Where is the Money Made in Business, the Purchase Price, or the Exit?

by Mark Collins 22nd of November, 2024

Where is the Money Made in Business, the Purchase Price, or the Exit?

This may sound like a strange question for a finance broker to pose, but bear with me on this one. I’d like to share my own experience with my last acquisition. The reason I ask this question though is most buyers I deal with are so caught up with trying to get a great deal upfront when in my opinion they are missing where the real money is made – in the exit.

So around 10 years ago, I purchased an under performing franchise. To put things in perspective the group had around 300 store locations and this was easily in the bottom 10% of stores nationally. I paid asking price for the business - $80,000. Not a lot considering how it was performing but I could see that the basics where not being done right like tracking leads, conversions and no forms of marketing were happening at all. There seemed to be no reason why this could not perform in the top half of all stores, and this would change the profit dynamic dramatically. For reference, I could have bought this store all cash, but took out a small loan of $60,000 and held onto the cash to invest in marketing and other immediate requirements. The next year we doubled revenue and we did the same again the following year. Profitability exploded. Fast forward 4.5 years and I sold that business for over 6 times what I paid for it. This was in 2018 and I am pleased to say it is still a powerhouse today and certainly when I sold it, it was well into the top 10% of stores in the network.

The moral of the story is, yes, I probably could have gotten the business slightly cheaper than what I paid for it but my plan from day one was to sell it once I had reached a certain level of profit and turnover. The great things about franchises, especially established ones there is generally an accepted value for the businesses, and I could see that when I got it to a certain level it would be worth what I would be happy to exit for.

This became a life changing event for me and allowed me to take a year off with the family and go travelling around this great country of ours.

So, if you are looking at businesses to buy, shift your focus a little and look beyond the asking price and look for immediate opportunities for small fixes to the business. Even small changes can have huge impacts on bottom line profitability and in turn the end value of the business, where the real money is made.

Tags: business owner small business tips