With 5 businesses in play, friends, family and associates knew I was taking over businesses for retiring owners. Business #6 was subsequently referred to me by a friend. It was smaller in every way than the other businesses, but it was an easy tuck-in. This business had a niche of improving the lighting and electrical for apartments converting to condominiums. It did not require a lot of overhead and the profit matrix was good, 60-20-5-15. The critical drawback was that it only had a few large customers, which significantly increased the risk. If any of these customers fell through the company was not well-positioned to transition to other work.
Understanding the risk, I presented the owner with my offer. It was low, but I felt it was fair. I could see the owner was certainly hoping for more, but except for price, I made it very easy for him to sell. I already had 5 businesses and I did not need his business, so I was very firm on the price. The owner relented and we signed the deal at 50% down, 50% financed for 5 years. An added perk, similar to Business #3, was that the seller continued to work for the business. This made for a seamless transition. Like many small business owners, the seller tried to make it on his own. In reality he was more proficient at being a manager and estimator, not a business owner.
The seller and I enjoyed a positive relationship and during the good times the seller and I took a trip to Mexico where he speared a huge tuna seen in this picture.
Bill, bill, bill! That was the mantra as we milked the cash cow. We worked hard and fast, but after 5 years the housing market had changed. Apartments were no longer converting to condos and the customers dried up. New markets were hard to come by. We were bidding on projects, but the margins were slim and fiercly competitive. No one knew the housing collapse would be so dramatic, but I knew the boom would not last forever. I was lucky the business was paid for and the employees could be relocated to my other offices or find good jobs elsewhere. I offered this business no life support; it just slowly faded away.
Keys To Success
- Understand the risks
- Hold firm and do not over pay when you know risks are present
- Milk the cow as long as you can
- Be prepared to scale back when the window of opportunity closes