Jack Spooner: I Love My Business. How do I Sell My Baby? Boulder Boat Works case study.

Saturday, April 4, 2020

I Love My Business. How do I Sell My Baby? Boulder Boat Works case study.

Robert Hirsch from Freedom Factory, talks about business, “I
Love My Business. How do I Sell My Baby? Boulder Boat Works case
study”.

Listen to the podcast, watch the video, or read the
transcript below.

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Transcript of Podcast

Robert Hirsch business broker from Freedom Factory

Hey, it’s Robert from Freedom Factory, and I want to talk to you
about a case study, which is on a company that I used to own called
Boulder Boat Works. And for those that don’t know what that is, we
made the Ferrari’s of drift boats. We made the best drift boats for
fly fishing on the planet. One of my big passions in life for 20
years has been fly fishing. I love it and when I got a call from
the former owner who said, Hey, can you help me sell my company?
And I said, well, I said, in full disclosure, let me look at it and
see if I want to buy it. And if I don’t want to buy it, then I’ll
take it to market for you and we’ll sell your business.

Long story short, I ended up buying it and I did one of my
favorite strategies in buying a business, and we’ll talk about that
in just a second. Now, we’re somewhat restricted by our
nondisclosure agreements in talking about the deals that we’ve
worked with as agents, but we’re not restricted at all in what I
talked about, of what I have done personally.

So I bought Boulder Boat Works, and frankly, the founder was a
brilliant guy and a great boat designer, but, he owned a job. He
didn’t own a business. And one of my favorite strategies when
buying a business is taking a business where you own a job as
opposed to owning a business. So again, the litmus test I’ve talked
about several times, and the litmus test is if you’re not sure what
you have, just don’t show up for a month. If your income goes down,
you own a job. And if it stays the same, it goes up you own a
business.

Well, long story short, the founder of this business was the
smartest guy in the room. He was the one that knew how to build the
boats. He was the one that had the expertise, and if he didn’t show
up at the manufacturing facility, then no boats got made.

And so we bought it as a job. We bought it at a discounted rate.
And we transitioned it to a business. For example, some of the
things that we did, one, they had a mold for the boats. That’s how
they build the holes, or they mold the holes. They only had one of
those, and it had been the same one for 15 years.

So the first thing we did was built a redundant mold, just in
case the first one, we moved the company from Boulder, Colorado,
where it was up until the roaring fork Valley on the side of a
river where people actually use these boats. We built a second
mold. We actually built a third one out of parts that we never
assembled, and we shipped them up in two different semis because if
we lost that mold, we’d lose the ability for us to build boats.

So we built-in redundancy there, and then we brought in people
and processes, best in class for manufacturers. We separated steps
one through nine and we put banners up that showed what each step
did, and we color-coded all the tool sets and we just made it
leaner and more efficient.

And so when you buy a business, it’s owning a job and to
translate it to owning a business, it’s obviously much more
valuable. It’s probably worth one to two times earnings if you own
a job and it’s probably where three to five times earnings if you
own a business. So we bought it and then we transitioned it to a
business and then we sold it.

And so when you sell it, you want to sell it just slightly over
12 months, and we sold it in a little under 13 months. And the
advantage of that, especially in the United States, is you take
that at a preferential tax rate or what’s called long term capital
gains, which depending on your income level, is 15 to 20% plus 3%
or 3.8% Obamacare currently.

So instead of taking it at a 40 to 50% earned income rate, we
took the tax rate at less than half of that. So we moved the
company we sold at less than 13 months later. We went from owning a
job to owning a business. And so a lot of times as experienced
entrepreneurs when you look at a company and they say, well, it’s a
job. They haven’t done this and they haven’t done that, and they
haven’t done this. And if you know what they haven’t done, then you
have an opportunity. And then you say, well, do I want to buy that
job and transition it into a business and sell it at long-term cap
gains? And some of these strategies, before taxes have allowed us
to double or triple our money in less than a year.

So that was the case on Boulder Boat Works. And again, it
doesn’t matter what industry it’s in. It just matters the company
size, being able to own a job where you have a very small buyer
pool into owning a business where you have a much larger buyer
pool, that, of course, is going to make a dramatic impact on the
sales price.

So if you have questions on this strategy or what your business
is worth, or how do I buy a business, or how do I sell a business?
Why don’t you give us a call here at Freedom Factory? I’m Robert,
and we look forward to speaking with you soon.

Thank you so much for watching. Please hit like and
subscribe.

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https://www.freedomfactory.com/
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