My Thoughts on Selling a Successful Family Business: McNellis

Rushing down a mountain can kill you, rushing to sell a business can cost you a fortune.

By John E. McNellis, Principal at real estate developer McNellis Partners, for WOLF STREET:

Thirty-eight years ago, friends went on a day hike near Yosemite. The couple took the wrong fork up a dry creek bed and, instead of the picnic spot they sought, soon found themselves bouldering ever higher against a steepening slope. Finally, the alarmed woman insisted they stop and await help. Embarrassed by his faulty wayfinding, her boyfriend ignored her pleas, and started down the mountain. He fell to his death within minutes. She spent two nights shivering in the wilderness awaiting a helicopter rescue.

Only 15% of Mount Everest’s 212 climbing deaths between 1921 and 2006 occurred on the way up. Almost all happened on the descent. British Medical Journal 2008

No better metaphor for business exists than mountain climbing. Both are challenging, exhausting and, on occasion—say, cresting a ridge—exhilarating. And if you don’t pause every so often to smell the edelweiss, to admire how far you’ve come, you’ll miss the magic of both endeavors.

As with mountaineering, the way up in business is grueling, but it’s also satisfying and often enjoyable. Going down—selling a successful family company—isn’t much fun and can be dangerous.  Three basic routes lead off Biz Peak: a sale or gift to heirs, a sale to key employees, and a sale to a third party. Naturally, there are countless variations on those three descents.

A family transfer may be ideal…if you happen to have bright heirs who are interested in your business. The catch is that, for the sake of those bright heirs’ sense of self-worth, they should learn the business elsewhere, to know in their hearts that they could succeed without being handed the combination to the company safe.

That takes time. Paraphrasing Eric Clapton, it takes 10,000 hours to learn any job worth having. This means your heirs should spend five years working elsewhere. And, once they start working for you, you need to stick around for another handful of years while—here’s the hard part—letting go of the steering wheel.

The age old problem with family transfers is that one heir typically runs the business while her siblings are mere shareholders, often creating insurmountable conflicts of interest; the CEO heir wants to reinvest the cash flow and take the business to its next level while the others are demanding fat dividends.

A sale to key employees has curb appeal; after all, they’re the faithful Sherpas who bundled you to the summit. The catch—there’s always a catch—is this: While they likely have the expertise to run your business, they never have the cash to buy you out. Your sale must be on such generous terms that it borders on giving the company away: e.g. nothing down and a pay-out from the company’s cash flow over five years.

This means you’re keeping your corner office until you’re paid off. One friend sold his financial services company to his employees at book value in exchange for an annual salary of $250,000 and twenty percent of the company’s profits over the ensuing five years.

By the way, “book value” is accountant speak for not much; the book value of a service company consists of its accounts receivable and the depreciated value of its few hard assets (e.g. the antiquated computers and worn-out couch). It’s been said a thousand times: The real assets of a service company go home at six o’clock.

If you’re lacking talented heirs or employees, a third-party sale is your way out. Google has dozens of paid ads by eager business brokers and even more formulations for determining the value of your business. A little research will reveal that six months is warp speed for the sale of a business and that they often take several years.

Worse, if your business depends on income from clients that can walk tomorrow (that is, virtually every business), then chances are—once again—you’re sticking around after the closing. Your buyer will likely insist on an earn-out that keeps you on the bench long after your name is no longer on the team jersey.

This is all a way of saying that, whether you sell to family, friends, or strangers, you need to plan years ahead if you want to cancel that subscription to the Wall Street Journal and devote yourself to snorkeling on Maui. Rushing down a mountain can kill you, rushing to sell a business can cost you a fortune. Put another way, selling a little early—going out on top—is how you maximize your return.

Final bit of advice: Hire an advisor, whether a broker for smaller companies or an investment banker for substantial businesses. Hire this advisor three years before you want to close the sale of your business to give him the opportunity to prepare it for sale.

Chances are you’re expert in your chosen field, but also pretty fair that you know little about evaluating your business, and next to nothing about the process of selling a company. And nothing like a savvy broker to drum up competition, even when there isn’t any. Now, if I would just follow my own advice…  By John E. McNellis, author of Making it in Real Estate: Starting Out as a Developer.

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  89 comments for “My Thoughts on Selling a Successful Family Business: McNellis

  1. 2banana says:

    More common today is a massively overvalued/hyped IPO or sell to a celebrity SPAC… :-)

    “Three basic routes lead off Biz Peak: a sale or gift to heirs, a sale to key employees, and a sale to a third party. Naturally, there are countless variations on those three descents.”

    • Joe Saba says:

      well then ‘anything’ I get from business I plan on ‘quitting’ in 5 years means i should take ANYTHING OFFERED

      lucky for me I have $0 inventory

    • Cas127 says:


      “More common today”

      I know you are just being snarky, but there are only about 4000 to 5000 publicly traded companies (and some of those are pretty small) that can play the kind of games you mention.

