News & Events
The Bitterness of Poor Quality Remains Long After the Sweetness of a Low Price is Forgotten.
ENLIGN DEAL TEAM | 11/26/2022
This famous Benjamin Franklin quote is as true today as when first spoken.
When I was younger and didn’t have a lot of disposable income I would have described myself as “frugal”. I didn’t spend a lot on non-essentials and when I did I would look for the least expensive option. In reality though, I was “cheap”.
As I got older (and wiser) I learned a few things. My grandmother taught me to never buy cheap furniture. Her reasoning was that in the long run you spend less not having to replace worn out or damaged pieces and you get to enjoy what you really wanted.
A friend I met racing Vipers and I would go to lunch on almost a weekly basis and one day he pulled into the gas station right by our favorite lunch spot and I asked him why do you buy gas here when it’s more expensive than almost anywhere else (there were no other nearby gas stations) and his reply changed my outlook yet again. He said “when you need it you need it and it cost what it cost”.
When I graduated from college I was fortunate enough to be able to afford a new Rolex GMT II (Coke edition for those who care). It was $2,495 retail at a small South Carolina family owned jewelry store. I paid $1,999 because laughably if anyone ever asked how much I paid for it I wanted to be able to make a joke and say ‘nineteen ninety nine” which was the prevailing price for cheap items on late night TV advertisements at the time. I still own that watch today which on the secondary market is worth about $15,000!
I applied this to cars when I started driving BMW’s and Bentley’s (well honestly only one Bentley). I bought the most optioned I could afford with the reasoning being the resale is higher on a fully optioned car, they sell faster and you get to enjoy the features (many of which back in the day were safety features) the entire time you own it.
After three years of starting and growing my computer integration company, Systech Systems (this was about 1999), I had doubled revenues every year. I had found an inexpensive CPA (like REAL inexpensive) and had him file my personal tax returns. Turns out while he was a CPA he was also a fraud. In our initial meeting he claimed to have worked for the Rockefeller family in New York (total lie). He was ultimately charged with numerous tax fraud violations, lost his license and went to prison! But, that’s not the point of this story. The point is the CPA I subsequently hired (referred by KPMG managing partner at the time Jim Talton) had to amend my returns. The result was over $100,000 in tax liability plus over $31,000 in penalties and interest. I obviously wasn’t happy with my situation, but my new tax advisor had a pearl of wisdom that I have carried with me ever since. He said “Jeff, if you don’t like how much you pay in taxes just make more money. You live in the greatest country in the world”. So, that’s what I set out to do and do it with the best advisors I could find REGARDLESS of what it cost.
So why you ask am I posting about this on an M&A blog? Because the cliché of “you get what you pay for” couldn’t be more relevant when buying and especially selling a business.
Put things in perspective. Real estate agents like to talk about how buying a house is a person’s largest investment – and for many that is true – but not for business owners. Our businesses are our most valuable assets.
So, why would anyone choose to be cheap when buying or selling a business? It doesn’t make any sense at all. You want the absolute BEST deal team you can assemble. While most M&A advisors charge similar amounts in similar ways the transaction attorney and third party CPA firm you select can cost thousands or many tens of thousands of dollars.
Why do you think that is? It’s because they CAN!! And why can they? Because they are WORTH it!
An experienced M&A advisor brings more value to the transaction than they cost. They do this in many ways not just negotiating price. They do it by saving you time, creating value, negotiating favorable terms and conditions, eliminating unqualified buyers and recommending other quality advisors. A CPA can evaluate financial records and analyze tax returns and perform post closing after tax sale proceeds calculations. A transaction attorney makes sure that everything your advisor negotiated on your behalf is properly and completely documented. Remember, it's not what you get - it's what you get to keep!
My two largest commissions to date were just under $500,000 and just over $500,000 and in both instances the clients stated that it was the best money they had ever spent. Hire the best, get the best because most often times you do get what you pay for and when contemplating a multi-million dollar transaction it’s not the time to be cheap because in the long run investing in your deal team will yield maximum returns.
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