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EXIT STRATEGIES

Selling Your Business: A One-Shot Challenge
 

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Bob McNary isn't afraid of a challenge. He fell off his boat, stark naked, 21/2 miles from shore in northern Lake Michigan 20 years ago. In waters that can cause deadly hypothermia in minutes, Mr. McNary watched his boat, which was on autopilot, motor away and then he stoically swam ashore, borrowed a towel and ran to a harbor to radio his wife, Sandy, who'd been sleeping below deck when he went overboard.

The McNarys now laugh about that harrowing episode much as they do about the many ups and downs of building their little manufacturing business, Laketronics Inc., over the past 28 years from a kitchen-table operation to a profitable electronics-components firm employing 27 workers.

But the challenge they currently face has both of them stumped: selling the Cromwell, Ind., company, so they can retire and enjoy boating and grandchildren.

"We didn't get in business to sell a business," says Mr. McNary, who turns 65 on Sept. 1. "That's not our forte. I don't know how the hell to do it."

It's a common problem for entrepreneurs. You build all the skills needed to make your company successful, mastering -- through repetition -- sales, finance, supervising a work force and investing for expansion. But you sell your company only once. And if you botch it, years of hard work can be wasted.

Likewise, entrepreneurs engage outsiders such as accountants, lawyers and bankers to help build a business. But often those trusted advisers aren't experts when it comes to selling a company. What's more, coming at the end of a career, it's tough for many sellers to put in the long hours and hard thinking that a successful sale of a business often requires.

"It's an emotional roller-coaster ride," says Ben Buettell, a managing director in Chicago for Houlihan Lokey Howard & Zukin, a Los Angeles investment banking firm that mostly represents sellers of smaller and midsize companies.

The McNarys have received lowball offers. "One guy was trying to steal it," Mr. McNary says. They've listed Laketronics twice with business brokers but got "not much" in the way of response, he adds. And they've tried to talk their trusted general manager, Tim Pratt, into buying the business, but he doesn't want to.

Having watched his boss struggle over selling the company, Mr. Pratt, 50, says, "I'd almost have to start the process of how I'm going to sell it when I buy it."

The latest potential buyers, a group of younger entrepreneurs in the area, came via Mrs. McNary's manicurist. Mr. McNary has met the group and sent them a confidentiality agreement in advance of any financial disclosures. "I did like them," he says. "We'll see where it goes."

But for Mr. McNary, who enjoys making sales calls, waiting for potential buyers to contact him seems too passive.

"I'm playing a reactive role instead of a pro-active role," he says.

Indeed, to get top dollar he probably needs some help. It could be his accountant, lawyer or banker, though he doubts they have enough experience in handling sales of businesses. It could be a business broker, though how do you find one you can trust to actively seek out buyers?

Mr. Buettell, the investment banker, has some advice: identify some sales of businesses that were successful for entrepreneurs in the same industry, and check into the professionals retained for those transactions. Get examples of comparable sales, just as you would for the sale of your house. Demand references from the advisers, both of satisfied sellers and of clients who didn't manage to sell their companies.

When you've identified a broker or adviser you like, ask yourself: Is my deal significant enough to command his or her attention? Or will it be passed off to some younger associate? "I'd want it to be an important transaction to that firm," Mr. Buettell says.

Sellers need also to convert the information they use to run the business into data buyers will understand. Manufacturing companies typically sell for five-to-seven times Ebitda, Mr. Buettell says, or earnings before interest, taxes, depreciation and amortization.

"I have high-school bookkeeping," says Mrs. McNary, who keeps the Laketronics books. "I don't know what Ebitda is. I know what we take out of here."

In recent years Mr. McNary has slowed down, favoring longer vacations. "I'm lazy," he says, "I don't want to go out and get a bunch of new customers." But Laketronics runs only one shift, and it could handle a lot more work.

The good news is Laketronics is solidly profitable, with after-tax profit of 15% to 20% on $2 million in sales, Mr. McNary says. In Mr. Platt they have an experienced and dedicated general manager who runs the place when they're away on vacations.

And, having learned how to build their business, the McNarys can easily become better-informed sellers, though it will take some more work.

But the water is deep. And it could get cold. It's time to start swimming and go get that towel.

Copyright © 2003 Dow Jones & Company, Inc. All Rights Reserved

Last updated: Aug 1, 2003




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