I recently heard from an operator who has been in business for 25 years and has decided it’s time to “cash in his chips” and retire.
This operator, whom I’ll call Ken, wanted my opinion on what his company would be worth to a potential purchaser. The profit from the sale of his company, along with his savings and investments, will provide him his retirement nest egg.
This was an interesting conversation, as it forced both of us to consider the future of automatic merchandising.
A good operator, a good career
Ken has had a prosperous career in vending. He has kept up with new products and equipment and has invested in his operation. He has paid his employees competitive salaries and has developed a committed, competent staff.
I asked him to explain exactly what he had to offer a prospective buyer, and he described a well established, well run operation that could earn a certain profit for the foreseeable future.
So far, so good. But when I asked him if he had a business plan, he said he did not. When I asked him why not, he said he hadn’t seen any need for one. This immediately told me something about his prospects for selling the company.
Ken didn’t need a business plan to know where his business stood at the present. But now he was thinking about the future, which is something completely different. He was not fully prepared.
The present is not the future
There is a lot to be said for what Ken has accomplished, but a buyer wishing to take the business to a higher level will have to assume a fair amount of investment in order to make this happen.
A prospective buyer will also have to consider the limited growth prospects in light of the likelihood of further cost increases.
Customer head counts are not increasing in his region, and Ken’s assessment of market conditions did not lead him to believe this would change any time soon.
Prices could be raised, but Ken knew from experience that he was not likely to raise his prices as fast as his own product costs were rising.
I asked him if he could reduce his route costs by implementing dynamic scheduling. Ken is more knowledgeable about software than most operators: he introduced DEX handhelds to his drivers several years ago and improved his route accountability. But Ken said the company is not in a position to take advantage of dynamic scheduling, and it would take a fair amount of planning, investment and training before it could get to this point.
I told Ken that his current cash flow provided the basis of his selling price. In addition to his cash flow, he had good employees, well maintained equipment, and a certain amount of good will.
I reminded Ken that he was not too old to make changes that would create opportunities for more growth. It was a question of what he wanted to do.
Know your goals
The bottom line is that Ken had his cash flow to sell to a prospective buyer and not much else. This could provide him a source of funds for retirement. But not as much as if the company was structured for growth.
Is a company’s cash flow sufficient payback for 25 years of dedicated service? That’s a question only one person can answer.