Put this 6-step strategy to work so you’re prepared if unexpected life changes force you to sell your company quickly.
It’s been a tough few years for the folks at family-owned pumping company John’s Septic Solutions in Wilmington, Massachusetts. John and Paula Murphy have built the company over many years on elbow grease and a single, dependable vacuum truck. Along the way, they’ve earned the loyalty of more than 500 customers.
Then came terrible losses — the death in 2013 of John’s brother and, not even a day later, the death of the couple’s teenage son. Those personal tragedies took a toll on John’s health, and a few weeks before Christmas, his illness led to the loss of his CDL. Suddenly, the Murphys were confronted with the need to divest the business.
Paula Murphy acknowledges they were feeling stuck for what to do. How could they possibly sell their business as quickly as possible and not feel they would just be throwing it away? As Paula points out, “You can’t maneuver your way through this with just your QuickBooks.”
The problem they’re facing is one that seldom crosses the minds of small-business owners of any kind — what do you do when you need to get out fast?
Harry Hecht, a business consultant and entrepreneur coach in Orlando, Florida, has some advice. He’s among the advisers for SCORE — a nonprofit group that helps small businesses get off the ground and grow, educates and mentors entrepreneurs, and is supported by the U.S. Small Business Administration.
The fact is, if you face a dilemma like this one, there is help. First, take a deep breath. Then break it down, step by step. Here’s how:
Step 1: Get professional help.
All small-business owners “need to have a close relationship with a good attorney and a good accountant,” Hecht says. If you don’t already, find someone you can trust in those professional roles now. Ask around. Check with your trade association, your suppliers, even competitors. Who do they call on?
Step 2: Get everything in order.
“Any taxes need to be cleaned up,” says Hecht, but don’t stop there. Bring all your business record files up to date. Reconcile any discrepancies. Make sure you have year-to-year data on sales, employee records, business expenses large and small, outstanding debt and the path to paying it off. And don’t forget your customer records and contacts.
The lawyer and the accountant will help you assemble this information. The object, says Hecht, is to have everything about your business sorted properly and in one place. When it comes time to divest, “the more turnkey you can make it, the better it will be.”
Step 3: Get an evaluation.
Now your professional advisers will earn their keep. Enumerate and evaluate your assets — and not just obvious ones like your equipment and real estate. What’s your workforce worth — in years of experience, depth of training, knowledge of how your company does things and your customers? And those customers — what are they worth? “You can put a monetary worth to that,” Hecht points out.
Benchmarks for your industry can help. Enlist your state or national trade association if you need to.
Understanding your annual performance trends is critical. “If the business is growing moderately year over year, and you can show that, you can keep the price up” when it comes time to sell, he explains. If it isn’t, the prospects might be tougher.
For this analysis, pay more attention to your top line than the bottom one. “A company that’s got revenue growth, even though profits are not up to speed, can still get a good price,” Hecht says.
Step 4: Look realistically at your options.
By the time you’ve gotten this far, you should have a pretty good idea of whether you can sell the business as a going concern or are better off liquidating.
“That’s the worst-case scenario — liquidation of assets,” Hecht says. “If your business is somewhat successful and has a brand, there’s no reason you can’t sell it.”
But you should also face up to when liquidation has its rewards. For example, “If you own some real estate, depending upon where it is, that could be positive,” he says. “It can make up for a business not being that valuable.”
Don’t let wishful thinking inflate what your assets are really worth, though. “My experience is that customer lists aren’t all that valuable,” Hecht warns. “You can buy those lists for nothing.”
More valuable is the detailed data only you can supply and customer relationships that carry greater force than simple loyalty. “If you have a customer that’s been paying you revenue for years, that contract can be sold to a new buyer,” he points out.
“You can monetize that.”
Step 5: Consider alternatives to an immediate cash sale.
Yes, you might think things are urgent, but can you buy some time? Consider taking on a business partner, Hecht says. You can sell to that person over time, phasing out your own role in the operation. Or you could sell your business to your employees, if you have some.
Don’t want to stick around, even with a partner? You could sell it to an outside buyer, but finance the deal yourself. Yes, that does demand more involvement at first, and it also carries the risk that if things go south, you wind up having to foreclose, owning a business you were trying to sell. But on the upside, “the seller can get the most out of that type of a sale,” he contends.
Step 6: Decide if a business broker is right for you.
Picking a business broker is like choosing a real estate agent for your house. “There’s good ones and there’s bad ones,” Hecht warns. “Making that decision on who’s going to represent your business is an important decision.”
And like most important decisions, it can be time-consuming. Hecht suggests you consider 10 or 15 candidates and evaluate them critically. Are they experienced in your industry? How long are their properties on the market? When they close a deal, do they tend to get their list price or close to it? You want a careful student of the market skilled at sizing up the businesses they represent. You don’t want someone who slaps on a pie-in-the-sky price that time on the market grinds into crumbs.
And if everything you’ve read so far is just hypothetical, then you might consider …
Step 0: Run your business so you can expect the unexpected.
The best time to prepare for an emergency is when there is no emergency. Always position your business for sale. Don’t wait until you find you must act now.
For Hecht, the simplest strategy is to run your business with the discipline of a franchise: Develop ongoing operations manuals; have a rolling, regularly updated business plan; establish and organize personnel policies, including job descriptions; construct clear and achievable financial standards and projections; and pull together everything you know about how to reach new customers and keep existing ones coming back — your fundamental market strategies.
“All that kind of stuff should be organized in a process manual and an annual business plan,” Hecht says. “As a business coach I spend 90 percent of my time doing that with my clients.”
So if you’ve got to sell now, take that deep breath and follow those first six steps. And if you don’t, then consider going straight to Step 0.
Either way, you may find it a lot easier to sleep at night, and know that now — or later — you’ll get the best price you can for all you’ve put into your business over the years.