The Right Price or the Right Deal?

A close friend of mine from high school days has been in the process of acquiring a business. He has spent nearly a year agonizing over the pros and cons of various businesses. He has looked at businesses in multiple states, businesses of different size and businesses in a wide array of industries.

About two weeks ago he had finally narrowed his search down to two businesses – one, a light manufacturer moderately priced, the other a smaller yet profitable service-based business. Both had excellent cash flow, were located in the geographical area desired, and financing was available to acquire either business. He called one day resolute with his choice of the light manufacturer. I was happy for him; he prepared a Letter-of-Intent and submitted it for consideration to the Seller (who was out-of-town for a few days).

Before the Seller actually received the offer, he called me in a quandary. The light manufacturer was very stable, but produced only one set of products and was fairly narrowly focused. His question to me was “Should I continue pursuing the manufacturer or should I reconsider the service-based business”. I was surprised, thinking he was set on the manufacturer so I asked what intrigued him more about the service-based firm. He gave an animated description of the diversity of the service-based company, the future services the company was moving into, and most importantly, how he saw himself contributing to the success of that effort and that organization. I explained to him that being in business is so much more than just stability and cash flow. Although the service-based firm was smaller, my friend could imagine growing the company into a larger business with more diverse services

Since he was apparently back at the same decision crossroad, I suggested he consider what skills he was bringing to each business, and how he could contribute to each organization. I also suggested he fast forward a year into the future and envision what it would be like running both companies. He realized that although stable, profitable and likely less risky, the light manufacturer could possibly stifle his creativity and be rather plain and boring. Alternately, the service company would be dynamic, interesting and challenging.

He took the offer off the table for the manufacturer, made a new offer on the service company, which was accepted, and is now in the process of due diligence and completion of financing.

The moral of the story I suppose, is that it is just as important in the final analysis to determine not just how well the company will fair financially, but also how you the buyer will fair emotionally and professionally as the business owner. Somewhat like buying a pair of shoes that is on sale - they may be a good price, but if they don’t fit well or feel good, it probably wasn’t a good purchase. A good price alone is not always a good deal.

Bradley G. Marlor MBA, CBI is a Managing Partner and Certified Business Intermediary at Utah Business Consultants, a full-service Business Brokerage and Valuation firm.