In 2007 I found myself at a crossroads. After almost twenty years on a steady career path, I felt it was time for a change. The problem was that I didn’t know what I wanted to do next. I considered going into consulting, did the mandatory networking with old contacts, and even gave serious thought about doing a start-up. But I didn’t have that one great “do what you love” or “change the world” idea.
It was at that point that I started seriously considering buying an established business in California. I spent a couple of hours each day scanning various business for sale websites, and made quite a few inquiries. I learned quickly that there are many great businesses out there, and that people sell for all kinds of reasons. There was such a variety of businesses to explore that it was much easier for me to eliminate business categories that I didn’t want to look at (for me it was restaurants) than to focus my search on any one particular type of business.
I ultimately came across an interesting company that had established an ecommerce presence selling identification and security products – ID cards and readers, printers, convention badges, lanyards, etc. Despite having no prior experience in the industry, it was an easy enough business to understand and to envision how I could make it work. I had done my homework and knew how much cash flow I needed from a business and how large a transaction I could pull off, and this one fit within my parameters. I made an offer, and after a short negotiation we reached agreement on price and deal structure. As of January 2008, I was the proud owner of my own business.
My wife and I ran the business for seven years until we were ultimately bought out by another firm in our industry. After all of the transaction related taxes and other costs, our initial investment in the business had grown by more than 6x during our seven-year ownership. That works out to an annual rate of return of over 30%. In addition, we were able to pay ourselves a decent salary throughout the time we owned the business. There are not many other investments that can pay your salary and grow your net worth at the same time.
In case you missed it, we bought the business in January 2008 – just a few months before the biggest financial crisis in a generation hit. Our timing could not have been worse. Because of the financial crisis, we didn’t come anywhere close to hitting the sales and profit targets that I had projected. In fact, it wasn’t until 2011 that we achieved total sales greater than 2007 – the year before we became the owners. But despite the bad timing, purchasing a business was the best financial decision I ever made.
Mark Soeth is an M&A Advisor with Exit Strategies Group’s Sacramento California office.