Before Selling the Business, Consider Some Key Issues
Executive Roundtable is a weekly column by TEC International, an organization of more than 7,000 business owners, company presidents and chief executives. TEC members meet in small peer groups to share their business experiences and help one another solve problems in a round-table session. The following question and answer are a summary of a discussion at a recent TEC meeting in Southern California.
*
Question: I own a $10-million office furniture distributing business. I keep reading in the papers about all these companies being bought and sold, so I’m wondering if it would be a good idea to sell mine. I love what I do and I look forward to coming to work every day, but it just seems like now might be a good time to sell. What do you think?
Answer: Selling a business isn’t like selling a used car. You don’t just hang a sign in the window and hope somebody drives by and likes what they see.
Instead, it involves a complex process that requires careful planning in three areas: preparing the business to get the best price; determining your personal financial goals and objectives; and figuring out what to do with your life after you sell.
For many business owners, the third area proves to be the most difficult.
Despite your current level of satisfaction with running the company, the fact that you’re considering selling may indicate an unspoken need to branch out into other areas or explore new interests.
That suggests the need for some personal introspection and long-range life planning, said Bob Dabic, chief executive of DabiCoaching in Newport Beach.
“I would recommend going on some kind of personal retreat where you can take time for quiet reflection and chart a course for the next five to 10 years,” he said. “Another option would involve simply taking some time away from the business to explore other activities and see if anything interests you more than your current situation. If not, you may decide that running an office furniture distribution company suits you best. But if you wait until you actually sell the business to start exploring other options, you run the risk of not knowing where you want to go or what you want to do.”
If exploring your options appeals to you, Karen Good, president of EDP Systems Inc. in Irvine, recommended bringing in someone to run the business for three to six months.
“This approach offers several benefits,” she said. “First, it allows you to see how you like being away from the business. It may feel like a breath of fresh air, or you may find that you can’t wait to get back. Either way, taking some time off gives you the ability to step back, assess your current situation, make some decisions and come up with a five-year plan.
“Equally important, this approach allows you to see how the company can run without you. When it comes time to sell, potential buyers won’t pay very much for a business that falls apart when you’re gone.”
When it comes to exploring personal financial goals, David La Montagne, president of Vessel Assist Assn. of America in Newport Beach, speaks highly of the “magic number” exercise, whereby you decide on a precise figure that represents what it would take for you to walk away from the business and live happily ever after.
La Montagne said that doing this forces you to answer the kind of questions that determine whether to sell, stay put or let someone else run the business for you.
“Interestingly, I have hit my magic number several times,” he said. “What I discovered is that the number kept getting bigger over time. Yet, even though it changes, my magic number still provides an anchor as I make important management decisions. For example, should I grow the business like mad at the expense of the bottom line, or should I spiff up the company and make the bottom line look good for potential suitors? Without a magic number as a guidepost, those questions become a lot harder to answer.”
Regardless of whether you decide to sell the business, it wouldn’t hurt to get a professional evaluation of the company’s worth and an idea of the kind of people who might buy it.
“Contact a couple of experienced business brokers or mergers and acquisitions specialists and let them do a quick analysis of what your company might sell for,” said Steve Driscol, president of Orange-based Thermal-Vac Technology Inc. “You may be pleasantly surprised by what they say, or you may find that the company needs a lot of work before you put it on the market.
“It can often take several years to prepare a small private company for sale--from a profit-and-loss standpoint as well as the management structure. Now is the time to find out what your company is currently worth and what it would take to reach your magic number. If you don’t prepare the business properly, you won’t get top dollar for it when the time comes to sell.”
*
If there is a business issue you would like addressed in this column, contact TEC at (800) 274-2367, Ext. 3177. To learn more about TEC, visit www.teconline .com.
