Penny Wise and Pound Foolish

Throughout my travels and meetings with business owners and professionals who provide invaluable business services for privately-held company owners, I hear more and more tales of business woes experienced during business exits and transitions.

Perhaps it’s just easier to talk about but the stories with difficult or unsatisfactory endings. The scenarios that I hear seem to be trending away from amazing success stories with wealth-building outcomes. Few include fantastic stories of retirement and post-company ownership life experiences.

Instead, I hear more about the stories involving missed or lost opportunities and outcomes that the affected business owner never envisioned.

Such is the case of one small business owner who thought he’d hit the jack pot. Right up until he found out he didn’t.

In this case, the small business owner thought he could—and importantly—should handle the entire transaction himself. After all, by doing so, he knew he would be able to save substantial fees that he would have otherwise paid to retain critical advisors to guide and protect his interests throughout the transaction process.   And why should he spend that money? As he saw it, it was an easy, clean deal.

The seller was, in fact, very fortunate. He was able to find a cash buyer who was willing to pay him $1 million for the business. As this situation was reported to me, diligence was relatively easy and completed in short order. Essentially, all he had to do was hand over the keys and move on.

This business owner was, as so many private company owners are, burned out and ready to exit. He thought he’d won the lottery by getting the deal done with limited hassle and no professional fees to speak of. Plus, he closed the deal in a matter of weeks, not months.

It wasn’t until several months later that he learned the unfortunate news. Apparently, he could have doubled his cash on the sale of the business.

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As it turns out, much earlier in his business life, he had taken out an insurance policy on himself that had a cash value of $1 million. The buyer later found it in the files, did the research on its value and then cashed it in. The buyer then owned the business for free.

The seller effectively sold his company for 50% of its cash value. A simple mistake that would have easily been avoided with professional support guiding the diligence and exit process.

As is most often the case, it just doesn’t pay to be penny wise and pound foolish.

Note: If you have an interesting and/or educational CEO story of Head Noise caliber, write to me at cbishop@capitusgroup.com. I’d love to speak with you and share your story in my Head Noise blog. You can tell your story either on the record or, without attribution.

Cameron Bishop is a partner with The Capitus Group. The firm provides comprehensive business value enhancement and transition strategy solutions. Partners and Advisory Directors comprise an experienced team of business professionals who have successfully owned, run, grown and sold companies. Capitus utilizes proven value enhancement and risk reduction techniques to enable superior transition options.

 

 

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