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Finding mom+pop businesses with growth potential can be difficult. If there is no growth you might not be able to squeeze any money out of the business at all.
by sema4hacker 3y ago
Finding mom+pop businesses with growth potential can be difficult. If there is no growth you might not be able to squeeze any money out of the business at all. I recently did due diligence on the highest rated bakery in our area owned by a couple that did just about all the work but wanted to retire. Unfortunately all the profits became their salary. Replacing them meant their replacements' salaries would eat all the profits too. Their weekly sales were the same regardless of how many days they were open because new customers were rare and existing customers either squeezed into or spread out to whatever hours they were open. 40 other local bakeries meant competition was stiff. Everything was cash so an accurate audit was essentially impossible.
Perhaps Teamshares is good at identifying acquisitions with sufficient margins to permanently afford Teamshares services, but if I was an employee at a company being bought I'd be concerned that after the owners retired with their cut and after Teamshares kept extracting their fees, I'd be left holding the bag, ie, a non-growing company slowly dying.
- adrianmonk 3y agoMakes sense. At https://www.teamshares.com/brokers https://www.teamshares.com/brokers , if you click on "Download buyer's profile", it says a few things that suggest they've taken that into account: > Due to our specific needs, we are often forced to pass on good businesses. And they want companies with: > at least two managers or supervisors supporting the owner in bookkeeping, dispatch, sales, or project management And: > Our structure requires the inclusion of certain expense items (like presidents, finance leads, and/or general managers) that other buyers may not have to factor in. This means sometimes our price comes in lower than an individual buyer who benefits from that salary.
- SoftTalker 3y ago> And they want companies with: >> at least two managers or supervisors supporting the owner in bookkeeping, dispatch, sales, or project management That sounds like a bigger business than “mom and pop” to be honest.
- JKCalhoun 3y agoMaybe family-run business is a better term? Somewhat related, I feel like probably every city in the U.S. has a family or two that have seemingly sewn up the new-car dealership businesses in their respective communities.
- Humboldtsnee 3y ago> Unfortunately all the profits became their salary. Genuinely, why is this unfortunate? It sounds like the workers in the business are getting to keep the value they create, and were more likely to be committed to the business as a result.
- mgh95 3y agoThe individuals founding the bakery took a risk in firm formation (incorporation, initial lease collateral, equipment loans which may have been cosigned by the owners as individuals, etc.). The rewards received were purely salary based -- exactly what a worker receives. The net result is that while the owners of the business received a return (a good salary), this return is not a capital return based upon the risk absorbed as founding which may have been greater.
- innagadadavida 3y agoDo you think the margins were low because they just used higher quality ingredients and did not doing any food management? If so the next owner can optimize these inefficiencies and extract value from the brand value.
- Humboldtsnee 3y agoIs using a higher quality ingredient an inefficiency? It seems like it produces a different product.
- transcriptase 3y agoI mean… gestures broadly at every company large enough to hire MBAs
- mediaman 3y agoUsually it’s more structural than that. Too much competition, too few customers, too little scale to afford the type of talent that can optimize inefficiencies. There is a reason these small localized businesses tend not to produce outsized profits.