      But there are 5 to 6 million businesses that employ at least 1 employee (per pandemic payout stats) but almost all of those can’t play SPAC games, etc because they are too small, etc.

      I only mention it because the Left likes to traffic in its own brand of bigotry, where all business owners get lumped into some absurd super rich, 1% class…all the better for ginning up a vote hustling 5-minutes-hate.

  2. Dan Romig says:

    Thank you John for sharing that very good advice.

    A good way to think about things, is if you’ve spent decades building up a family business, spend time and energy to maximize the value when you sell out. After all, one of the reasons you build up a company is to have a store of value as well as to make a profit along the way. As my dad got older, we had our eyes on selling out for about five years.

    Family farms are frequently much more complex than an outsider might imagine, and I know of many multi-generational farmers who have been faced with having their kids step away from the Ag. business. Since they’ve got no one to hand off the operations to, they will stay at it a long time, and in most cases keep the land to rent it out for income, and keep the land in the family as their store of value after they finally make their last run in the combine.

    Most of the seed farm operations Dad and I worked with were multi-generation with two generations working together.

    • Rcohn says:

      Farming operations in many parts of the West are dependent on subsidized water. With many areas experiencing drought conditions , water allocations for agriculture have been cut back. If the drought continues next year, many of these farms( not just small ones) will get no water allocation and will be able to produce only a small fraction of previous years output .

  3. David Hall says:

    An English 900 acre estate was kept in the same family for 400 years.

    The Rothschild family has kept a multi-billion dollar fortune for generations.

    The Bacardi (rum) family dynasty was founded in 1862.

    In Japan the Tsuen Tea House was opened in 1160 AD and is operated by the Tsuen family.

    • Catxman says:

      And what is the common thread running through all those examples? They lived in stable countries with cultures that were not always being taken over or suffering from peasant insurrections.

      Oh, and let’s not forget that their economies were largely stable, without disastrous cratering. These factors, in whole or separately, helped determine the longevity of the firms in question.

      • Harrold says:

        Plus, in the case of Japan, when there are no children willing to take over the family business, you can adopt a competent manager.

  4. Seneca’s Cliff says:

    When I was in business school in the early 80’s I had a class called entrepreneurship, where we took on a business ( that volunteered) as a project. I got a little known company ( at the time) called Traeger Industries in Mt Angel Oregon. They were a family business that made a whole range of wood and wood-pellet fired products in a very crude factory. They liked my project findings ( I guess) because they hired me after business to help improve their operations. After a year of working there I prepared a report telling them they had too many eggs in one basket and they needed to focus on one product. They took my advise and divested of everything except the Pellet Grill Joe Traeger had invented while I was there. I left to form my own company and for the next 17 years part of my business was making all the complicated parts for their growing line of Pellet Grills. Then in the early 2000’s they sold out to a small conglomerate that also made Jetways for a few million in cash ( less than 15). They did not take their time and get good advise and they didn’t keep any ownership share. Yesterday Traeger Grills had an IPO and went public for a little under $2 billion. Even a 5% stake would have been worth $100 million. A good example of a rushed sale costing serious money.

    • Rosebud says:

      Amazing. IPO land is nutty.

      I did a 5 trillion + work of art and gave it to the US govt to backstop re-hypothecated treasuries.

    • Onionpatchkid says:

      The Traeger story is a good one. I remember Joe kicking his gas grill off a cliff because it kept burning his chicken. He knew there must be a better way to bbq. I still have an original Texas grill made in 1989. It still works great. Since they sold out to “the man”, and the grills are now made in China, they’re garbage.

  5. Paulo says:

    Very interesting article and it struck a personal note. I was once an employee who was slated to be a part owner in a company buyout, a small and thriving airline. I was one of the pilots and also manager. Plus, I had some cash. It was a great place to work and we made very good profits as we shared them with bonus checks. It was also a fun place to work and we gave it all. But the owner could never let go when the sell time came near, and in fact began to micro manage as he tightened his grip. After a year or so the talk of selling evaporated. I moved on and went back to school as we started to lock horns more and more frequently about many things. Over the next two years most key employees left, and the few that remained were embarrassed to stay (they reported years later). And now, after 40 years the owner is down to 3 employees, and 2 are relatives. The son in law is said to hate it, but is stuck. There is just no one left and virtually no business exists, and that was before Covid. The owner is now in his mid 70’s, and continues to show up to work at 6:30 every morning, or so I am told. 40 years of it, with the phone available 24/7. For what?

    There is a time to sell, and/or move on for everyone. Otherwise, it’s like planting the same crop in the same field every year, with no fertilizer. Mining the soil until nothing grows. But I get itchy feet and always have.

