So, I saw my financial advisor yesterday.
I took him through the company I'm looking to buy. It wasn't the meeting I expected, as I'm pretty excited about the business. Sadly, he seemed somewhat skeptical about the acquisition.
You see, I'm getting the business on the cheap. There's been a bit of mismanagement and some shenanigans have gone on with the current owners. They don't want to sell, and this could come back to haunt me, but when you're getting a business on the cheap, there has to be some risk, right?
You see, I can get the business for 3 million pounds - which my financial advisor thinks is a pretty good price. So good, infact, he felt sure there was a catch.
But I really don't see one. The company used to be a market leader in its field - they really drove the industry for a while. But sadly that was a while back.
Still, today they're certainly in the top 20. The last report I saw had them as the 18th largest company in the industry.
My financial advisor asked me about assets, the talent in the business and investment needs. This is where he got a little concerned but I assured him that there was nothing to worry about.
The sales force is not bad. They used to be really good, but some decent salesmen left and those that remain are either not up to the job, or a little down on their luck at the moment. They've lost a few pitches recently but I'm sure things will pick up.
Still, I told him that I'd go on a bit of a recruitment drive and could probably improve the sales force if I invested another million quid into the business. I say probably, because you never know with sales guys do you? Some work out and fit in with the rest of the boys, but others don't. There's always a risk, but that's life.
I'll probably have to pay a little over the odds for talent - and some really good sales people probably won't consider us, but it'll be OK, won't it?
Everything else is fine, I assured him. Oh, apart from the factory. Our competitors have all got new hi-tech offices. Ours is a bit of a cramped shed actually. Still, I assured my financial advisor that I could build a new factory and everything would be fine. The price? Don't know exactly, but probably about 4m would cover it.
Looking slightly awkward, my finance man asked me about revenues. This is where I got really excited, hopeful that he'd finally understand the beauty of this coup. I proudly told him that turnover was just shy of a whopping 1.8 million. Profit is a bit light, sadly. I'm used to businesses making a 15% margin at least. This company is a little shy of that...well, they lost a couple of hundred thousand last year, actually.
But you know, they've had banks to pay and there's been a bit of a recession so it's only to be expected, isn't it? Manage the business properly and it'll at least break even.
I say break even, but that could be a little tough in the short-term. You see, they lost some business last year and are nolonger on a major customers list of suppliers. They're a tough client and only work with 4 suppliers at a time. The revenue loss is a bit of a hit - somewhere around 300k, but I'm not too worried.
My advisor seemed more worried than me. "So", he said, "the company's lossed would be 300k more this year without this customer. So, net loss is more like half a million quid". His maths seemed about right.
He then talked financial speak at me and asked about revenue conversion, EBIT and stuff. I didn't really get it so I asked him to put it into English.
"So, you're buying this somewhat outdated company that has an inferior product and it's probably a bit past its prime?"
I told him that was a bit harsh and assured him that the trick here is to make it great again - you know, a top 3 or 4 player in the market.
"Ah yes", he said. "You covered that. To get close to market leadership, you need to spend a little money on top of the 3m purchase price. There's another million on talent and 4 million for the new factory. So, your actual cost is something like 8 million, maybe more - on a business that, with the loss of this major client, is losing half a million a year".
He still didn't get it. I told him that, if we build the factory, we'd probably increase prouction (assuming that our product was good enough so people wanted to buy it). If we invested in more talent, we'd hopefully get the big customer back.
"Best case scenario?" he asked.
"Easy", I said. "Break even"
He summed it up by saying that if I bought the company and if I bought a better salesforce and if I bought the new factory and if the competition stayed still and didn't improve and that if this all happened and if I got that big client back, then I might, just might, break even.
"Exactly!!!", I said excitedly. The dumb advisor finally get's it, I thought.
Funnily enough, he told me not to buy the business.
But what does he know?
I took him through the company I'm looking to buy. It wasn't the meeting I expected, as I'm pretty excited about the business. Sadly, he seemed somewhat skeptical about the acquisition.
You see, I'm getting the business on the cheap. There's been a bit of mismanagement and some shenanigans have gone on with the current owners. They don't want to sell, and this could come back to haunt me, but when you're getting a business on the cheap, there has to be some risk, right?
You see, I can get the business for 3 million pounds - which my financial advisor thinks is a pretty good price. So good, infact, he felt sure there was a catch.
But I really don't see one. The company used to be a market leader in its field - they really drove the industry for a while. But sadly that was a while back.
Still, today they're certainly in the top 20. The last report I saw had them as the 18th largest company in the industry.
My financial advisor asked me about assets, the talent in the business and investment needs. This is where he got a little concerned but I assured him that there was nothing to worry about.
The sales force is not bad. They used to be really good, but some decent salesmen left and those that remain are either not up to the job, or a little down on their luck at the moment. They've lost a few pitches recently but I'm sure things will pick up.
Still, I told him that I'd go on a bit of a recruitment drive and could probably improve the sales force if I invested another million quid into the business. I say probably, because you never know with sales guys do you? Some work out and fit in with the rest of the boys, but others don't. There's always a risk, but that's life.
I'll probably have to pay a little over the odds for talent - and some really good sales people probably won't consider us, but it'll be OK, won't it?
Everything else is fine, I assured him. Oh, apart from the factory. Our competitors have all got new hi-tech offices. Ours is a bit of a cramped shed actually. Still, I assured my financial advisor that I could build a new factory and everything would be fine. The price? Don't know exactly, but probably about 4m would cover it.
Looking slightly awkward, my finance man asked me about revenues. This is where I got really excited, hopeful that he'd finally understand the beauty of this coup. I proudly told him that turnover was just shy of a whopping 1.8 million. Profit is a bit light, sadly. I'm used to businesses making a 15% margin at least. This company is a little shy of that...well, they lost a couple of hundred thousand last year, actually.
But you know, they've had banks to pay and there's been a bit of a recession so it's only to be expected, isn't it? Manage the business properly and it'll at least break even.
I say break even, but that could be a little tough in the short-term. You see, they lost some business last year and are nolonger on a major customers list of suppliers. They're a tough client and only work with 4 suppliers at a time. The revenue loss is a bit of a hit - somewhere around 300k, but I'm not too worried.
My advisor seemed more worried than me. "So", he said, "the company's lossed would be 300k more this year without this customer. So, net loss is more like half a million quid". His maths seemed about right.
He then talked financial speak at me and asked about revenue conversion, EBIT and stuff. I didn't really get it so I asked him to put it into English.
"So, you're buying this somewhat outdated company that has an inferior product and it's probably a bit past its prime?"
I told him that was a bit harsh and assured him that the trick here is to make it great again - you know, a top 3 or 4 player in the market.
"Ah yes", he said. "You covered that. To get close to market leadership, you need to spend a little money on top of the 3m purchase price. There's another million on talent and 4 million for the new factory. So, your actual cost is something like 8 million, maybe more - on a business that, with the loss of this major client, is losing half a million a year".
He still didn't get it. I told him that, if we build the factory, we'd probably increase prouction (assuming that our product was good enough so people wanted to buy it). If we invested in more talent, we'd hopefully get the big customer back.
"Best case scenario?" he asked.
"Easy", I said. "Break even"
He summed it up by saying that if I bought the company and if I bought a better salesforce and if I bought the new factory and if the competition stayed still and didn't improve and that if this all happened and if I got that big client back, then I might, just might, break even.
"Exactly!!!", I said excitedly. The dumb advisor finally get's it, I thought.
Funnily enough, he told me not to buy the business.
But what does he know?
