I met with a potential equity holder recently, who had hundreds of theoretical questions. How much would the business pay for each shareholder’s mobile phone plan? What was the travel budget? What was the business’s ten-year plan? Would motor vehicle costs be covered? X had an assistant; would they get one? With the valuation, how does it change over time? When does the valuation multiple increase? Would X still be doing the bookkeeping, or would they get this oversight? Most of the questions were to the financials of the business.
It reminded me of a conversation with an experienced Business Owner. He always said if the buyer couldn’t afford the house, they often complained about the colour of the bathroom, or that the kitchen wasn’t their style – they found an out. In the end, we asked the potential equity holder a question. “If you had a wealthy family member gift you the money to do this, would you?” Their response was quick – No.
It wasn’t a financial decision to them, and when we got to the root of it, they didn’t feel culturally aligned with the business owner and didn’t believe in the direction of the business. It wasn’t long before they left the business altogether.
If you’d like to talk about setting up your potential equity holders, and yourself, for success contact our office today on the link below.
Comments