University of Northern Iowa



Growth Potential

Posted on Monday, June 17th, 2019

It seems obvious that a growing firm would be  a marketable business – potentially attracting several buyers to the table.  If so, the opposite should hold true: if your firm is struggling to repeat last year’s performance, your options as a seller will be few.

However, what I think is missing hereis the element of “Quality”.  Maybe not in the “Zen and the Art of Motorcycle Maintenance” kind of way – which I highly recommend as a great read to every business person – rather in terms of the how and the why .  First, how are you achieving growth?  Is it through innovation? New markets?  Lean operations? Partnerships? A talented management team?  OR Is it through less desirable tactics like discounts, promotions, cutting corners – things that don’t lend themselves to long term success?

Second, why are you seeing growth?  Is it sustainable? Could a new owner replicate it or is this success tied to you?  

I think it’s important to remember and add here that more than 80% of all closely-held firms include owner financing or owner incentives as part of the sale.  Simply put, the bank and the new buyer wants you on their side of the table, so they keep you holding at least part of “the bag” well after the owner takes over.  Selling a lemon, therefore, is not in your best interest as you can imagine your reaction if you have to take it back.

I hope you recognize through these questions that it’s not just about Growth – but the “Quality” of that Growth that really matters.  Anyone can run discounts and promotions to inflate sales, cut quality/labor/costs to an unsustainable level, or otherwise “trick” the numbers in the short term.  Eventually the piper gets paid. And when you are holding 30% of the purchase price in an owner’s note, it’s going to hurt. (Piper’s can be a rough bunch.)

The point here isn’t to fear pipe players in fancy knickers – although I do.  It’s to think strategically about the growth of your firm and focus on sustainable, quality growth that a new owner can enjoy long after you’ve sold and you’re enjoying the fruits (not lemons) of your success.