But in the past few years, size hasn't been the only factor determining a company's potential to be sold. Recently, the economy clearly crowned some beauty queens among selling companies. Those included businesses in consolidating industries, which, even if they were very small companies, did tend to attract suitors. Also popular were those perennial favorites of venture capitalists and angel investors: companies in sexy, high-growth industries such as new media, biotechnology, high tech in all its permutations, health care, and a handful of other fields. (For a look at the toughest kinds of companies to sell, see "The Brokers' Dog List," below.)
Still, there are important lessons to be learned from the sales successes and failures of the 14 businesses for sale we recently surveyed. Here are some of the most compelling:
LESSON ONE:
Your customers might like to buy your company.
The Illinois retailer of flameproof underwear and other race-car safety equipment (featured in May 1996) had recast earnings of only $81,000 on sales of just over $400,000. Its sales tag of $200,000 plus $30,000 for inventory struck valuation experts as way too pricey; the business, they said, couldn't generate sufficient profit for a new owner to pay that much.
But miracles really do happen. After sales efforts stalled, the company's owner fired his business broker and took matters into his own hands. "I think I wasted my time with the broker, because he had much bigger fish to fry than a $200,000 sale," he says. "What I finally decided to do was go through my warm circle of friends and customers. That's when it all fell into place for me."
His own feelers uncovered several likely leads. The one that panned out was a deal that closed this past April. Here's the fine print: he sold the company for just 5% less than his original asking price. (One unspoken rule about valuations: Forget about all those appraisal guidelines. If somebody really wants your company, then it's as valuable as he or she thinks it is.) The seller scarcely noticed the small cut he took in price, since he had saved $20,000 in broker's commissions by handling the deal himself.
"The sale couldn't have been simpler, since these folks were my friends and longtime customers," he emphasizes. His buyer was nothing short of perfect: a retired chief executive with a lifelong love of race cars, who was able to buy the business under the best of all terms--with cash.
LESSON TWO:
You can't be too aggressive about publicizing your desire to sell.
Take the Hawaiian kayaking company (September 1996) with sales of just under $270,000 and a price tag of $169,000. When the owner and his business broker decided to send their sales package to Inc. in the hope of prompting an article, it was a long shot. But they realized a simple truth: the more buzz you can generate about your company, the better your chances of a sale.
By the second week in October, the company had a deal in place for a $160,000 sale to a couple who had read the Business for Sale column on an airplane flight between Portland, Oreg., and their home in Salt Lake City.
"It was almost unbelievable," recalls the wife. "We had made up our minds that we wanted to leave our corporate jobs and change our lifestyle. Then I read the article and asked my husband, 'Isn't that the company we went kayaking with during our last visit to Maui?' " (Remember lesson number one? It always pays to consider your customers--even the ones who seem slightly far afield.) Turns out that the husband's father lived in Maui, and the couple had been fantasizing about relocating there for years.
They called the broker the next day, and he could tell just how interested they were. "They asked all the right questions and made plans almost immediately to fly in and check everything out in person. That was a pretty good sign that they meant it," he says. As often happens in deals a broker is involved in, the owner deferred to the broker on financial matters and fielded the rest of the questions himself. The owner also took the prospective buyers along on various kayaking trips, to explore the mechanics of the business and, of course, keep their interest whetted.
Written offers flew back and forth by fax during a 10-day period, with the sale eventually closing at 5% less than the asking price--but for better-than-expected terms. "I'd been willing to finance $90,000 for five years, but these buyers were able to offer me much better terms than I'd hoped for," says the seller. After considering tentative offers from a few other buyers, he accepted this one, since it gave him more cash more quickly.
The deal closed like this: with $100,000 down and the rest to be paid in two equal balloon payments at the end of the first and second years after the sale. Best of all, the seller can bank on those upcoming payments: his company's buyers have strong business backgrounds and have already boosted sales by 30% by tapping into the group-excursion market.
The seller voices only one regret: his buyers insisted on involving their attorney, which, naturally, required him to do the same. "The lawyers didn't bring anything to the deal and wound up costing me an extra $5,000 and slowing down the eventual closing date by one month," he says. "That was too bad."
