Selling up your business

Or literally ‘parking the truck’

I’ve had more than a few discussions in recent times, and also partaken of some buy and sell. I currently own a business called Sydney PA Hire, which does exactly what it says on the can. I bought it last year.

My journey extends back into the fog of history – building and selling firms like Graftons, Australian Monitor and eventually even ENTECH. The latter was ‘acquired’ by Kerry Packer’s Consolidated Press in 2003, giving me box seat on how the big corps transact.

That one was on ‘a multiple’, meaning you take the (agreed) profit and multiply it. In broad business, an ‘average’ multiple is between 2 and 4. So if you made a hundred grand last year, you shoot for two to four hundred at sale, plus SAV: Stock at Valuation.

In the case of ENTECH it was a healthy amount and I was fortunate that they held me in sufficient regard to offer it back to me. I bought it back for an embarrassingly low price. For them. And live off it today! Hurrah.

Here goes the guts: I’ve been associated with around ten production firm sales in recent years, usually due to retirement, and too many times things fall apart over the ‘value’ of a thing, like a piece of truss. And then the buyers start to object to GST. So they all get bogged down, and major in minors.

Any production business has two parts; goodwill and inventory. Yet too often the ‘value of inventory’ is a sticking point as a potential buyer pours over the spreadsheet. “$300 for a stick of truss? I can buy that new for $400!” Stock at Valuation, in accounting terms, is written down value, or cost after the thing is depreciated.

The exciting news is that your accountant would value your stock low, near zero in many cases, since the accountant has been slicing chunks off your invested cost as a deductable depreciation cost. And in recent years a lot of $1,000 items were written off at purchase.

Approaching buying a production firm, I’d take great interest in the customer list but more importantly the workflow. Bust it down to months of the year, break out the big dollar jobs and look at the bread and butter. Think how you can add value, a new mind can make things zing!

Understand the customer mix. If it’s institution based all the better. Schools, corporates, councils, events organisers, and charities are awesome repeats. Bands and people less so.

Parking the truck? By that I mean missing the boat. Having a warehouse full of legacy gear that – admit it, you’ve hoarded – is a dead weight. Around the end of the 90s some guys I knew had a truck full of production gear that withered off, and when the end came, the value of the stuff within was cratered.

It’s easy to think of the ‘value’ of equipment when you buy it. XLR cable $35, powered 12” speaker $1,900, LED Par $550. Now flip and sell online: cable $12, then speaker $800, and LED $300 – if you are lucky. Then try dumping a warehouse-full on an auction website. Where they jerk the buyer with a “15% buyer’s premium” and such. They are toast, yesteryear.

Hello the auction houses. Remember (major one) with me and the Fiat van? When you tried to sue ME to BUY it back after you sold it and paid me, and the buyer decided it wasn’t to his liking? They suck. List your stuff creatively, and work at selling it. Auction lots are low rent.

Merri Took and his partners sold the fantastic and large Staging Rentals business piecemeal, drape by riser, for way more than the whole. Because the aggregate of ‘book value’ and ‘multiple earnings’ were far less than the realistic demand for drapes and stages on the second hand market. It’s a short secret – at Sydney PA Hire, we do drapes and stages as well, and they are higher margin than microphones and speakers!

Selling out is a strange event. You are usually exhausted. It’s not the mindset you need; you need to calibrate and take stock. Analyse your customers and sales into categories. Show your best side. And sell it, baby!

I’ve done it from both sides and I will do it again, given my encroaching age. Grab a bargain?