    (Willie Nelson)
    Turn out the lights, the party’s over
    They say that, ‘All good things must end’
    Let’s call it a night, the party’s over
    And tomorrow starts the same old thing again

    Good luck with your decision, Mr McNellis. I am sure it is very hard with many mixed feelings. I do not think selling to employees is the way to go as you will not really be free from the business. And if they screw it up, you will be forced to take it back instead of moving on. When it’s time to go a clean break is best, imho. If any employee(s) want to really buy you out they can arrange their own financing and get on with it.

  6. Micheal Engel says:

    1) SPX reached a climax on Sept 2. SPX dropped sharply to Sept 24 low.
    2) From Sept 24 low SPX climbed to Feb 202116 high, thereafter to July
    3) There are 98 TD between Feb 16 high and Sept 24 low.
    4) There are 98 TD between July high and Mar 5 low.
    5) SPX might drop 19% to test Sept 2 high.
    6) If SPX will drop 23% to the mid range between Sept hi/lo, SPX
    will make a round trip Feb 19 2020 high.
    7) If so, it took a year and a half to reach the top, but few days/weeks
    back to the starting point.
    8) Christopher McDougall : “Born To Run” :
    the ultra Indians : don’t run fast downhill !!

  7. Micheal Engel says:

    Warren Buffet used to buy mom & pops from old founders :
    Berkshire Hathaway linens, candy co, newspapers, furniture, jewelry, running shoes…but now he doesn’t care.

    • Old School says:

      I follow him closely and I think he wants private owners to contact him if they want to sell but because BRK is so big I think the min size is $75 million in sales.

      Fly J truck stops was one of the last family owned businesses that he bought maybe 7 or 8 years ago. I think mostly people want too much for their businesses right now and Buffet is going to pay his hurdle rate and nothing more.

      He does encourage his subs to buy businesses that are small. Clayton the mobile home builder has been buying up stick builders for a few years. Buffet knows to drive the stock price you got to have internal growth plus bolt on growth, but he will never pay more than his hurdle rate.

  8. VintageVNvet says:

    Good article with good points made,,, thanks Mr. Nellis.
    IMHO, having been employee and consultant to several successful family firms over the years, THE best way to go is with an ESOP.
    Seen several long time companies actually become better performers with that format, and I expect many others exist that I know nothing about.
    Certainly, it is critical that the original entrepreneur gets the policies and practices correct in the first place, as all the ones I have known personally have done, mostly through hard work, long hours and very very clear focus on developing personnel.
    Best one I ever dealt with was an all union electrical contractor. Every single employee, from admin assistants to CEO were both union and owners of the company.
    They literally took any open bid they wanted — hard bids, not negotiated — and did well on every project. Negotiated a ton of work too, to everyone’s satisfaction, and their work was impeccable,,, very important for a trade when any error could burn the place down, eh?

    • Jason says:

      Not sure how long ago that was,but union shops are mote of a liability then an asset these days…
      They are slowly pricing themselves out of the market and have turned there backs on the “bread and butter” work that once kept them busy..
      And add in “under funded pension liability “ and your signing up for a nightmare…

  9. Cobalt Programmer says:

    Regarding the hiking tragedy, lot of young people injure or die while taking pictures for ticktok or instagram. The trend also increases if something starts with #challenge. If it involves a challenge do not do it.

    • Cas127 says:

      Hiking, period, has always caused an amazingly high percentage of recreational injuries/fatalities.

      My guess is that because people are used to walking all the time, they seriously underestimate how the stakes get mortally raised as you increase elevation (over uneven, shifting terrain) and simple mis steps and gravity do the rest.

      When I first saw the mortality stats, I was flabbergasted…how could “walking” kill so many people?

      • Sierra7 says:

        A good book read of how people die in national parks etc….in this particular case Yosemite National Park California:
        “Death in Yosemite”
        Chronicles from the late 1800’s how tourists/hikers/campers have died in that beautiful park.

      • c_heale says:

        Mountaineering is about the only sport where people celebrate halfway through, when they haven’t completed the most difficult part (the descent).

  10. Micheal Engel says:

    McNellis, Warren Buffett about small business :
    1) The less it has assets, the more it’s worth. The business is wonderful if
    it gives u more and more money, without putting anything – or very little.
    The worth business of all is the one that grow a lot, where u are forced
    to grow, just to stay in the game, where u reinvest the capital at a very
    low rate of return.
    2) A good business can raise prices during inflation.
    3) Never feel compelled to sell, because it’s fashionable. Buy and Hold for lifetime.

    • Wolf Richter says:

      Micheal Engel,

      “Buy and Hold for lifetime.”

      Sure. But a lifetime has a sell-by-date. It’s not forever. And then what? So you need to plan to sell the business before you get too decrepit to run the business and throw it into chaos and destroy it.

      But many small businesses just shut down when the owners get too old to want to run it, or if the owners die.

