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How Selling a Business is Like Flying a Skywriting Biplane

“We have two lines of business, one has been making money for fourteen years, the other has been losing money since we started it three years ago. We’re certain this new line will be profitable next year, but we want to sell the business this year. Should we jettison the money-losing line now, or will a buyer see that we are close to turning the corner as a good thing?”

Carl (not his real name) brought his company’s financials to our lunch meeting. He had a growing seven-figure EBITDA. “We’re growing the main line of business while the new line continues to lose money, but net-net, we’re still growing.” I made an obvious observation, “That means your legacy line is funding your new line, right?” “Yes, that was the plan all along,” he replied, “I just didn’t think it would take this long for the new line to turn profitable.”

Carl has a strategic dilemma. He wants to sell his company in 2019. He has two lines of business, the legacy line is profitable and growing, and the new line has definite promise, but has not yet turned profitable. If he dropped the new line now, we could revise his historic financials to show the strength of the legacy line of business. We think the company with this one line of business would sell for six times EBITDA. But, with the second line of business included, the historic EBITDA is reduced, and the business overall looks more erratic. It might sell for five times EBITDA. So, at first blush, the obvious conclusion is to shut down the new line, like right now.

Except… that new line of business is very close to being profitable, likely next year. And for the right buyer, the growth potential of that new line might make it more appealing than just Carl’s legacy line of business. This means, in reality, the company might be MORE valuable by keeping the second line, even though it has been a drag on historic earnings.

Might, probably, maybe, shoulda, coulda, woulda … often-used words in the vocabulary of selling a business. Nothing about selling a business is scriptable. It’s like flying a skywriting biplane on a windy day. You have a very clear idea of what you want to achieve, but conditions beyond your control make it difficult to complete the clearly-defined task. The pilot of a skywriting biplane has to adapt to circumstances and uncertainty beyond his control, so does an owner going through the process of selling a business.

Carl is facing uncertainty, and we cannot script how our efforts to sell the company will end. But entrepreneurs are used to this kind of decision making. I doubt there are many skywriting pilots who work for a salary.


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. .  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 story, names and fact patterns are changed to preserve the parties’ identities.

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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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