No business survives without sales. But when you’re ready to make an exit, can you make the ultimate sale to one of your customers?
Julie Forbes did. She recently sold Note Couture, the online customised stationery business she started in 2006, to two of her devoted customers, sisters Amy Smith and Kim Burnheim.
And she couldn’t be happier. “When I met them I fell in love with them because they are just truly nice, genuine people, and that’s what I want,” she says.
The process kicked off a few months ago when Forbes let her 9000 newsletter subscribers know life was taking her in a different direction and she planned to close the business by June 30.
“Within a matter of two days I had 13 conversations going and then I had a few more people come into the equation a few weeks later so there was always a really high level of interest,” she says.
But having nurtured the business from day one, Forbes wasn’t about to sell to just anyone.
“I [decided]: I’m not going to give the business away; I’m not going to sell it to someone I hate or I think is going to run it into the ground or make it into a cheap and nasty website.”
Her ideal buyer would be passionate about the business and provide excellent customer service. With that in mind, the sisters quickly became her preferred purchaser and she willingly waited while they organised their finances.
“It wasn’t a case of putting bidder against bidder,” says Forbes, adding that the sisters were happy to pay the price she had put on the business.
Lisa Penson, mentor, Clearly Business Enterprise Centre, says there are definitely advantages to selling to a client. “They know the business already to a certain degree.”
But reeling a customer into the ultimate sale can be tricky. “I think sometimes clients don’t actually see the back-end of a business, the hard work that goes into it, the expenses that are involved in running a business,” says Penson. “They see the beautiful warm, fuzzy side of it – being a client – but not necessarily the book-keeping at 10 o’clock at night.”
Jock Purtle, president, Digital Exits, a broking firm, says some clients have come to him after unsuccessfully trying to sell to a customer.
The stumbling blocks? Many of the usual ones: “The business owners totally overvalue what they have; the business had too much reliance on the owner; or there is no strategic fit for the acquiring party,” he says.
For some it’s an exit strategy they turn to when they have already tried others. Donna Stacey had been a customer of a Queensland painting gallery and studio for about four years when the previous owner announced she was closing the business.
“The students didn’t know the business had been for sale for two years,” she says.
Stacey saw a chance to make a switch from the commercial world, and swooped.
For Lauren Rielly it was the alternative strategy she needed after the sale of her first business venture to a public company fell through. A client, who was also a supplier, stepped in and bought the business instead.
“It turned out a brilliant move as the relationships I had created over five years were able to be transferred and my company now, while absorbed under a different brand, is thriving,” says Rielly.
Penson says prospective purchasers need to keep their business head about them, no matter how much they like the current owner. “Do your due diligence; check the numbers; do your research, get the financials. The bottom line is you need to make sure you’re buying into a business that is profitable and that you understand everything that is involved.”
And sellers have to be careful that sharing their intentions to close the business are not seen as a fire-sale invitation.
They also need to be honest about the business: the turnover, profit margins, expenses, the work involved.
“When you’re selling to a client the best thing is to be friendly about it but there still needs to be a contract of sale, the accountant’s numbers still need to be shared,” says Penson.
She also advises against agreeing to long handover periods.
“It can be a challenge letting go, especially if you’re letting go to someone who you’re friends with to a certain degree,” she says.
Having a deadline for the handover makes it easier to divide profits and lets the new owner get on with doing business their way.
*Original Article by Christine Long: http://www.theage.com.au/small-business/managing/can-you-sell-your-business-to-a-client-20140612-39y96.html