      • Micheal Engel says:

        1) Many small business die slowly in a frog cooking, but they cannot escape, even with kids, because they have millions inside, with no way to liquidate, do nothing else.
        2) Those with high debt will be eliminated.
        3) Those with clean assets & inventory will cut o/h, insurance, freeze or rollback rent… do their daily battles.
        4) Small business people are different animals than 95% of your
        readers. They are not Stanford grads, they are street fighters, many are immigrants.
        5) Injured or not, they will never quit or sell their baby.
        6) They work 7 days/week, 16 hours/day, even if
        it doesn’t pay, even if it’s a mess, even if they hate it, because they are possessed.

        • joe2 says:

          So true. But you forgot: 7) It’s usually all they have.

          And it’s obscene how taxing and regulating authorities abuse them. The covid shutdown was criminal.

        • Sierra7 says:

          Micheal Engel (and others)
          Daughter/Son in law own small tekkie sales/service business in Silicon Valley, successful for more than 35 years….good solid middle class income….NEVER any debt. Have been planning retirement for several years; /08 crash and Covid set back that plan for more than 5 years.
          Their plan:
          Have been training 3 hard core long term employees to take over the business. “Sale” of business not even contemplated. Owners will work with those employees for however long it takes to keep business going, even remote network/phone support which can be done these days.
          They will receive small compensation for their consultancy.
          End result they will learn to “street fight” the business or sink. In this particular case it all seems to make sense as a plan.
          Too many small businesses cannot be “sold”.

    • Lance Manly says:

      I am not so into the buy and hold for a lifetime. I think the last quarter of the lifetime should focus on how you can enjoy what you have earned. Even for a business owner, no one on their death bed wishes they spent more time at the office.

      • Dan Romig says:

        Lance, my dad was given a platinum parachute by Syngenta at age 64 as they brought in a new CEO that wanted younger blood running the executive end of all of Syngenta’s Ag companies in the states. Dad was head of R & D at Northrup King Seeds.

        My father could have retired comfortably, but after three weeks of sitting on his backside, he still wanted to work his trade. So the two us us went into business together for the next 18 years.

        Monsanto, Syngenta, NDSU, SDSU and the U of MN were our competition. Dad liked the fact the he was getting his pension checks from the parent company of Syngenta’s AgriPro Wheat.

        I loved my dad, and it was an honor for me to be at his side in his mission! He was happy working, and worked as long as he could. That’s the way he wanted to go out.

      • sunny129 says:

        BUY & HOLD worked fantastically from 1982 until March 2000! (18 yrs)
        After that a different story. From 2008 to current the mkt is SURREAL to say the least. Those in the corrupt crony capitalism got rich!

        Since 2008, Fed poured over 43 Trillion in various channels into the economy. The result the Economy (GDP) grew from 20T to 23T+
        It took 12$ to produce 1$ of GDP! Go Figure!
        Still Mr. Powell is shovelling 120B/month! Wow!

        Liquidity is always there when one doesn’t need it but when it is badly needed watch out! Fed thinks it’s Repo window (SWAPS) will save the businesses at that moment.
        But think again:

        Will LIQUIDITY solve the SOLVENCY? – NO bid for any ask until for a penny!
        GFC x10 will get repeated, just a matter of time!

    • fajensen says:

      “Buy and hold forever” is like: pull pin on grenade, and never throw grenade (it throws itself and TikTok likes)

  11. Keepcalmeverythingisfine says:

    Thank you for posting this article Wolf and John, it is a timely topic for me personally.

  12. Random guy 62 says:

    Great advice.

    We are in the middle of a gradual generational hand-off for the family businesses and those aspects you mention are very real.

    Choosing the right advisor is also difficult. We made the mistake of bringing in the wrong advisor several years ago. They were high-dollar folks from the big city (of course).

    Their starting task was simply to value four businesses within the family umbrella to form an amicable split. In the end, we were able to convince other family members that the valuations were entirely unrealistic.

    Had we taken their advice, we would be up a creek without a paddle. The numbers they produced would have created a massive debt for us to service, which may have sunk us in the current business climate.

    Besides the lesson learned, that exercise was a total waste of $50,000.

    • IRR says:

      “Valuations were unrealistic.” In other words, I wanted to buy it cheap, and the adviser gave me an honest opinion.

      • Random guy 62 says:

        Dead wrong and very arrogant. We spent six years and a whole lot of meeting working on this deal, and all sides were very civil from start to finish.

        The conclusion that was reached by current owners was that their ability to succeed in the business was mostly due to their elders NOT sucking every red cent from the business that they technically could – thus setting the next generation up for failure.

        It’s a lesson I wish this country would learn.

        I think the advisors wanted to make the owners see big dollar signs and sell to an outside party because they specialized in such sales (surprise surprise).

        In hindsight, our caution about their lofty valuations has proved dead right.

        • IRR-3 says:

          Ah yes, when you can’t refute a hypothesis, then name calling is second best method to refute an argument.

      • Zantetsu says:

        Why do you think you can second guess someone else’s story? Besides, it doesn’t sound to me like they were buying anything, just re-organizing ownership.

