Strategy: Exit the Stage Right
Be Realistic About Prices
Determining a sale price for the company is extremely difficult for most business owners. They tend to think the business is worth more than it truly is. Partly this is due to emotional variables, and partly it’s because the owner may have lived pretty well off the business during the years. Therefore, when an owner calculates the company’s true value, he or she realizes what the business means (this gets to the question, “Why sell?”).
I often see entrepreneurs put an unrealistic price tag on their businesses. Base your selling price on sound financial criteria — as your prospective buyer will. Test your assumptions about value with people you trust and whom you’d expect to know the answers, such as your accountant and/or financial advisor.
Business owners like to price a company based on past financial results, not on what they think the business can generate in the future. However, past perform-ance often determines the future. What’s more, it’s up to the prospective buyer to determine what he or she can do with the business going forward.
As a stand-alone business, your catalog company may not be worth much to a financial buyer. But a strategic buyer might be willing to pay a nice price — and continue to employ you for a few years. Strategic buyers see the opportunity to leverage their existing overhead structure. They also can leverage their housefiles — providing there’s synergy between the two.
Do your homework, and know where you stand in terms of leverage before you negotiate price. Regardless of your lack of profits in the past, a strategic buyer who can leverage your business to its benefit might be willing to pay top dollar.
Find Someone to Represent You
Unless your business fetches at least $5 million, it’ll be difficult to find an investment banker specializing in the sale of catalog businesses to represent you. This will limit your alternatives. You’ll need to rely on catalog consultants who often are aware of businesses for sale and/or entrepreneurs looking to purchase another com-pany.