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The ownership demographics of gases and welding distributorships suggest
that a significant number of ownership transitions will be made in the
next decade. While no hard numbers exist, an educated look at the GAWDA
Membership Directory and Annual Convention attendance indicates the Baby
Boomer generation owns a sizeable percentage of distributorships. As a
member of the Baby Boomer leading edge class of 1946, I sold my Denver-based
distributorship in 2006.
The climate and market for business acquisitions and sales is expected
to be strong during the next year. Certainly, capital is available. So,
when's the right time to sell? As was reinforced to me in the decisions
leading up to the sale of my company, this is a very personal decision
for business owners. For most distributor owners, the decision to sell
or not will be the most important financial decision of their lives. Everybody's
situation is different. Nevertheless, some of the decision parameters
are common.
Professional and Personal Objectives
Owners of distributorships usually start or buy them to accomplish both
personal and professional objectives. What are yours? Have they been achieved?
If so, have you set new ones? In some cases, owners achieve their objectives
and then continue to operate their businesses out of inertia, without
new objectives.
A common personal objective is to achieve financial independence. Have
you achieved personal financial independence through the distribution
of profits, or will you need the proceeds from the sale of your business?
If you sold today, what would the value of your business be? Is your financial
situation still at risk through personal guarantees in the business?
Professional objectives are often more varied. Mine included setting
a standard of professionalism for our industry both nationally and in
our geographic area, identifying and offering opportunities and training
for a next generation of leadership, and operating a business that was
fun to work in for most of the people most of the time. At the time of
sale, I felt these professional objectives had been met.
Are You Still Having Fun?
Many distributor owners I talk with say something like, “When I stop
having fun, I'll get out.” Of course, no business is fun every day.
But, on balance, do you look forward to going to work most days? Do the
fun things outweigh the daily hassles? Is your attitude in and out of
work basically positive? Is your work negatively impacting your attitude
on the “outside”? Are you still seeing opportunities and challenges
more than the problems?
Show Me the Money!
When it is time to sell, owners want to maximize their financial return,
for not only the money invested, but also the late nights and weekends
worked, family time missed, late-night callouts, risks taken and personal
guarantees signed. A positive business cycle for the economy and business
acquisitions usually means generally higher purchase offers. It also can
mean your business is making more money, so why sell? This leads to asking:
When is the next business down cycle likely to occur? How might that affect
offers as well as problems you will face? If you're not ready to sell
during this business up cycle, should you be taking steps now to be ready
in the next up cycle?
Risks of Selling
One risk of selling is “seller's remorse,” that is, regretting
it later. Avoiding this is one reason to involve family and appropriate
personal and professional advisors in discussions early. Ensure that full
consideration is given to alternatives. Another risk is not getting paid.
I know of a number of sellers of distributorships who chose the wrong
buyers and didn't get all their money in the end. This is another reason
for professional advisors and for due diligence by the seller.
Risks of Not Selling
Just as I have known sellers who didn't get all their money, I know several
owners of distributorships who waited too long to sell and missed a business
cycle, got into trouble, didn't see issues with their suppliers who were
devaluing their business, had health problems that caused distress sales,
suffered from key employees getting impatient and leaving with part of
the business, or simply let the business drift to the point where it was
not worth what it might have been earlier. What are your foreseeable risks
of not selling when you have or could have interested buyers?
Health of the Business
If your business is doing well (nicely profitable, good organization,
strong supplier relationships), that's a time to enjoy being in it—and
also potentially a time to get a higher price if you decide to sell. If
your business is not healthy, it may be time to build a plan to get it
healthy to sell in the next up cycle. If it is in real crisis, you may
need to sell to salvage what you have.
Personal Health
The personal health of the owner is an issue to consider in small to medium,
closely held distributorships, particularly where the owner is directly
involved in day-to-day operations. If you have or foresee serious health
problems, you may need to sell to allow focus on these. However, if this
is perceived by buyers as organizational weakness, you may need to appoint
new management while you focus on health or hire professionals to guide
you in the selling process. How susceptible is your business to your personal
health issues? I have known more than one business to fail or change ownership
in a less than desirable situation due to the owner not being realistic
about this situation. Another health question: How is the stress of the
business affecting your health?
Family Situation
In many distributorships, family issues and relationships play into the
ownership and operation of the business and, ultimately, its sale. Family
issues may include:
- Pressure from family to spend more time outside the business.
- A desire to spend more time with family.
- Family health (helping with aging parents) or other circumstances.
(This played into my situation. My parents and brother were strongly
affected by Katrina, which caused me to spend blocks of time outside
the business.)
- Are there family members waiting to take over? Are they ready? Will
they ever be ready? What other opportunities do they have? Would they
be better off with the money than the business? Will they resent it
if they don't get a chance to run the business? How does this play with
other family members?
- Divorce or a recent marriage can play into business situations quickly
and dramatically.
Other Business Pressures
What investments are being demanded by your suppliers, customers or circumstances?
Are they likely to pay off during your expected time in the business?
A big issue here is the constant demand for investment in new technology,
sometimes just to “stay in the game.” Another key issue facing
distributors is health insurance. Does your size or situation allow you
to be competitive for employees while being cost effective for your business?