        • IRR-2 says:

          Lower business valuations is the best way to reduce estate tax liability.

  13. roddy6667 says:

    ” The real assets of a service company go home at six o’clock.”
    And they might never come back. They can start up their own company. A company needs a moat to keep the competition out. It needs a different moat to keep valuable employees in.

    • Petunia says:

      In tech most buyouts of startups is more buying the talent than the product/service. This is the case in most service businesses as well.

      • Old School says:

        From my limited experience, industrials are the opposite. The buyer tends to put in new talent at the top and try to squeeze more out of the existing business. A lot of lower level talent leave as workload and stress take it’s toll.

      • Alku says:

        Customer base is another driver

        • Dan Romig says:

          Good point Alku,

          For our sale, it was important to Limagrain that we had not only viable products in the market and good genetics ready to go and be tapped into, but also a dealer network for production and distribution that had customers ready to purchase the newest and best hard red spring wheat variety for each season of planting.

          Getting the customer base was one of our biggest challenges as we grew our business. After all, the farmers knew and trusted products from the Universities, and many had allegiance to them as that’s where they went to school (NDSU dominates North Dakota). And farmers also had brand loyalty to AgriPro and WestBred (owned by Monsanto) as they had been around for years and had good reputations. Plus, farmers liked to stick with companies that they’d had success with and made money with on a regular basis

          The first variety we released for the Northern Plains was an exceptional all-around performer. But we couldn’t sell it as farmers had a wait-and-see attitude towards a new seed business. It’s not as easy as it might seem to sell a quality product on merits alone.

      • ft says:

        The two tech buyouts I went through late in my career were about eliminating competition – if you can’t beat ’em, buy ’em.

  14. Turn Around Management says:

    How ironic that the employees who made a business valuable don’t have the money to buy the business. For smaller private companies, much of the business value comes from employees working at below-market wages while the owner makes vague comments implying promises of ownership or large bonuses when he sells out. Obviously nothing is ever written down. The “fun” happens when a PE firm buys a business. First, the owner, who usually stays on, tries to hide the business sale. Second, the PE firm tries to cut employee compensation or increase employee productivity (e.g., add more projects, cut headcount and assign those tasks to others, etc.). Finally, when the PE firm’s plan fails to materialize, they begin to hire new employees. At that point, everyone discovers the market price for talent is significantly higher than the current company pay rate. The result: new employees come in at higher pay, legacy employees leave for higher pay.

    • Lance Manly says:

      Ain’t that the truth. Nothing like being at a business were the owners are constantly giving you updates as to how well the business is doing due to your efforts. But then at one point decide to move in a different direction and cut you out. And then, if you do not have everything in writing, they screw you and move on. Sure lesson learned, get it in writing. But with so much time blown, how much does it help?

      • Beardawg says:


        Painting with a broad brush can be presumptuous. I know 3 small biz owners here in AZ: 1) Optometrist with 3 stores. 2) Tech Staffing Co with 24 Project Temps / Consultants and 3) Construction Contractor)

        All 3 have been trying to sell for 3+ years and all 3 take massive pay cuts to keep everyone employed with bennies and raises. The Tech CEO went 3 years with $ZERO pay, the Optometrist pats his Dr’s more in salary than he makes annually (and he works some shifts as well.

        When they have tried the employee / associate and/or selling to outsiders, it’s just clear that no one else has the expertise, the drive or willingness to sacrifice.

        The presumption that business owners trying to sell are masking large incomes has not been my experience. Maybe the big ones, but not the other 80%.

    • Cas127 says:

      Cynical, but frequently correct.

      Anybody who has ever done due diligence for an acquisition (and understood the accuracy of the sale package…), comes to love earnouts more (much more) than their own children.

  15. Micheal Engel says:

    1) Courage is the supreme virtue after adequate capital and knowledge, earned with hard work. Keep the passion outside. Mr Market is a moron.
    2) Common sense and knowledge of business is more important than academic formulas. Follow your own counsel, not the advice of others.
    3) Moats protect businesses. Open borders and low entry cost, destroy them.
    4) Piece work in the 1970’s was $1.50/job, about the price of one slice of pizza in the seventies. Thanks to globalization : 4 cents/job with junk quality.
    5) Avoid relying on forecasts, because most prove to be wrong : covid
    killed 100K businesses within weeks.

  16. Robert Frank says:

    A sale to employees can be done via an ESOP. Potentially harder with very small companies but provides great tax advantages to a seller.

  17. YuShan says:

    I don’t have much experience with business but a lot with hiking. What I have learned over the years is that as soon as you think that you have taken the wrong turn, you are almost always better off by backtracking to the last point that you know for sure is on track and then reassess.

    Nobody wants to go backwards, but trying to take a shortcut to get back on track usually ends up being much harder than just backtracking to the proper trail, and sometimes can get you in trouble too.

    • What I know about business is that as technology progresses, we should spend fewer and fewer hours working, but for about a hundred years now, we’ve managed to turn the game of growing businesses into an end in itself, so that we work more and more hours.

