08 Jul Q&A: Salability of a Small “New Media” Business
Question: We have a business we would like to sell, but not sure if it is too small for your firm to consider. It’s a “new media” business established in 1999 and very successful and growing. 2010 sales were $600K. We anticipate sales of $700K in 2011 with a 55% margin. It seems to be difficult to find firms that represent businesses in our revenue area. Our business is not the type of business that would sell “locally.” We think it must be marketed nationally to strategic buyers. Our business is in a high-growth field and has been developed to be a “growth” business.
Answer: Thank you for your inquiry. I have read the information you provided and given it consideration. First, being in a high-growth “space” is valuable, as are high profit margins, but a couple of things concern me. First, you may be in an interesting high-growth niche, but your business is not growing rapidly. Sure, on a percentage basis, but in real dollars—not so much. Second, your revenue level is just unattractive to all but individual buyers. Larger companies cannot justify spending their time and money to gain just $700K in annual revenue. Yes, you may say it is growing, and if they buy it, they soon will make $1 million in revenue. This does not change things; $1 million in revenue does not “move the needle” for even smaller companies.
Suggestion? If your efforts are to bring real value, you have to continue to grow your revenue and profits. Set your sights higher. If you do not wish to do so, local individual buyers are probably your best bet. Also, be careful! Many firms will tell you what you want to hear to get you to pay them $20K to $50K up front!