biz ladies: selling your company

rosie_the_riveter1
today’s post comes from biz ladies regular meg mateo ilasco. meg has authored craft, inc. and co-authored creative, inc. with Joy Deangdeelert Cho of Oh Joy, and has contributed many a biz ladies post on various topics, including book advice with us twice, branding advice, tips on starting a business in hard times, and logo design techniques.

today she enlightens us on the process of selling your company. though selling your business may seem like a sad prospect, there comes a point in every business where you may want to consider potential merging options, new directions, expansion and growth, or possibly ending one business to pursue a new and exciting passion. meg will cover all of the various aspects that go into selling your business today, including how to be emotionally prepared for making the big change. thanks meg for yet another informative and helpful post!- stephanie

CLICK HERE full post after the jump!

SELLING YOUR BUSINESS

At some point, every business reaches a fork in the road when they have to decide whether to give up or grow, sink or swim, fight or flounder…retreat or rebuild. (Sorry, I wanted to see how many alliterations I could think of.) In 2004, I was at that point with my 5-year-old wedding invitation business. I was worn out by weddings—dealing with customer service was brutal! Also, designing wedding invitations wasn’t the creative outlet for me that it used to be. My heart wasn’t in it anymore. I just didn’t have the drive to stay competitive and relevant in the industry.

After much emotional and financial deliberation, my creative mind was set on testing its talents elsewhere. I decided to end my business on a high note—close it now, even though business was still good, instead of giving it a slow death. (I wanted my last memories of it to be positive!) In January 2005, I announced on my site that it was going to close in 3 months.

And then an interesting thing happened: I started receiving emails from people offering to buy either the entire business or parts of it (URL, equipment, etc.). It was a delightful surprise. I was ready to walk away from the business, but suddenly I had an opportunity to actually profit from its end.

At first, I wasn’t sure that I was ready to sell it—the thought of handing over “my baby” to a complete stranger was a little unnerving. Second, I didn’t’ know if it was in the proper condition to be sold yet. Before I could entertain offers, I had to get it organized, get my financial documents together, take account of my inventory and assets, and determine the value of my business.

It was also important to me not to sell it simply to the highest bidder—it had to be the right person. For me, that meant someone who: 1) was local and could pick up any inventory/equipment and be available for training, 2) understood graphic design software, and 3) had an understanding of running a business. I wanted to make sure the buyer could actually care for the business and profit from it. If it went to someone completely green, I could easily see them becoming overwhelmed. I wanted the transfer of ownership to be a profitable and painless process as possible for both parties. (I know enough with the alliterations, already!)

Luckily, this perfect person found me. She checked off on all criteria: local, used graphic design programs, and owned a wedding business. I knew she would take care of the business, need the least amount of hand-holding, and could keep it running for a long time. Though the business now looks different from the time when it was in my hands—I love that it’s still alive today.

Merging with a Larger Company (another option):

Selling a business is a very emotional experience. Sometimes it can be hard to let go completely. So it may be good to sell your business but devise a way to still be apart of it. Aimee Lagos and Christiana Coop’s company owned the rights to the US distributorship of Ferm Living products. But after a year, they realized that most of their energy was spent dealing with customs, warehousing, and shipping logistics. If they wanted to offer more products, it would only heighten those issues. The prospect wasn’t appealing, since they preferred to engage in the creative aspects of the business (PR, marketing, interior design). So they forfeited the rights of the distributorship and sold their inventory to a larger distributor, but agreed to stay involved by maintaining the website and collaborating with PR and marketing efforts. It was the best of both worlds.

“It was actually very difficult emotionally to give up control of the distributorship because we’d worked so hard to establish Ferm Living in the US,” says Christiana, “but we know now we made the right decision. We’ve got a great relationship with the distributor and with Ferm Living in Denmark. We plan to stay involved as long as possible.”

Things to Think About When You Sell Your Business:

  • Emotional Readiness: Walking away from a business you poured your time, sweat, and tears into can be hard. Before you sell, make sure you’re not going through a burn out phase and definitely have a plan for how you will spend your days after you sell your business.
  • Business Value: The value of your business takes several things into account like your assets (e.g., inventory, equipment), goodwill (e.g., a loyal customer base), and equity (e.g., brand recognition). If you have a large company, you can hire an appraiser to determine your company’s worth.
  • Setting a Price: You have to set a sales price that ideally will help support your post-sale lifestyle. But don’t make the price so high that it doesn’t attract any buyers. You should also think about how long it will take for the buyer to earn back his/her investment.
  • Non-Competition: You may have to enter into a non-competition clause—that is, you will not be allowed for a period of time to start a new business or to create any products that competes with the company you just sold. For me, the non-competition clause prevented me from making any wedding products for the purpose of resale for 5 years. (It expired this year!)
  • Transition process: The sale of your business may not be a clean break. There may be a transition period where you have to be available to provide training and consultation to the new owner.
  • Hire professionals: A lawyer to negotiate the contract, a CPA if you need to get your financials in order, and a broker and appraiser if you’re a large company. Being a small company that keeps good financial records, I only hired a lawyer.
ruth minaki

very insightful….
I had no idea one could sell the rights of distributorship…..is there anyway you could add some detail to the story to help educate..
eg…”the business was turning over roughly x$ so selling to larger distributor meant x$ back in poket…..the figures don’t have to be from the exact above people but 1 or 2 examples would be really helpful…..could you add a little more detail….:-)

meg

sorry, i don’t know the monetary details of that…and i’m not sure if they’d want that to be public knowledge.

Eric

Ruth, a local business broker should be able to provide you with directional numbers regarding a distributorship’s business valuation to both strategic and non-strategic buyers.

ruth minaki

thanks Eric….
I will look into it…I just would have liked an example or 2 -not the above people’s monetary amounts ..just random examples a 100k $ a year company may get??A 1m one may get ?something like that…thanks for answering
:-)

Wendy

Another thing to think about is the taxes related to the sale and replacing your current income, it may not leave you with much or be that easy as I found out and therefore, did not sell.

Ruthy

Emotional readiness! That is so so true!
It took me two burnouts plus another two years before I was willing to do to sell.
A really good friend of mine who also has her own business also, compared it to a bad marriage. You still love someone but you know he/she is really not healthy for you. It takes time to get to the divorce stage.

LEAVE A COMMENT