Is your company's size becoming inappropriate for your part of the industry?
In many industries, consolidation is or has taken place due to changing
economies of scale. Pressures from suppliers who are changing their distribution
models have been another factor encouraging consolidation.
Suppliers
The health and value of distributorships is often impacted by the strength
and actions of suppliers. In the sale of distributorships, product lines
don't automatically follow to new ownership. Suppliers have the alternative
to decide whether their product line will go to new ownership. Yet many
purchase contracts stipulate the sale is contingent on key suppliers staying
with the new owners.
What is your relationship with your key suppliers? Do you have confidence
in their direction? What is their competitive situation? What unilateral
decisions are they making that are affecting the operation and value of
your company? I have seen distributorships devalued quickly due to supplier
decisions that were out of the hands of their distributors. Carefully
consider your suppliers' distribution strategies and tactics, general
business direction, likely reaction to the timing of your decision, and
reaction to your intended purchaser. All are critical. It is important
to consider carefully the decision of when to involve key suppliers in
your decision to sell.
The Buyer
Some owners have ideas and objectives for the growth and change of their
business or their career, but don't have the capital, organization, scale,
time or other ingredients needed to achieve them. The sale of the company
to the right buyer might supply the needed ingredients. This, of course,
assumes the seller feels comfortable in the new organization and shares
the vision of the future with the new owners. This can sometimes be achieved
if the seller assumes a partial ownership role in the buying organization,
sometimes simply by joining the organization as a key manager. Or there
may be some opportunity outside the business or industry that the seller
wants to take advantage of but can't while buried in the current business.
With the proceeds of the sale and time freed up, he or she may now be
able to actualize this opportunity.
Real Estate
Real estate decisions can be critical. If you own the real estate, it
can mean continued income after a sale, if a lease obligation is part
of the sales agreement. If you don't own the real estate, a lease renewal
date may be a trigger point for decisions. Are you ready to sign another
long-term lease? Is the property owner thinking in other directions? Are
you ready to move your business? If you do own the property, would it
be worth more in some use other than your current business there?
Partnerships
Where business owners are not sole owners, the relationship between partners
or shareholders can be a stimulus to the sell-or-not-sell decision. Where
work ethic, responsibilities, financial needs, family needs and age demographics
are different, frictions can exist which negatively affect the operation
of the business. Sometimes buying out a partner or shareholder will solve
this. Sometimes, particularly where the cash may not be available to do
this, a sale of the business and splitting of the proceeds may be the
best way to ensure no one loses.
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| 15 Important Questions to Consider
When Selling Your Business |
- Have your personal and professional
objectives been achieved?
- Are you are still having fun running
the business?
- Are you selling during an up business
cycle to maximize your return?
- Have you considered all other alternatives
to avoid “seller's remorse”?
- What are the foreseeable risks of
not selling?
- Is your business healthy?
- How susceptible is your business to
your personal health issues?
- How will the potential sale affect
your family?
- What investments are being demanded
by your suppliers, customers or circumstances?
- What is your relationship with your
key suppliers?
- Are you interested in joining the
purchasing organization, or exploring opportunities
outside the business?
- Do you own the real estate? If not,
are you ready to sign another long-term lease?
- Who are your key employees, and how
might they react to the sale?
- If you sell, what will you do afterward?
- Have you consulted advisors both inside
and outside of the industry?
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Key Employees
Most gases and welding distributors are “key people driven.”
While they may or may not share ownership, they can influence supplier
and customer choices, organizational decisions, and the value of the distributorship
for sale or for ongoing operations. Questions here include: Who are your
real key employees? What are their ages? What are their personal and professional
objectives? How might they influence the sale of your distributorship?
How might they react to the sale? When to involve them in decision discussions
is a very situation-specific issue. However, it is important to consider
who they are and how they and their decisions will influence your decision
to sell or not to sell. Also, your organization may be a key person short.
You may need to add a key person to the organization to enhance its value
for operation and/or sale.
What Will I Do if I Sell?
A common response given by business owners when the subject of selling
is broached is, “What will I do if I sell? I can't see myself in
retirement.” Good point. Bob Buford has authored several books, including
Game Plan and Halftime, that address this. I recommend these as a starting
point. Another is to look at your family and community situations. Where
are you needed? Where else can you make an impact, if you have more time
and money? What are some things you can do now while you have your health
that you may not be able to do later? What do you simply like to do but
don't get a chance to? Certainly discussion with family members and personal
advisors can help here.
Preparations
The sale of a distributorship is a very personal decision. In some ways,
owners should always be thinking and planning how this might best be approached.
One step is to read the literature on the sale of privately held and family-owned
businesses. Another step is attending seminars or workshops to learn the
issues. Still another is to develop a group of professional and personal
advisors who can talk you through the issues. Some advisors should be
from within the industry, so they know the industry-specific issues, while
others should be from outside the industry to give fresh perspectives.
These should include a business and transaction attorney, personal financial
advisor, your firm's CPA and other business owners you respect. Of course,
appropriate family members should be involved. As they say in all the
seminars, one thing is for sure: One way or the other, we'll all leave
our business someday!
By starting the thinking process today, you'll be in a better position
to make decisions to leave on your own terms.
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