So we were asked to sell the business.
Like all good tales, it starts with a line to catch your interest. It contains a journey of sorts. And as all tales must, ends in a revelation of self discovery.
Now lets begin…
About a month ago, I had my first meeting with a new client. A sizable, well known business, which I cannot name for obvious reasons.
They were very nicely directed to Spoiltchild by way of a very good recommendation from a previous client.
When they came it was not quite the meeting I was expecting. After the usual introductions I “Pitch” Spoiltchild. Who we are, how we work, previous samples etc. They in turn explain who they are, the direction they are going and the immediate work needed. So far so normal. Then they begin to expand on their plans for the future, possibly expanding on their design and development end of things and asked would I lead it. They wanted to buy Spoiltchild Design. A bit out of the blue as you can see.
I will step in here and inject a bit of honesty about the situation. In reality I believe they were only interested in me and not the business. Though I am sure the award nominations would look good on their books. They were not aware of the many irons we currently have in the fire so starting out they were probably looking for something that I and Spoiltchild are no longer.
However, they were still open to the idea and the new possibilities it would mean for them.
We were very open to the idea of a nice lump sum, a steady income, access to a sales force of almost 40 and an established back office support. You can see why we might be interested.
(With a baby almost due there is a little extra pressure.)
They were in a rush to get something set up, but after 3 years building the business I was not about to rush into anything that I was not 100% sure of.
The tricky bit was when it came to deciding a price. And this is where we got the most value out of the proceedings. I was reluctant to give a price until I had thought fully about it. Originally I had a price in mind and I thought it sounded pretty good. It would make nice inroads to finally buying a house. But I thought about it and realised, hang on, if you add that, and this, we are worth more then that. Each and every time I though about what the business was worth to me, it went up.
It was time for some serious financial advice. This is not as easy to find as you might think. Many accountants do not have experience in this area. I did eventually find a good one by the name of Gail McEvoy of the Drogheda Tax Clinic through a mutual business contact.
The offer of being bought made me sit down and take stock of everything. Where we are, where we have been and very important when selling, where we think we will go. It was great but there was a problem.
Great in that I had for the first time in ages, a full handle of the business, where we are now and a good solid plan for the future. I developed a detailed spreadsheet covering the next 18 months. Every little incoming and outgoing we have now and a really conservative estimate of what we hope to earn.
The future looked Orange. The NOW however does not look so good. Don’t get me wrong, we are currently covering all costs but we are operating at a reduced capacity in bootstrapping mode. Which basically means that all money coming in now is going out to fund the development of Weddings By Adam, Toddle, Sheepstealer Clothing and a few other things.
So according to our current books we are not worth much. However according to the passion I have for what we are building and my belief in what we can achieve we will be worth A LOT!
So back to the experts. Gail brought in a brilliant woman, another business advisor with specific experience in this area and a history working with Enterprise Ireland.
She had some interesting things to say about Enterprise Ireland and Banks approach to business but that is for another post.
What was interesting was, this woman did not want to meet with me originally. Her response was along the lines of “Not another feckin’ web design company. They don’t make money!”. After seeing what we are working on though she became a lot more interested and agreed to meet.
To price a business you can look at the current books, past growth, current plans and projection for the next 3-5 years. A buy out might consist of 50% up front, 50% in two years if projections are met and perhaps a % of all future earnings. There are a million other details but they come after these numbers.
Or you can simplify it. You are worth what someone is willing to pay!
Looking at the books and future plans actually written down in paper invigorated me. I had been feeling a little worn out lately. There has been a fair amount of struggle and hardship. A baby coming along forces you to evaluate things in a different way. However seeing everything that we achieved and all that could be achieved in black and white spurred me on.. I couldn’t sell for what we are, according to the book’s worth. I had to sell for what I believed we are worth. Otherwise I am sure that in 2-3 years time I would be kicking myself.
I knew it was going to be more money then the company were willing to pay.
I gave them a price of €1.5 million.
They said no.
I feel great!
We are going places and we are steering.
The big discovery was seeing the business through anothers eyes. It seems that Spoiltchild is not a Web Design company. Which surprised me! But you know what, she is right. And it makes us a whole lot more valuable.
Thank God!
— Michele Jun 30, 06:04 PM #
:)
— Alan Jun 30, 06:06 PM #
WeddingsByAdam looks very compelling. I hope it becomes a big success for you. Must have been very interesting doing the numbers.
— walter Jul 1, 12:11 AM #
Good decision Alan – and thanks for posting/sharing that. Feck knows how you are juggling it all :-)
keith
— Keith Bohanna Jul 1, 08:02 AM #
Having gone done the investor/sell out route I can state that it generally does not work work.
You miss the freedom to do things your own way.
Best to stay solo and be happy.
— Brian O'Neill Jul 3, 10:27 AM #
Congrats on having the nerve to ask for 1.5m – too many people in the same situation would undervalue themeselves! It’s a very nice reality check though …
— Paul Browne - Technology in Plain English Jul 3, 10:30 AM #
Thanks for the feedback guys. It feels better to know you would probably make the same decission.
— Alan Jul 3, 11:52 AM #
Thanks for sharing your experience! I’ve found that seling a business is often perceived as a “behind closed doors” process, so it is great to hear you story.
— Daniel Schutzsmith Jul 4, 12:12 PM #
Hey Alan,
I have to say great post. As some have said above its something you don’t usually hear much about.
We ourselves are looking for some VC funds and I’m in a very similar situation to yourself. 3 years in business and working very hard now with little immediate reward but fingers crossed some good long term reward.
Like yourself on paper its hard to put high value on the company but with our product like your products we really see potential and that’s were the value is.
So all going well we can still hold on to the power and get a bit of investment to cover wages and cost of marketing.
I’d be very interested to know did you pay for the advice you got and is it expensive or was it a favour from a friend?
Best of luck with it.
— Derek Organ Jul 7, 07:24 PM #