Selling your business in the real world

I remember the day well when I returned to Buffalo to live at home while finishing my MBA. At the time, I was working part-time for my father's construction company and expected to return to my former employer after graduation in a role outside of engineering.

One day, my father walked up to me and said, "You look like a pretty good retirement plan. How would you like to buy me out?" That conversation changed the course of my career.

Over the next ten years, I learned every aspect of the business. I learned how to read the financial statements, developed relationships with clients, bankers, insurance agents, and pension administrators, and gained a deeper understanding of what it took to run a successful company.

We structured a buyout in which another partner and I would purchase the business over a ten-year period. My father retained ownership of the stock during the first five years and then used the stock as collateral for a loan to complete the transaction.

It worked beautifully. He was able to gradually reduce his workload, enjoy retirement, and transition responsibility to the next generation of leadership.

The second buyout occurred when my partner purchased my share of the company. Several years earlier, my wife had passed away, and I no longer had the same passion for the work. I was ready for a new chapter.

Initially, my partner offered what I considered a fire-sale price. I disagreed and hired an independent business valuation firm, which determined that the company was worth nearly four times his original offer. After several rounds of negotiation, we agreed on a price that satisfied both of us.

Unlike my father's structured transition, my partner chose to finance the entire purchase through a bank loan and have the corporation redeem my stock. While that approach worked for him, it also triggered restrictions that prevented me from consulting for the company for a period of time. Fortunately, I was already planning to move in a different direction.

My third business venture was a malting company that produced New York-grown malted grains for breweries and distilleries. A new state law had created what appeared to be a tremendous opportunity. Nine other groups had the same idea so I thought we were on the cutting edge of a new Industry in New York.

Although we produced an excellent product, we struggled to compete with lower-cost suppliers from the Midwest. After four years, I decided to sell the business. The company was auctioned as a package and ultimately purchased by a company in California, which moved the entire operation in four truckloads to Santa Rosa, California.

Did any of these exits happen exactly as I planned? Not really. But each transition taught me valuable lessons about succession planning, valuation, negotiation, and timing. Most importantly, I was able to leave each business without debt hanging over me and with the financial flexibility to pursue the next opportunity.

If you need business advice, contact me at bobchuckpatterson@yahoo.com.

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