      I can’t think of anyone who thought this was wrong other than psychoanalyst Erich Fromm, who passed away in 1980.

      • YuShan says:

        Yes, most people are getting it all wrong. Cut out all the useless stuff and enjoy your healthy years on this planet is my credo. Hence me having more to say about hiking than business…. ;)

  18. Micheal Engel says:

    Mr McNellis : if u survived the 2020/21 exogenous cause, don’t rush it, don’t run downhill too fast, because in the next uphill, with some spare energy, – if u didn’t bonk, – u might win the race.

  19. Keenly interested in (stock) book value, and how it is calculated differently across the various industries. You say the assets go home at 5 o’clock, but they are assets nonetheless. How you keep them how you cultivate them, all matters. There comes a time in every stock market cycle when “book” value matters.

    • Old School says:

      I think the key measure is being disguised by ZIRP. To me main valuation method is long term income and long term income growth. This is extremely weak. Income produced by stocks, bonds are extremely poor. Income supporting the housing market is very poor. Valuations supported by debt increasing faster than income in the past have nearly always ended in a asset bust.

  20. Stallworth Larson says:

    I used to be what we called a “Middle Market” Merger and Acquisition consultant. What I did was look for business owners who would need to find a new owner for their business. Two things I would tell my client prospects are 1) unless you explore the full market for potential interest in buying your business you can never expect to get a full market price for it and 2) while I am exploring the full market for potential interest in buying your business you should continue to run it as if you were not selling it because that could happen for some time. There are so many reasons to engage an advisor in this process. One is that if you try to do it yourself you will be stealing time from running your business which will cost you more than an advisor would.

  21. Roger Pedactor says:

    This doesn’t touch upon insatiable private equity looking for yield backed by giant pensions that’s literally a vacuum cleaner trading worthless cash for nearly anything profitable that can be “improved” through debt leveraging the companies and then getting a SPAC on the portfolio for more worthless cash than they dumped into said portfolio.

    S-Corps are easily manipulated through “adjusted-EBITDA” to make even trash look appealing. More new businesses then get started up after non-competes expire and the purchased portfolio assets inevitably get destroyed through “improvement.”

    It’s happening everywhere. And it’s terrible.

    • Old School says:

      Nearly everything that is happening today is antithesis of what was taught in Ben Grahams book. His main thesis was that you should buy at a reasonable price a future income stream by buying a stock or bond that is going to be around no matter what happened even if temporarily impaired by a recession.

      Bitcoin, IPOs, Spacs, junk bonds all are gambling that you can get out in time if price goes against you.

      • Roger Pedactor says:

        There is no yield. So the money is worthless. No safety in financial markets. Another lockdown looming as the vaccines don’t appear as effective as thought. But keep pumping stocks for whatever reason. We are headed towards a global sovereign debt crisis and currency collapse.

        • Old School says:

          About 3% of my portfolio is in stocks so I agree with you to some degree. I follow four simple stocks I feel I can understand and follow and future returns are too low for to buy. SP500 I might buy at under 2000.

          Government has been screwing around with money my whole 65 years. It wouldn’t surprise me if they keep it going by hook or crook.

  22. Micheal Engel says:

    1) The wonderful ESOP game. The owner sold out to his designer, to a wily contractor and few key employees.
    2) The owner still occupied his corner office, enjoying life, do nothing all
    day, play golf with his unrealized gains, get a 10 min round of grass kisses in his middle, every Fri afternoon, for $100, from a married female worker with 2 children, less than half his wife age.
    3) Life in the E-ZIPPER suite is great.
    4) The wily partners “put a threat” on him, claimed that he cooked the
    books, told him that they will report to the IRS, jumped to his neutral zone and gang on him. His signed contract became worthless in this kind of nasty game. The ex ceo have to file a costly, prolonged lawsuit. After a lot of passionate noise, the old founder signaled defeat, before getting a new heart attack.

    • fajensen says:

      Place I worked, they got rid of “former owner now employed as CTO with iron contract” by sending him off to present at more than 40 conferences in one year.

  23. SocalJim says:

    When I was in my 20s, I started a small business and the income was decent. However, it consumed my life … every hour. So, I sold the pieces, then became a rank and file corporate guy. Much easier life.

    • roddy6667 says:

      Back in the late Eighties when the real estate market was dying, I looked into becoming a business broker. I took a course in how to evaluate a business. I started prospecting businesses that were looking to sell. I was shocked. None were making money. None. Very seldom does anybody want to sell a business that is making money. Most of the small businesses were run by a person who worked about 70-80 hours a week and made iffy money. they did not get subsidized health insurance for themselves and their families like an employee. They did not get paid sick days or vacations. They did not get a pension or a 401K. If you factor in all the “did not gets” and the unpaid overtime, they were making very little money. Why do so many small business owners do this? Just to say “I’m my own boss”, I guess. It certainly is not for financial gain. It is not a good life. Often, the wife packs up the kids and leaves. It’s no way to raise a family.

