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When To Sell Your Business

Questions for distributor owners to consider about selling their companies

The ownership demographics of material handling 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 MHEDA Directory and 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.

Business acquisition consultant David Corsaut indicates 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 have talked to—both in material handling and other industries—have said 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, which David Corsaut indicates exists into 2007, 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 early in discussions. Assure that full consideration is given to alternatives. Another risk is not getting paid. I know of a number of sellers of material handling 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 which 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-sized, 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 most material handling 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
  • 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 dramatically 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 dealership 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 has been another factor encouraging consolidation in some elements of the material handling industry.

In the material handling industry, 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 dealership? I have seen dealerships devalued quickly due to supplier decisions which 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
For most material handling distributors, particularly forklift dealers where facilities are substantial, the 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?

One-Time Opportunities
A few years ago, some material handling suppliers were buying distributorships in order to be a player in the distribution part of the supply chain. They were offering high-earnings multiples. Some dealers sold, even when they had not been planning this, in order to take advantage of these one-time opportunities. Another situation might be a neighboring distributor sharing similar lines who wants to expand and has the capital to do so. Still another might be a new player entering the United States or material handling distribution market and making investments in distribution to establish their position. Sometimes these current opportunities really are one-timers and too good to pass up.

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 assure no one loses.

Key Employees
Most material handling 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 my real key employees? What are their ages? What are their personal and professional objectives? How might they influence the sale of my 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.

Read More Online

Gary Moore talks about his sale of Materials Handling Equipment Company.

The sale of a material handling 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. The MHEDA office can recommend several appropriate books. 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 your material handling distributorship on your own terms.

Material Handling Equipment Distributors Association
Gary T. Moore Meet the Author
Gary T. Moore, a 36-year veteran of material handling, sold his istributorship in 2006. He is an author, speaker and trainer based in Denver, Colorado.


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