In This Episode
Ever bought a company before? What, no one’s ever asked you that question before? Any guess what the top response is when we ask someone if they’ve ever bought a company before? Some version of, “I don’t have the money/big pile of cash.” Well, what if someone gave you the company? What then?
Usually this question is met with a sly smile and an inquisitive or confused look. “Why would someone just give me their company?” There are lots of ways that someone could “give you” a company. Unfortunately most folks don’t get past the “I don’t have piles of cash laying around” piece to even consider what it would be like to own their own business. That type of thinking has caused too many folks to miss opportunities to own and run a small business. We’ve been working hard to demystify a lot of the thinking around buying companies for the past two decades and today’s show covers a lot of that.
There are lots of ways someone could “give you” their company. Below are just a few of the scenarios:
- No Successor: chances are if you talk with 10 small business owners, you’d be hard pressed to find half of them who have a successor in place or even identified. Most folks start and run their business without even thinking about the eventual exit. Maybe they still hold out hope that one or several of their kids will want to take over at some point. If not a relative, then maybe a key employee. But when they get to the point to start having some of those discussions seriously they find out that no one in their family or business wants to step up to run things. When faced with the option of closing the business down vs. giving it to someone, chances are pretty good that the owner will chose the latter vs. the former.
- Health Issue/Untimely Death: did you know that all small business owners live forever? If you didn’t know any better you might think that because many small business owners have no contingency plans in place if something were to happen to them. “They’ll figure it out after I’m gone,” we’ve heard several business owners quip over the years. Sure that’s one potential strategy, but if the business owner has a serious health issue or literally dies in the chair unexpectedly, there will be an opportunity for someone to step in to take over
- Bank Workout: have you ever met a banker who made a bad loan? Us either! The bankers will often joke that the loan they made was good when they made it. It just went sideways somewhere along the way. And when bank loans go bad, borrowers get put into the workout group. Don’t confuse this with a fitness group, what they are trying to do is work you out of your troubles and get you out of the bank. Jack shared several stories of being given companies by banks who had made bad loans. If you like messy situations and turnarounds, this path might be for you.
We shared several stories about how people have been “given” companies over the years during the show today. One of the key ways that deals get done in these types of situations is that the current owner agrees to be the bank. So instead of paying an actual bank every month for the loan on the business, you’ll instead be paying the former owner. So the cash flow from the business funds the purchase of the business. Sounds like a pretty good gift to us!
People, Companies and Resources We Mentioned in the Show
- Ben Ihde, How I Got From Entry Level Job to Owner (https://dirtysecretsofsmallbusiness.com/episode/how-i-got-from-entry-level-job-to-owner-ben-ihde/)
- How Did Jack Buy His First Company, December 20, 2018 (https://dirtysecretsofsmallbusiness.com/episode/how-did-jack-buy-his-first-company/)
- Lisa Holly, Taking Over After Mother Passed Away (https://dirtysecretsofsmallbusiness.com/episode/lisa-holly-president-ceo-of-berea-moving-and-storage/)