      • Sierra7 says:

        Obviously owning a small business is not for everyone. No life except participation in the business 24/7 with little time off. A big plus is if both owners are husband wife who can live together those 24/7. It does happen. (Personal experience).
        “Small businesses” are the lifeblood of most economies.

    • Wolf Richter says:


      But now you’re back running your own business (real estate). There must be something good about running your own small business, even if it’s harder than being a rank-and-file corporate guy, no?

    • Beardawg says:


      Pretty much ditto. However, us entrepreneurs are not so good with Corp rules. Got fired from all 3 career jobs I held after owning my own small (tiny) biz.

      There is NO PRICE for freedom. That’s why we work long hours for comparatively lower pay. We stay nimble, informed, not company brainwashed, and we retire early.

  24. Depth Charge says:

    I wanted to buy a small retail business about 5 years ago. The owners were retiring. I knew them and they stated they would like to sell the business to me. I was interested until I asked if the real estate would be included in the sale and the answer was “no.” So my answer was an emphatic “not interested.”

    You see, when these people were young and starting out, they had purchased the land and the business from a guy who understood their plight, and gave them a sweetheart deal so they had a fighting chance. They built a successful business over the course of 40 years. Fast forward to 5 years ago and they wanted to sell the business and their overvalued inventory and goodwill, without the land but with a bloated 5 year lease that increased 15% a year. The greed was disgusting, and it’s no surprise there were no takers.

    • roddy6667 says:

      Never pay for goodwill. It is measured in profit. You pay for that.

    • Random guy 62 says:


      Is it technically possible to extract top dollar from a business by making a deal that basically sets up the next guy for failure? Yes it can be done.

      Should you? Sure! Get what you can, but only if you don’t care about who is left to clean up the mess.

      This is a perfect metaphor for our country’s economic woes right now.

  25. Micheal Engel says:

    1) Small hospitals cash flow is drying.
    2) They collect only portion of their A/R.
    3) They beg, the gov promised tomorrow, but the gov don’t send a check.
    4) Steam coming out of their brains.
    5) Suppliers call several times a day. They slowed down shipments, some stalled. They get some help from larger hospitals, but not from the banks.
    6) Hospitals are “sold out”. Covid cases are rising, but cash is running out.
    7) They cut to the bones, let go employees.
    8) Vaccinated people under 60Y are doing well after half a year.
    9) Vaccinated elderly above 60Y are doing well in the first few weeks, but decay 80% after six months. They flood the hospitals.
    10) Covid metastasized, but small hospital will be around to help, if they go bk.

    • Escierto says:

      I am 67 years old and I got vaccinated six months ago. I ran five miles yesterday. How far did you run?

      • Zantetsu says:

        Surely you understand what “generalization” means right? I don’t think he was talking about *you specifically*.

  26. Tom20 says:

    Great article. Thank you Wolf.
    The time is winding down for our business. No shortage of work, 29th year and itch is there to tackle something new.

    Convincing the Mrs……was much easier back in the day when all we had could be packed in the back of our Ford escort.

    Great story Dan. Heck of a dad.

    • Dan Romig says:

      Thank you Tom20.

      Dad was raised by his aunts in Bolton, England in the thirties, and went to bed hungry on more than a few nights. Got put on a boat to the USA in October 1939, as people weren’t sure if they’d have to learn the German language. He was adopted; by blood, our last name is McClelland.

      Served in the US Army Air Corps as a US citizen and got the G. I. Bill — something that would not have been available had he remained in England.

      PhD in genetics and plant pathology at Purdue and then went to work in Bogota, Columbia for the Rockefeller Foundation where he was mentored by Nobel Peace Prize winner Dr. Norm Borlaug. Dad was with Norm working in a wheat research field outside of Mexico City when Norm’s wife let him know he’d won the prize for helping to save millions of lives from starvation in India.

      Yeah, I loved my dad, and as you can tell, I’m damn proud of him and his life’s work.

      Thank you Wolf for letting me share this with your readers.

  27. WES says:

    I was hoping to learn how to sell an imaginary business with no sales for billions!

  28. Brent says:

    “My Thoughts on Selling a Successful Family Business”

    A penny for your thoughts…

    “What this Country needs is not somebody’s rambling thoughts but Standard Operating Procedure (aka SOP).And a Really Good 5 Cents Cigar !”
    (Thomas Marshall,VP of the USA,1920)

    The tool (and a very useful tool I might say) is already in everybody’s toolbox-if you know its name and care to look for it.


    “Internal Revenue Code 409A Business Valuation”
    “409A free services”
    “409A freeware”
    “409A shareware”

  29. Brent says:

    Have you heard about “Dead Peasants Policy” ?
    Large corporations take life insurance on their employees and collect it when somebody dies w/o informing their families.

