05 Nov Should you sell your small business?
By JOHN STANCAVAGE World Business Editor
Published in the Tulsa World 11/5/2006
I have a friend who bought a small business a few years ago in another state. For a short time, I envied him.
He had been a longtime customer of the company, which sold high-end audio equipment. He owned another venture, a communications business, but it wasn’t his passion.
When the stereo store went up for sale, he sold his own company and jumped on the opportunity.
How wonderful, I thought. To turn your hobby into your career. To be your own boss. To be responsible for your own future.
But, soon came some sour notes. He was hit with a lawsuit. He got divorced. And, the kicker: Thanks to the emergence of music downloading and iPods, the market for his products changed dramatically.
At one point, he told me in a hushed tone that he was worried. It might be time to face the music. Literally.
I’m sure he could have put the store up for sale, and probably it crossed his mind. Whether he could have recovered his investment, however — with the market slumping — might have been questionable.
He hung on, though, and today is on an upswing. In fact, he just opened a second store, which focuses more on “lifestyle” applications of music and video than hobbyist items such as tube amplifiers and towering speakers.
Persistence seems to have worked for my friend, but in other cases it might be better to sell.
And, right now may be the best opportunity to do just that, a Tulsa-based business broker says.
“If they wait, and we go into the bottom of a business cycle, it’s much harder,” he says.
Perkins is a University of Oklahoma graduate who also holds an MBA from Notre Dame. He recently completed the second edition of “Concise Overview of Business Valuation of Small and Midsize Private Companies.”
For any business owner thinking about selling, Perkins offers the following advice:
- Figure out why you want to sell. “Is the problem with a partner? Are you tired of dealing with employees? Are you worried about the future?”Once you decide what’s making you unhappy, you can look at all the possible solutions. A sale may not be the best one, Perkins says.
- Realize that no one likely will love your company the way you do. “Business buyers just want to make a lot of money,” Perkins says. “So quit trying to find a buyer who shares your love for your business. . . . Sell what they are buying.”
- Understand that selling your company is not always the best financial move. Small businesses usually sell for just a few times their annual cash flow, Perkins observes.”If you make $100,000 a year and net $200,000 on the sale, the annual interest off of that — say, $12,000 — isn’t going to be nearly as much as you were earning from the company.”For some business owners, though, less income may be preferable to working 60 hours a week or other headaches. That’s where a specialist like Perkins comes in — an outsider who can determine the value of the company from an unbiased viewpoint and market it aggressively.
It can be an emotional time. Still, even Perkins admits that on rare occasions you might be lucky enough to find someone like my friend who not only wants to buy the company but is completely enamored with it.
That would create a more satisfying end for the business owner. The buyer’s adventure, however, will be just beginning.