firms use the same lists of businesses, almost every business owner is getting multiple calls these days. But it’s not until a potential buyer dissects the business’s financial history and growth prospects can you assess its true sellability, not to mention its true valuation.
I’m happy to say it’s likely we’ll fund the retirement Charlie wants sometime in 2023. His willingness to handle the truth has put him in a good place to see his personal and financial objectives fulfilled.
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 HarvardBusiness School. Jim is the author of Home Run, A Pro’s Guide to Selling a Business. https://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 principles above are true, but the names and fact patterns are changed to preserve the parties’ identities.
Tennessee Valley Group
Jim is an attorney (non-resident status with the Missouri Bar) and though he no longer practices law, he has read and negotiated enough legal documents to fill a cargo tanker. He has an MBA from Harvard Business School and knows how Wall Street and private equity operates. Jim is a Tennessee Supreme Court Rule 31 listed general civil mediator with tons of experience helping business owners (large and small) work through sensitive problems to achieve winning results. He is the author of "Home Run, A Pro's Guide to Selling Your Business, Seven Principles to Make Your Company Irresistible."
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