    And it is 100% legal.You cant take life insurance on a stranger but every employee is our most precious business asset, as every HR guy/gal will tell you.

    Now that super-ultra-deadly-double-delta-Covid virus appeared on the horizon the VACCINATED (and only 100% VACCINATED !) workforce will cause business valuations to skyrocket.

  30. NotDeadYet says:

    Good read. Family business structures can be varied and difficult. I witnessed so many small businesses simply fade away with the passing of the founder. In my neck of the woods, quite a few such thriving businesses were bought by outsiders and managed for years, but with the long range plan of eventually selling the real estate they occupied for a great profit. These businesses are of course gone now too.
    And how does even a seasoned businessman really fix the right price on a business. When he sold his steel company in 1901, Andrew Carnegie said, “I should have asked for 100 million dollars more”. JP Morgan who bought the company replied, “You would have got it if you had”.

    • BuySome says:

      The difference in our two J.P.’s is ever so slight. The first was essentially watering stocks in order to sell them and get a flow of money into the hands of the wealthy. The second has been watering money to get more overvalued stock in the hands of the wealthy. In both cases, Goodwill is the key ingredient and it really amounts to how much the public is willing to allow governments to go deeper into debt in order to increase the valuation of non-corporeal entities. People are business, and business is people should ring true…but that concept has been corrupted by selling future people for future profits (i.e. debts to be paid by someone someday). Even the first J.P. would bowled over by how far the second has made all the valuations completely dependent upon this sucker ploy. And all those little businesses are only worth as much as these guys are willing to keep pumping in support.

  31. Wolf Richter says:

    I just received an email about John’s article:

    “So true,go to the cemetery in Zermatt [Wolf: staging town in Switzerland for Matterhorn climbs], nearly all the deaths were in descent – for mountaineers the time for constant vigilance; you are weary, you want to get down and you ‘cut corners’.”

    So I replied:

    Yes, but my half-uncle Martin Pfeffer died on the ascent in the 1938 German-Austrian expedition to climb the Nanga Parbat (Himalayas). Their camp was buried by an ice avalanche. The only survivors were those that weren’t in the camp, but had descended for some reason. The search expedition later found some of the tents, including Martin’s. They took his diary (which I scanned a few years ago) and some other things, but left the bodies up there under the ice.

    In the early Himalaya expeditions, climbers and Sherpa died on the ascent before they ever reached the top. It’s only now that Everest has become a tourism location that these tourists die on the descent after having summited.

    Here is the documentary of the search effort. This was the team that found the tents:

    • BuySome says:

      Finally Wolf, you’re getting closer to the idea. Our problem is that we are now living in a tourist economy. Everyone wants the services of the cabana boy (Big Gov.), but no one wants to shovel the freaking sand to keep out the wall of water that is heading onshore. Causually strolling uphill toward the safety of hard ground might be a better plan now than rushing down to the beach at the risk of falling face first in the lapping tides in order to enjoy the sun. Do you need hard metal in the toes of those boots, or will you trust synthetic-rubber flaps?

  32. kk says:

    I worked for my present company for 20 years and did a great deal of overseas travel for them. The new CEO took me off the overseas sales role and put me on some small fairly meaningless projects. I was fine with that as I was feeling my age and international flights and hotels have lost any sense of enjoyment but I did like meeting our customers in the Middle and Far East. One of our long-serving admin ladies told me privately that the new boss had said, ‘do we really want someone like that old fool representing us overseas’. I then decided to become awkward and was retired with a nice payoff. I hear that things are not going so well with my old company and amongst other problems, our overseas customers are dropping away – it seems they liked dealing with a grey-haired ‘old fool’ who they knew and trusted. Which is a long way of saying, there is a touch of the intangible about a successful business which is not found in the accounts – and when the old owners walk away I would run.

    • Sierra7 says:

      In too many instances it’s called “trust”. And, business comfort.
      Unfortunately trust has gone out of our system pointedly since the crash of ’08-09.
      Nobody really trusts anybody anymore.

    • Dan Romig says:


      That sounds like the treatment Dad got from the new Syngenta CEO brought in from Switzerland. For a few months before his 64th birthday, and his mandatory “Retirement” buyout severance package, where he was given among other things, a pension plan that was based on him working one more year until turning 65, he was treated with contempt.

      He was taken off the Executive Board. His office was taken and he was shuffled to a smaller and closed off workspace. His company car, which was a POS anyway, was taken too. These were symbolic F-you actions, and everyone working at Northrup King could clearly see what they were dealing with from the new CEO. Not a good way to boost corporate morale, you know.

      But Dad was a stubborn f#$@ (like me), and would not quit as the CEO clearly wanted him to do.

      However, the best part of the whole ordeal was that the Swiss lawyers totally underestimated Dad, and did not have him sign a non-compete clause. I know that part of the fuel that powered his energy to keep going on, was to show everyone, and himself, that the old dog still had some tricks left in him.

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