Hotline Newsletter #14
This answers some of the questions from readers about the unconventional
methods I used when I sold my printing company last year.
April 23, 1996
Selling Your Small Business
I receive many inquiries about how I went about selling my print shop last
year. I want to emphasize that this is not a recommendation or a
blueprint for you to follow, but it did work for me.
When I decided that it was time for me to retire from the day-to- day
operation of my printing company the first thing I did was to contact
a heavyweight business broker in Houston. He came highly recommended by
our Association and seemed quite knowledgeable. He had sold hundreds of
businesses of all types in the past and told me that my proposal was the
best that he had ever received. After almost nine months he showed the
company to a couple of tire kickers and no money changed hands other
than the $500 retainer I had paid him when we first contracted.
I finally decided that I would try it on my own and try it my way.
The broker recommended that I not let my customers or employees know that
I was planning a sale. I didn't want the word to get out that I was selling. He suggested that I put a higher price than I was willing to accept =
so that I would have some room to drop in order to close the sale. He
suggested that I consider owner financing only as a last resort.
Well, the first thing I did was to sit down with my two employees and tell
them what I was planning. I have always had a superb rapport with my
employees - they are more like family than employees and had been with me
for a number of years. I let them know that I had no intention of selling
the company to just anyone, but rather wanted someone whose ideas were
at least similar to mine. I asked if they would be willing to talk in
private to any prospective buyer. I told my employees to answer any
questions that were presented to them candidly. I let them know that I
wanted any prospect to know both the positives and the negatives of the
company. In otherwords, don't hide anything.
Next I started telling my customers that I was going to retire and was
looking for someone to take over the company. If they had any suggestions
of who might be interested, I would like to talk to them. I also let them
know that I had no intention of moving from the area and would be around
to work with the new owner as long as was necessary.
I then went to the Small Business Advisory manager at our local Chamber
of Commerce to make him aware of my plans and ask that he keep his eyes
out for someone he thought might be interested in my company. I gave him a
copy of the documentation I had put together for my business broker -
with a few modifications.
Finally, I did the one thing that the business broker emphasized that
I should not do. I ran a long classified ad in the newspaper giving all
of the details - including the selling price, my name, and the names of
my employees - noting that they were free to make an appointment with
the employees either at the shop or away from the shop.
I received a number of inquiries and a half dozen really prime prospects.
A couple of those prospects I wouldn't have sold the company to if they
had come up with the full amount in cash. The others I started working
with. I culled those down to two that I felt could make a success of
the company and ended up selling the company to one of those. After
the paperwork was in progress I had a couple of other prospects pop
up - one of whom I sent to a friend who was the owner of the local
Kwik Kopy. He ended up purchasing the Kwik Kopy center from Stacy George.
The key to my sale, I feel, was my proposal. I spent a great deal of time
working on it and I gave copies to anyone who was interested. I have
published that proposal, plus many more details in an electronic book
format.
The proposal included a history of the company, a detailed inventory of
everything that was included in the sale, positives and negatives, and
more. So there was no question about what was included in the sale and what
was not, I purchased a supply of 1 red pressure sensitive dots from the
local office supply and placed one of those red dots on everything that I
intended to take with me. All receivables as of the date of sale belonged
to me and I was responsible for all payables as of that date. All work
in progress belonged to the new owner if that work was not billed as
of closing.
While my paper inventory was listed on the inventory, the prospects were
told that the paper inventory fluxuated, and might be a little more or a
little less than what showed on the inventory at the time of sale, and
that increase or decrease would not have any effect on the sales price.
As for my equipment inventory, once I had everything listed I checked
with used equipment dealers to see what they would sell the equipment
for, not purchase it. I also checked out the classified sections of all
of the publications I receive to see what similar equipment was selling for. O=
nce I had all of my legitimate prices, I sent the list to a used equipment
dealer and asked for a letter from him stating that the prices were
legitimate prices for the listed items of equipment. I didn't leave off
anything - right down to the office stapler and pencil holders.
There are a number of printers in our little community so I did a brief
piece on each of those printers - listing their strong and weak points as
I saw them. I also listed the strong points and weak points of my company.
As noted, the company was debt free and had only a lease on my Xerox
mid-range copier. Since all of my equipment had been paid for out of
cash flow and I actually had nothing of my own invested in the company
other than sweat equity, I used the fair market value of the equipment
as the basis of my sale price. The equipment and inventory came to about
$160M and my asking price was a firm $150M.
I had started out with the idea of owner financing only a maximum of 1/3
of the sales price, or $50M, but ended up selecting what I thought was a
strong buyer and ended up getting $50M cash and financing $100M at 10%
interest. I have one five-year $50M note that is paid monthly and one $50M
note that is paid $10M plus interest each December 1 for the next five
years. If my buyer becomes delinquent, which I feel there is no chance of
happening, I will immediately call the note and either be paid off in full
or will get the company back and will sell it again. My good friend,
Dick Smith sold his Bunker Printing in Ft. Worth three times before
it finally stuck. He profited on each sale.
In my particular case it turned out that being forthright with potential
buyers and putting everything up front worked quite well. If anything, I
emphasized the downside of my company and was very conservative on the
positive points. I told the buyer (in writing) what steps he needed to
do to assure the continued success of the company and checked on him
fairly regular to see how he was doing. If I feel he is dropping the ball
in some necessary areas, I let him know - again in writing. This serves
two purposes. First, it protects my hindside if he should fail and
secondly it gives him constructive criticism using my some 36 years of
experience. So far it has worked well.
All of this, and more, is included in my electronic book, Creatively
Selling Your Small Business. The price of the electronic book is
$29.95 and the ASCII text files can be read by any PC or Mac system.
For a catalog of Cy Stapleton's How-To articles and Helene's Hotline
source and Ad Specialty databases, send a self addressed stamped 6x9 or
larger envelope to:
Catalog
The House of Gutenberg
Box 151107
Lufkin, TX 75915-1107
Good luck... Cy
C.D. Cy Stapleton
Helene's Hotline
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Sunday, May 05, 1996 8:01:56