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Key Idea: Sell to Someone Like You (4)

Peter Schenck found a buyer from his own industry contacts. More...   Related...

Think about it

How could you go about finding someone like you to buy the business?

Clip from: From Equity to Exit Strategies - 8 Possible Paths

The world:  Most of us small business owners do OK competing with the big businesses in our industries or we don't survive. But when it comes to our exit strategy and succession planning, most of us fall on our face.

This episode is to explore business valuation and exit strategies.

An exit strategy is just like doing a will, but here you try to maximize the dollars you get out of your life's work.   Nobody wants to see you liquidate. That's getting pennies on your dollars. Tangible assets get sold (fire sales) and the intangibles are lost forever. Liquidation is the worst kind of liquidity.  

Most of us will sell our business through merger or acquisition. But, if we get much over two-to-three times sales or six times earnings, we all think we've done very well. Yet, when big business sells, they usually begin at six times earnings. Then we see 40 times and even 300 times earnings on the open markets. Why should we be satisfied with so little?

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Sell to Someone Like You (4)

HATTIE: Number four. Sell to someone like you.

PETER: We ran a blind ad in The Wall Street Journal.

HATTIE (Voiceover): Peter Schenck sold his advertising agency to a colleague in his industry.

PETER: We ended up with 72 qualified people who were prepared to buy it--who said they were prepared to buy the business.

HATTIE: So did they send you a letter?
PETER: Yes, we asked for a letter about their basic background that would make them eligible to by the business.

HATTIE: How did you edit the list of 72?

PETER: We're members of a marvelous trade organization, national trade group, American Association of Advertising Agencies, which did a great job of counseling any number of agencies throughout the previous decade previous to ours. They have a lot of staff experience in this. And it just happened that their regional guy was visiting our offices at the time I had this stack of 72. And I said, `Would you do me a favor? Take an hour, go in, and, you know, and take a cup of coffee, go through these letters and tell me if you see anything that you believe are really home runs, people that you know in the industry who you feel have both the means, the inclination and the chemistry to be a match here.' So he did exactly that. He came out after an hour, there were four letters left on the desk. He said, `Any of these four.' Then we brought our CFO into it. And we had an accountant, our CFO, our attorney and the two owners and that was the five-person team that did the deal all the way through.

HATTIE (Voiceover) Lorraine Miller sold her business, Cactus and Tropicals, to another plant lover.

LORRAINE: Having realized that I needed some professional help in selling it, I found the ideal person. This was a man that I had met when I was on the board of the Chamber of Commerce, and he had been president of the board. And he had been president of one of the banks in Utah. And I bumped into him at a Chamber of Commerce event and said, `You know, Brad, I've been thinking about selling my business and I've had a lot of interest in it. Would you help me?' And so he took my financials and the first week he called me up and he said, `This is a really cool little business. My wife and I might want to buy it.'

And then he called me back and he said, `If you don't mind, I'm going to send your financials up to this fellow. He buys and sells a lot of businesses and I want to have him look at it and help me put a good valuation to it.' And he said, `And also, I have a friend that sold his business about a year ago and he's looking for a new business to buy, so I've been talking to him, too.' And so all of a sudden, it seemed, `Ooh, this is fun,' you know?

We have all kinds of options here. And so he sent my financials out to this fellow named Mark, and Mark called him back the next day and said, `I got the financials, so I jumped in my car and drove down and looked at the business and I want that business.'

Peter took the anonymous road and Lorraine took the friendship path. Peter wrote an ad (just like an advertising man, right?) and ran it in the Wall Street Journal. He described the type of person he was looking for which was the way he found a person like himself.

Lorraine told her banker friend that she wanted to sell and it turned out that she had more than one offer. The person who "won the right" to buy the business told Lorraine that he loves plants and that was the opening of the buy-sell negotiations. Because she was able to sell to a plant lover, Lorraine felt good about the sale. She felt that the employees and customers would be happy because the new boss is in simpatico with the founder.

The big bonus for Peter and Lorraine is they didn't just get money for their businesses; they transferred the business to a person that they felt would keep the business much like they found it.
