DONE DEAL

By Nick Whitmore

Colin (not his real name) sold his central Virginia business-referrals firm after 11 years of running the franchise he’d created.

Prior to closing, Colin’s business generated revenue of $420,000. He decided to sell to focus fully on a new business-advisory enterprise he’d set up.

The business had two divisions: one in Shenandoah Valley and one in central Virginia.

“My mentor told me, ‘You have two businesses within that business, so you could split it up into two and sell them separately,’” said Colin.

Colin didn’t place a single ad to sell his business. He gave his assistant, who was running the central Virginia arm of the business, the option to buy it. However, the assistant wasn’t able to purchase it because of finance issues. In the end, Colin received four offers on his business before finally closing a deal.

The buyer of the central Virginia division was a good friend of Colin’s. “He said, ‘Are you selling it?’ I said, ‘Well, we weren’t, but we’re always open to selling it.’ We really liked the guy, so we said we’d sell it.”

Colin’s former bookkeeper purchased the Shenandoah Valley arm.

In total, Colin’s business was generating $206,000 of earnings before interest, taxes, depreciation and amortization (EBITDA). The business was sold in two parts for a combined total of $550,000, representing an EBITDA multiple of 2.67. The business was sold “as is.” There was no earn-out or seller finance involved.

Deal Snapshot

Business type: Business-referrals
Revenue: $420,000
EBITDA: $206,000
Selling price: $550,000
Multiple paid: 2.67

(photo courtesy of sxc.hu/blary54)

DONE DEAL

By Nick Whitmore

When Ken (not his real name) decided to retire and sell the company he’d spent over 20 years building (12 as owner), his business was generating revenue of around $2 million.

Ken’s rental business offered props (e.g., tents, furniture, dishes) and planning help to those organizing graduations, birthday parties and other celebrations. The established rental business had multiple locations, which included retail space and a warehouse for storing the rental inventory.

Unfortunately, the sale of Ken’s firm didn’t go quite as smoothly as planned, with one of the major stumbling blocks being the value of his rental inventory. Ken placed a value of $1.2 million on it, whereas the buyer valued it at just $600,000.

“One of the key elements in a sale like this is getting a handle on the true utility value of the rental inventory,” said Sue Wain, director of business sales at Calder Associates and Ken’s business broker.

After some negotiation, the parties agreed to a sale price of just over $1.5 million, including all inventory, which represents a 6.0 multiple on Ken’s $250,000 of earnings before interest, taxes, depreciation and amortization (EBITDA). The full amount was paid on closing, and there was no earn-out involved in the deal. Real estate was not included in the sale of the business; the seller decided to lease the premises to the buyer.

Wain believes that Ken made a good decision choosing to sell his business. “He didn’t want to make the additional investment required to grow the business on his watch. He felt like he was inhibiting its growth. It was a perfect invitation for a buyer to come in here, but not only buy it—grow it.”

Deal Snapshot

Business type: Party rental
Revenue: $2 million
EBITDA: $250,000
Selling price: $1.5 million *
Multiple paid: 6.0

*includes inventory valued at between $600,000 – $1,200,000

(photo courtesy of Flickr/ *ASAP*)

DONE DEAL

By Nick Whitmore

Ed’s payment-processing company in the tri-state area was producing revenue of $1.86 million when he was asked to join the $50-million family business. Ed had a decision to make: keep growing his small business or join the much larger family empire. In the end, a sense of obligation to the family business tipped the scales, and Ed decided to put his business on the market.

“Initially, he did not want to sell, but his family really needed him in their expanding business, and Ed wanted to answer the call,” explains Sonny Soi, Ed’s business broker and the president of CrossPoint Business Group.

>> More

When I started to contemplate selling my last business, I was looking for data on what similar private companies were selling for. The media reported big company deals, but I knew they didn’t bare much relevance to my situation.

When I did hear about a private company sale, the details were never released publicly. Sometimes, the selling price was announced but rarely would they include the details of the multiple paid or the terms the sellers agreed to. >> More

I got an email yesterday from a friend who is looking for someone to help him sell his business.  I have found intermediaries (mergers and acquisitions professionals or business brokers) to be a valuable resource for selling a business (and preparing it to be sold). In the video above, I share my experience with how to find an intermediary to represent you and what you’ll need to pay them to help you sell your company. Please use the comments section of this blog to share your own experience with finding and working with a business broker or M&A pro.

On a separate note, I found out this morning that my book Built To Sell has been recognized by Inc. Magazine as one of the top business books of 2010. I’m still peeling myself off the ceiling. A great big THANK YOU to you for reading the book (and this blog) which I know helped the editors at Inc. make their choices.

Finally, here are some new articles for this week about selling your business:

Three tips for negotiating your earn-out

~ published November 30, 2010

The other day I met with two entrepreneurs running a $1-million per year graphic design business. They were in the final stages of negotiating a deal to sell their company to a large multinational marketing services firm. »more

The mercenary vs. the missionary entrepreneur

~ published December 1, 2010 Globe and Mail

Do you have a purpose in your business that goes beyond making money?

• Harley-Davidson’s mission is to “fulfill dreams through the experience of motorcycling.”

• Southwest Airlines is trying to “democratize air travel so that all Americans can visit a loved one or relative at a happy and sad time in their lives.” »more

How to get employees to care

~ published December 2, 2010 Globe and Mail

To build a valuable company you can walk away from – whether to sell or to leave just for a vacation – requires that you figure out how to get your employees to care as much as you do.

For his advice, I spoke to Ken Blanchard, whose books, including Raving Fans and The One Minute Manager, have sold millions of copies worldwide. »more

Ready to Sell Your Business? Avoid These 8 Mistakes

~ published December 2, 2010 BNET

Are you planning to step away from running your business in the next few years? Here are eight mistakes to avoid before hitting the eject button:

Mistake 1: Being boring

While it is true buyers like predictability, they also like growth. Set aside a small slice of money for experimenting on new things (product ideas, etc.). »more