Selling Your Business. The first in a series of articles that provides information to business owners who are considering exiting their business. Should you wish to learn more about how to plan for your exit, contact Donald Stevens at firstname.lastname@example.org.
This is a story about selling a business, twice. The first the wrong way and the second the right way.
Joe started his business thirty years ago. He was a bright guy, identifying a small but extremely profitable market segment that most other potential competitors ignored. Joe was a great sales professional, growing the business to support a very comfortable lifestyle. The business provided the funds for Joe to invest in art, to travel extensively, and support his adult children. However, Joe didn’t invest in the business, limiting the Company’s growth potential.
The business operated from a mansion located on a Southern California beach. The business had 10 employees. There were no systems to support the business. They marginally used Quickbooks for accounting. There were no marketing programs. The only managing executive in the business, Greg, needed to wear multiple hats supporting both sales and service. While Joe paid Greg fairly, he had not established any long-term incentive plans that would align their interests. Revenue was flat to down over the last few years. A secretary was paying bills and depositing checks but hadn’t done a bank reconciliation in over a year.
Failure to Plan
On a bright sunny summer day, Joe has a serious medical incident that causes a permanent disability, ending his career. Naturally, the business needed to be sold. The only real option was a management buy-out, selling the business to Greg. This was a distress sale, impacting both the sales price and the terms of payment. Joe needed to provide 100% financing. The sale of the business was closed, and Joe settled into retirement.
“Start with the End in Mind”
Now Greg was also a smart guy. However, he approached the business differently. B2B CFO® always advises clients to “Start with the End in Mind”. This is exactly what he did. Immediately after he took ownership he started preparing a strategic plan that anticipated his own exit in five to seven years. The plan he developed and executed required investment in a sales team, expanding the customer support team, implementing a marketing program, expanding the product offering, hiring a finance team, and implementing a client relationship management system and financial systems. All these investments paid off, quadrupling revenue over five years.
Two years into the plan, Greg received an offer to buy the company from a publicly-traded company that wanted to use it as a platform to launch its own entry into that segment of the business. Greg accepted the final negotiated offer. Financially, the offer was near the top of the range of deals being done at the time. In addition, the acquiring company was a good cultural fit for his company. After a three year earn-out period, the final purchase price was eight times what Greg had originally purchased the company for.
The moral of this story is that well-run businesses with a plan will attract buyers that will pay high multiples. Businesses that are not well-run and that do not have a plan, will not.
If you are ready to start planning your exit now or would just like to know more about what exit planning is all about, contact me, Donald Stevens at email@example.com.
About B2B CFO®
B2B CFO® has several resources that educate business owners, assist in developing exit strategies and ultimately assist in the execution of those exit strategies for owners of privately held businesses. These include The Business Sale Solution Seminar™, an educational program developed to prepare business owners for the journey they will take when selling their business. The Exit Strategy Handbook is a companion to the Seminar, providing further detailed information on selling your business. Our B2B Exit® Software serves as a project management tool and an internal valuation tool for preparing your business for sale. Most importantly, there are the B2B CFO® Partners, 220+ strong, located across the USA, each a highly experienced financial professional, and ready to guide you through this adventure.
Are you ready to Sell Your Business? It is never too early to plan. Contact Donald Stevens, a B2B CFO® Partner, at firstname.lastname@example.org.