Selling Out

by Michele Marrinan

When John and Vicki Dohrmann decided in 1998 to sell Therapy Solutions, their small therapy staffing agency in Edmonds, Wash., John did a lot of online research himself. He used search engines to find industry sites, potential buyers’ Web sites, and industry journals. “I can’t imagine not having the Internet as a resource because of how much time I saved researching companies and finding information about individuals,” he says. “So I’m a big advocate of research on the Internet.”

Ultimately, however, the Dohrmanns left much of the legwork up to a broker. Fred Zirkle, president of Zirkle & Co., a mergers and acquisitions firm in Salt Lake City, Utah, helped the Dohrmanns get a selling price far above the price they originally expected — nearly $1 million more. The company enjoyed 30-percent growth in the six months just before it went up for sale. During that time, Zirkle & Co. helped reposition the company by recasting financial statements and analyzing the competition.

The Dohrmann’s story points up a few of the major questions faced by business owners who decide, for one reason or another, it’s time to get out of the business. Putting a value on a business is a complicated, lengthy process that requires a tremendous amount of research. Even a decision not to sell takes a lot of work. Before the Internet, the only real option was to hire someone willing to get elbow-deep in microfiche and scour industry articles and publications.

Now, the Internet has streamlined the process in ways that were unimaginable just a few years ago. Sites and software can help sellers research the industry, set a price, locate buyers, and advertise the business around the world.

Business brokers ­ and to a lesser extent accountants and lawyers ­ do retain an important role in post-Internet business transactions. But things have changed, and selling out will never be the same.

Get Smart
The research portion of the sale process is perhaps the most critical. This is when the owner determines what his business is worth and who should buy it. Remember: there are numerous reasons to know fair market value ­ even for those who never plan on selling: obtaining venture capital, refinancing loans, or going public, for instance.

“The best use of the Internet is to gather intelligence, understand what the unique rules of the road are.” says Ted Burbank, owner of Parker/Nelson Publishing Company and The Burbank Group, a business intermediary in Shrewsbury, Mass. In fact, any broker you contact will probably do most of the research and fact-gathering on line.

“I asked my first client about his market, who his competition was, trends, etc. He didn’t know,” Zirkle says. “That night I went home and did some research on the Internet. I was able to put together the marketing section of the business plan, and the next day I knew more about the industry ­ and my client’s position in that industry ­ than he did. That made me a big believer in the Internet.”

The Price Is What?
Now it’s time to put a price tag on the business. This is done through a valuation, a complicated process that varies according to a wide array of criteria, including financial status, business assets, industry position, economic conditions, reasons for selling, time frame for selling, etc. Burbank says there are about as many ways to value a business as there are buyers.

A company’s position in the industry plays an important role in valuation. Visit industry Web sites and read industry publications to get an idea of how much comparable businesses in your region are selling for. Scour the sites dedicated to helping those who want to sell out [see our “For Sale Signs” sidebar ] ­ they’ve all got something different to offer. Some feature databases that list businesses sold and include pricing information. Others, such as, which Burbank runs, include articles about the process. A few even use a pricing matrix that indicates how different businesses and buyers will command different prices. Likewise, goes into detail about balance sheets, income statements, financial ratios, and other nitty-gritty that was once the domain of accountants.

Finally, pick up some software to help you set the value of the business [see our “What’s It Worth” sidebar]. Keep in mind this is the time to be totally honest about what the business is worth.

Who’s Buying?
Another purpose of all the research is to form a profile of the ideal buyer. This is an important step, says Burbank, because the ideal buyer is the only one who will pay top price ­ and help the business succeed long after you’re gone.

There are several basic types of buyers, according to Burbank. A suitor is someone who approaches a business when it is not for sale. Often that buyer has a similar business and sees your company as a way to expand his reach quickly. Called an industry buyer, he will likely pay the least of any candidate because he doesn’t need your expertise. He sees the business in terms of assets only. Similarly, the financial/lifestyle buyer, who is usually an individual looking for a change, won’t consider future revenues, but will instead base his price on business assets and historic conditions. The corporate/sophisticated buyer, on the other hand, will pay a price based on future revenue projections. This buyer understands that he’s getting a client base, a reputation, expertise, and hard assets. A buyer who looks at a business as a strategic acquisition will pay the most. That buyer may be looking, for example, to branch out quickly into your area of expertise.

If the company has a bright future, you could lose money on the deal by settling on a lifestyle or industry buyer. Get an idea of the types of buyers who are in the market for a business like yours by browsing through a list of prospective buyers at Web sites like,, and Then revise the initial valuation to reflect what you really expect to get.

On Line and On the Block
Here comes the fun part. Just advertise the business and watch the inquiries roll in ­ right? Not so fast. Before you start putting together a cute little jingle to get the attention of prospective buyers, make sure you have a Web site. Many prospective buyers won’t consider businesses that don’t have Web presences.

As you build or redesign the site, include a private area specifically for prospective buyers. The confidential business review should include information about employees, position in the market, and future prospects. And don’t forget to include a detailed history of the company. Build in some security that makes it necessary for interested parties to first download, then sign and return a confidentiality agreement. You could, for example, protect the review with a password given to them only after they’ve signed a confidentiality agreement.

It’s important to obtain a signed agreement from all prospective buyers before sending them the business review. The agreement swears them to secrecy concerning the inner workings of your business and the fact that it’s for sale. You don’t want that information to get into the wrong hands ­ something that can happen all too easily on line.

Once the Web site is up and running, it’s finally time to get the word out. That’s where the ideal buyer profile comes into play. Write an ad that will appeal to that type of buyer. If you’ve retained a broker, he will write the ad. But it’s important to understand how the business will be presented to prospective buyers, since you will eventually contact the ones who are serious.

