Sold the Small Business

Small Business

Small Business

Happy New Year to All

In March of 2004 I started a small business for drywall installation and finishing.  There is a long story behind what lead me to starting the business. I’ll spare you the details.  Over the years the business was built up to include a few fulltime employees. I handled job bidding, supervising work and performing all the office duties, while the guys handled the real labor.  In time I promoted one employee to superintendent. For the past two years the superintendent has been handling all the company business other than the office work.  We entered into a contract to sell him the business on January 1, 2014.  Last week he paid 100% of the balance for what he owed in the sale.  I will remain as an employee handling the office work and bidding work from floor plans.  For me it is a great part-time job that requires on average 10 hours of work each week.

A few years ago I sat down with two people whose opinion I trusted.  I asked for their ideas regarding succession planning or what to do with the company when I no longer wanted to own it.  I wanted to make sure the company did not close down when I was ready to get out of the business.  There were employees to think about.  They were loyal and helped to grow the company.  I wanted to make sure they were able to retain their jobs.

Basically there were three paths that could be taken when it was time to end my role with the company:

  1. Liquidate the assets and close the doors.
  2. Sell to a competitor or other person.
  3. Sell to an employee.

Liquidation was out because I wanted to make sure the employees would still have a job.  Selling to a competitor or someone from outside the company was going to be difficult.  We did not own a building or have any large physical assets that were worth much.  The value of the company was the employees, our loyal customer list and the person running the company.

I should have started succession planning earlier and might have been able to offer a stock ownership program. A key employee could have received stock benefits as a form of yearly bonus based on the earnings of the company.

It became apparent the best alternative was to sell to a key employee, in this case the superintendent.  I wondered if he would have the cash to purchase the company and if he would be able to run it. So, two years before I decided to sell the superintendent was handed the daily responsibilities of running the company while I provided the necessary cash flow. I was paid a salary as an employee handling the office work.  All the net earnings for two years from the company, after taxes, were to be applied against the purchase price as the employee would not have the cash to purchase the company outright. I had gone back to a former career working fulltime outside the drywall company.

After two years it was apparent the superintendent had the skills and self discipline required to own the company. We had signed an Intent to Sell Agreement on 1/1/14.  By the end of the year, not only did the superintendent and his employees maintain the success of the company, but he also earned enough to pay the remaining balance to purchase it.

This is another step for me towards retirement.  I did not get rich off the sale but the proceeds went a long way towards us becoming debt free.  I also have a great part-time job handling the office work.

I hope you had a good year and that 2015 brings good fortune to all.

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