In a recent conversation with a Business Owner seeking to sell a 10-year-old business, we discovered that there were many personal relationships intertwined with their business ones. The major issues: the Owner’s brother-in-law’s company provided the major raw material while a childhood friend provided additional goods. Additionally, other suppliers had become friends and everyone enjoyed a weekend vacation in the Owner’s Puerto Penasco, MX (aka Rocky Point) villa.
For a Buyer, this raises a huge red flag. Questions such as these arise:
- Will the suppliers stay?
- Will COGs increase?
- Will I need to find another supplier or suppliers?
- What happens in 1-3 years?
- If I don’t have a Villa, what happens? …
Potential solutions include making sure that fair market value is paid for each good, a contract is in place, and/or other employees have taken the lead on maintaining the relationship.
The Business Owner we talked with decided to take another 1-2 years to disperse the relationship among the sales team as well as determine that all goods were at fair market value.