The pros and cons of selling to a partner.
Selling internally is not the first thing that comes to mind when an entrepreneur thinks about an exit strategy, but it could be the best fit. After all, who knows your business better than someone who is a part of it? In this episode of Built To Sell Radio, you’ll hear how Heather Osgood smoothly exited her business along with some ups and downs while selling her business to a partner.
About Heather Osgood
Heather Osgood is a serial entrepreneur, with a passion for living outside her comfort zone and a system for continual self improvement. Starting her career in advertising sales she quickly learned what it meant to be a business owner, seeing the failures and successes of hundreds of small business owners.
Her training and knowledge in sales and marketing created a strong foundation for the development of her trade show production company which she owned for over nine years and just recently sold. The sale of this business and the knowledge that she gained from the highs and lows of operating that company allowed her to intimately experience the challenges that every entrepreneur faces, wanting to do too much with too little money and too little time.
About Inspired Expos
- Inspired Expos is a boutique tradeshow production company that produces home and garden expos as well as health and fitness expos.
- The company hosted around eight trade shows per year on the California coast.
The Trigger Event
- After the passing of her mother, Heather decided to sell the business as she realized she had created it to be closely attached to her; and she wanted to create separation from the business so she could devote more attention to her children.
The Process of Selling
- The business was doing almost one million dollars in gross revenue.
- Heather recognized that she didn’t have to be at the business all the time and she approached her business partner to sell.
- The pair sought outside assistance and they were coached through the process in order to create a smooth exit strategy and valuation for the business.
- The most difficult part of the negotiation was coming up with the value of the business.
- Having outside council who applied a multiplier for areas of the business was paramount to coming up with the final figure and eventual sale.
- Looking at every part of the business and having an equation was helpful to a true assessment of the market value.
- Just being truthful with yourself about the value of the organization is really important.
- The consultant looked at areas of the business that had value and did the calculations based on that.
- Working with a consultant is crucial with regard to the separation, as an outsider isn’t emotionally attached to the value of the company and is objective.
- Taking stock of each of the areas is helpful to assess the value of the company. The following questions are key indicators:
- Can someone else come into the market and recreate the business easily? If someone else can start a business that is identical, then your company doesn’t have any value.
- What is the customer base, and are those customers easy or difficult to win?
- What cash flow has been coming in?
- What is the debt of the organization?
- The stickiest moments of the negotiation were regarding the payout. Heather wanted as much as she could get upfront, and her business partner wanted to pay over an extended period of time.
- When you know the company so closely, you are aware of what the company can handle.
- The payout is monthly. If the business were to tank, then Heather could lose out.
- There is a personal guarantee in the negotiations. Heather acknowledges she wouldn’t have taken this deal from just a ‘random’ person.
- Because the relationship was in good standing, it gave Heather the confidence to leave.
- The best side of selling to an internal partner is that they see the value of the company and want to continue on.
- The hardest part of selling a company is convincing someone else it is worth what you want for it.
- For Heather, the worst part was that her business partner was her best friend. Even in the best of situations, money complicates things.
- Splitting from a business partner is almost like going through a divorce.
Links to Resources Mentioned
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