It is no news that small business is feeling pressure from everywhere. Taxes, compliance, cost of material, shipping, technology are usually the start of the list of pressure points. Add to this an overall business climate that has been described as ‘uncertain” and you have what I have come to call – IEA – “intensified entrepreneurial angst!” Everyone seems to looking for ways to hedge the risks. Possibly that is why small business M & A activity has recently been so robust. Ron and I have been involved in more transactions in the past 6 months than in the prior 5 years as clients seek to: merge to share risk, acquire to spread costs or sell out to end IEA!
All transactions are risky! For small business the risks are multiplied because:
- Most small business lack the capital to recover from a bad bet.
- Most entrepreneurs are good at what they do but have limited experience in M & A.
- Most small businesses do not enjoy the luxury of M & A expertise either on its management team or within its counselor base of accounting or legal resources.
Most attempted transactions do not come to fruition with small businesses. Too many transactions do not prove financially beneficial due to lack of expertise in: targeting, analysis, structure or implementation. As with most things experience is the best teacher. But how do you get experience without paying the price of mistakes?
One of my clients recently spawned a thought about practicing the M & A process in fun way. For some time my client has been seeking the perfect partner for a union. We have approached the process clinically but for all good reasons the ideal deal has yet to appear. During a recent vacation trip to the Caribbean my client sent me the photo below with a big font email saying – “A Business Opportunity We Should Look Into!”
The email was obviously for fun. But to keep the game going I sat in an airport and responded from my phone:
PLUSES:
- Low COG
- Dependable Supply Line
- Low Overhead
- Probable Sustainable Margin
- Price Elasticity Can Be Continually Tested As Long as US Tourism Continues
- Quality Of Life and Cost Of Living Conducive to Recruiting Talent
MINUSES
- Some EPA Regulation Makes It Illegal to Own, Collect or Import in Luggage with TSA Monitoring (I offered this in jest at the time and subsequently found out it is true!
LET’S PASS ON THE DEAL
*********************
Both my client and I offered copies of our fun emails to his second in command. A day later we both received a reply saying:
Paul, I would add to your analysis:
- Ease of entry for competitors
- High Risk of Skin Cancer Liability for Management and Labor
BUT – If they sweeten the deal with perpetual RUM Supply – I SAY GO FOR IT! I am sharing this to remind all that:
- Business Can Still Be Fun!
- M&A Practice Can Be Created Anytime Anywhere!
- “Opportunity Inc. has great clients!”
