How one owner is selling his business
By Jim Kendall
This column originally appeared in the April 7, 2014 Daily Herald
Charles Evans is selling his business – and in true entrepreneurial fashion is willing to share his experiences. Here’s the situation:
* Charles Evans isn’t the business owner’s real name; it’s the name used here to help assure confidentiality. Some of the details are fudged a tad for the same reason. Evans’ words and experiences are real, however.
* Neither employees nor competitors know Evans is selling.
* Evans’ business has 25 employees; is 17 years old; and is based in the suburbs. There is no family that wants to take over. The business is profitable.
* Age and a desire to reduce financial risk are why Evans is selling.
The takeaways for us so far:
* Selling to the management team didn’t work. Evans spent two years hoping his two-person senior team would buy the business. The duo tried, but couldn’t find investors or acceptable financing.
“Finally they suggested buying on an installment basis, with payments coming from the company’s income stream,” Evans says. “But that wouldn’t mitigate my risk. In fact, because I wouldn’t be managing the company, the risk would be higher.”
* A broker may be the best option. Evans turned to a business broker in December. “A broker,” he says, “takes the emotion and negotiation away from me and puts the sale into the hands of a professional.
“I could have tried to sell the business myself, but a professional knows how to present the company in the best light.”
* Broker fees were an issue. “The range seemed to be three to seven percent, non-negotiable,” Evans says. “But my stubbornness paid off. They agreed to a four percent commission.”
The broker also won on that point, however, extending the term of the sales agreement from six months to 12 in exchange for the lower fee.
How the broker will be paid was a negotiation as well. “They wanted their commission at closing, but I wanted to give them half at closing and half over time, which is how I likely will be paid,” Evans says. The compromise was a full commission payout to the broker at closing – but only if Evans receives 80 percent of the sale in cash.
* The marketplace. The business just hit the market. “The 12-month period starts when the broker gets all the information, not when the agreement is initially signed,” Evans explains. It took time for Evans and his accountant to deliver the financial data – business tax returns for the past four years, accounts receivable for the same period, an adjustment between cash and accrual data, and the like.
“I think someone in the industry will buy us,” Evans says, “but they see synergies in other industries.”
* The sales price. “The broker has a base,” Evans says. “They’re looking at two or three times net revenue.” Evans is looking for three times earnings. But, he acknowledges, “The price is set by the buyer.”
© 2014 Kendall Communications, Inc. Follow Jim Kendall on LinkedIn and Twitter, and at Kendall Communications on Facebook. Write him at Jim@kendallcom.com.