CHICAGO — While building and owning a business can be exciting and fulfilling, the final phase — the sale of the business — is when the value is realized and plans for what comes next for the owner can be made.
In Part 1 of this series, we examined how to determine the actual value of a business, and in Part 2, we looked at the steps necessary to maintain that value during the sale process. Today, we’ll conclude by exploring the steps owners should take before the sale, and how to prepare themselves for life after the sale.
Preparation: What to Do, and What Not to Do
One of the rules for selling a house also applies to selling a business: You never get a second chance to make a first impression.
“Clean it up and paint it, shine the chrome, and hire and train the best staff,” says Richard Ehrenreich, managing member and principal consultant of Ehrenreich & Associates. “Also, improve the documentation of your procedures, benefits and financials.”
“It’s very important to clean the (facility),” agrees Liliane Tietjen, business intermediary at Patriot Business Advisors. “When somebody walks in and there are 2 inches of brown dust, it’s not pretty. It doesn’t matter what the numbers are — they’re probably not going to buy that because it’s gross. Clean it and make it sparkle.”
While owners might see the time of planning a sale as an opportunity to save money on items like marketing, Ehrenreich strongly warns against that strategy.
“It’s not the time to be cheap — it is the time to be doing a lot of discretionary spending on advertising,” he says. “Owners should be making their business run as perfectly as possible.
“Buyers want to see a smooth-running, established business that’s well-documented, with training, financing, experienced staff in place. They want to see a business that’s profitable, with ability to grow — they want a local market leader, but one that is still growing.”
One thing an owner should not do is discuss their intention to sell with anyone not a decision-maker, including staff, he says.
“The owner is best not disclosing anything to pretty much anybody — a confidentiality breach may have serious circumstances with the business,” he says. “Talk gets out and staff leaves, because the first thing they’re going to want to do is protect themselves and find another job they believe will be more stable.”
Tietjen favors informing employees of the sale right before or on the day of closing, when the buyer is introduced.
“Some of them may start to look for new jobs because they’re nervous, and some of them will take advantage of the owner. ‘Oh, he’s selling — he needs me.’ They also might ask for more money — ‘If you want me to stay, you’re gonna pay me more.’ Tell the employees after closing.”
News of changing ownership could also have business ramifications.
“Customers start looking for another cleaner,” Ehrenreich says. “Banks look at you as a short-timer, the landlord positions his nephew to take over your lease, and so on. Don’t do meetings in local restaurants or public places — the walls have ears! The more you talk, you’re just creating problems for yourself.”
He says most sellers shouldn’t consider closing as the end of their time in the business, especially if they are taking a buyout over time and the new owner is inexperienced with dry cleaning.
“I’ve got a client who is doing great,” Ehrenreich says. “He’s got a laundromat, a drycleaning plant, a laundry plant, an institutional laundry operation, routes and drop-off stores. Each one of these things has a different learning curve — and we haven’t found a way to give anybody an ‘injection’ so they can learn all these things at once. There’s no place you go to learn all these things.”
The business’ continued health often depends on the prior owner’s experience.
“The only practical way forward is to have that owner come in, and they should be paid for it,” he says. “Maybe 40 hours a week to start, which is probably a lot less than they normally work, and then eventually phase out. So, by the time he leaves, the buyers would be able to function on their own.”
When the time arrives to sell a business and retire, says John Mikaelian, owner of AAA Venture Business Brokers, there’s more to consider than simply the nuts and bolts.
“It’s important to prepare your business for the sale, but it’s even more important to prepare yourself psychologically,” he says. “Become involved with hobbies or other outside interests. Don’t focus all your energies on your business. At retirement, plan to discover those other interests that you will now have the time to pursue.”
Ehrenreich believes that work done leading up to the sale can pay big quality-of-life benefits afterward.
“Get the business ready to go on the market and move yourself out of the day-to-day grind so you can be available to do the work and get retired!”
For Part 1 of this series, click HERE. For Part 2, click HERE.
Have a question or comment? E-mail our editor Dave Davis at [email protected].