Keep in mind that you don’t want to give away the store just yet. List the type of business, the region, and an e-mail address or phone number. You don’t want the whole world to know that you’re selling your business until there are some pretty definite prospects. Once word gets out, banks may stop extending credit, suppliers may fall off, and customers may go elsewhere ­ not to mention the great exodus of employees that often occurs.

For a little inspiration, visit some of the Web sites that list businesses for sale. Not only will this give you ideas for an ad, but also it will help you decide where to place that ad once it’s finished. features a list of more than 10,000 buyers and sellers, searchable by location, company size, and industry. Anyone can search free of charge, but Zirkle & Co. charges a subscription fee to receive contact information and to place an ad. Depending on the level of service and the length of time, that fee ranges from $75 to $250. offers free listings of businesses for sale by owner.

Moneytree ( features classified business opportunities and franchise information; segments out businesses by industry and country. offers similar listings of businesses for sale, and lists businesses for sale in New England and the Midwest. lists businesses in the mid-Atlantic states, while lists businesses for sale in Texas, as well as franchises throughout the United States.

Stay In Touch
If you thought the preparation process was complicated, wait until you start dealing with prospective buyers. That can take a tremendous amount of time away from running your business, which, you must remember, you still own at this point. Even if you go with a broker, it’s important to stay involved in the process. E-mail helped the Dohrmanns stay on top of the sale ­ and their business.

“We communicated through e-mail more than we did anything else,” says John Dohrmann. “I communicated with our broker representative probably twice a day by e-mail. We would only speak in person maybe once a week. It was more convenient. I was running my business, and I didn’t have time to pick up the phone and talk to him. I could just answer my e-mail at my convenience.”

You can also use e-mail to field initial inquiries from potential buyers, and to send them pertinent documents. Why wait for “snail” mail or next-day express mail when you can send a document instantaneously?

E-mail can also help maintain confidentiality in the early stages of the sale process. Using an e-mail address as your contact number allows you the opportunity to communicate anonymously ­ until you can gauge how serious the buyer is. In fact, you can use it right up until that final meeting and handshake.

When To Get Help
It is possible to go through the entire process on your own, and some business owners prefer to save the broker’s fee ­ typically 10 percent to 14 percent of the selling price ­ and try to go it alone. The Internet has certainly made that a more viable option. But business brokers do offer a few perks.

First of all, they know how the sale process works. There’s a lot more to selling a business than putting an ad on the Internet. You may know a lot about the industry, but how about long-term and short-term capital gains, recapture of Section 179 property, plant closure laws, and Occupational Safety and Health Administration regulations?

“This is not the sort of thing, in my opinion, that you can do safely in any state of the Union by yourself,” says Michael S. Hoesly, owner of Hoesly and Company, a mergers and acquisitions firm in Madison, Wis., and the immediate past president of the International Business Brokers Association. “You leave yourself open to enormous liabilities. My experience has been that if these things are done right, people go on to lead happy lives. When they’re done wrong, they don’t lead happy lives for a long time. And that’s too bad.” Hoesly admits his opinion is not entirely unbiased.

In addition to understanding the selling process, many business brokers put out monthly or weekly newsletters that list the businesses they are representing. Some also produce e-mail newsletters. These publications are often segmented by industry and go to people who are actively looking for a business to buy. Business brokers also handle the screening of interested buyers, thereby saving you from wasting your time with the “forever lookers” who never buy, those who cannot afford to buy the business, or people who are simply not qualified to run it. A good broker will also help identify the ideal buyer and reposition your company in such a way as to command the highest price.

“I’d compare it a little bit to buying a house,” says John Dohrmann. “You’re selling something of such high value. You almost have to go through a listing agent to sell your house because they have all the connections. Similarly, selling a business on your own is very, very difficult.”

The Right Fit
If, like the Dohrmanns, you decide to retain a business broker, you can search for one on line. A colleague referred the Dohrmanns to Zirkle & Co., but the best place to start on line is the IBBA’s Web site ( You can search for a business broker by location or industry, from a database of more than 700 cooperative business brokers and intermediaries throughout Canada, Mexico, Europe, and the United States. Keep in mind that business brokers represent companies with less than $2 million in revenues, while intermediaries represent companies with $2 million to $400 million in revenues.

When searching for a broker, pay particular attention to the recent deals they have completed. How many of them were in your industry? How large a geographic area do they cover, and what sort of backup personnel do they have on staff? Remember that the selling process is intensive: Make sure there are enough people to get it done right ­ and in a timely fashion. Ask the brokers if their price would include preparation of a confidential business review and a confidentiality agreement that can be downloaded on line by prospective buyers. This can speed up the sale.

Visit brokers’ Web sites, and eliminate from your list any brokers that don’t have one. They’re obviously not keeping up with the times. It’s also important to scrutinize how brokers present themselves on line. If they have a strong Internet presence, they’re likely to be savvy enough to market your business on line. You might consider e-mailing brokers with a simple question: Why should I choose you to represent my business? Their answers may give you keen insight into their capabilities.

Finally, remember that when the ordeal of selling out is over, a reward awaits: John Dohrmann now is taking continuing education courses in writing and foreign languages at a local college, and enjoying his leisure time. Vicki Dohrmann caught another entrepreneurial bug ­ she launched a salon and day spa in
Edmonds, Wash.

Small Business Computing Staff
Small Business Computing Staff
Small Business Computing addresses the technology needs of small businesses, which are defined as businesses with fewer than 500 employees and/or less than $7 million in annual sales.
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