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Selling your business

The decision to sell a business isn’t a painless one, and it’s often not an easy endeavor. Being proactive and getting all your ducks in a row well ahead of time is key to a successful and satisfying outcome.

Resources | January 1, 2024 | By: Pamela Mills-Senn

If selling a residence can be an angst-filled undertaking, how much more unsettling is the thought of selling a business, especially one you’ve poured heart, soul, money and reputation into? But as potentially nerve-wracking as the prospect may be, there are measures shop owners can take to lessen the stress and achieve their desired outcome. As in any successful endeavor, planning ahead is key.

Timing matters

Although it may seem counterintuitive, the optimal time to sell a business is when it’s doing well, says Sally Bergesen, mergers and acquisitions business sale intermediary–manufacturing sector transaction team member with International Business Associates, a full-service business brokerage firm headquartered in Bellevue, Wash. According to Bergesen, a common mistake many would-be sellers make is waiting too long to begin the sales process. 

“Just like when selling a pleasure craft, you want everything to be looking good when assessed. You want your buyer to be able to picture themselves at the helm, running the ship,” she explains, adding that sellers should also give themselves ample time to make adjustments if necessary. 

Bergesen recommends business owners start the sales process anywhere from one to three years ahead of when they want to leave. 

What’s it worth?

Jay Hanks, owner of Allerton Harbor Canvas LLC in Hull, Mass., has been testing the waters for about three years. Hanks, who says he’s now ready for retirement, first had a certified public accountant evaluate his marine canvas, upholstery and repair shop. This included an equipment inventory and a review of the previous five years as well as calculating the value of his database of more than 3,000 customers. Hanks has also assembled marketing and promotional materials to share with prospective buyers.

The first valuation was higher than anticipated, but Hanks eventually concluded that a lower price was more realistic.

“As much as I would like to be reimbursed for the years of building my company, I also realized that the customer loyalty and reputation is in me, and even though I offer help with the transition, the new owner will have to establish that relationship with the existing customers,” says Hanks, who started the business from his basement in 2004, building it into the marina-based company it is today.

Mark Hood, former owner with his wife, Deb, of Hood Canvas LLC in Merrimac, Mass., faced that same conundrum. He encourages those thinking about selling their fabrication business to price it realistically, particularly given the intangibles involved.

“The real value of the business is in the knowledge of the owner and employees—if they can be retained,” he explains. “If an owner or the employees decide not to stay on, then the value of the business is less in the eyes of the prospective buyer. It all depends on the resourcefulness, experience and ability of the owner to learn the trade.”

The Hoods, who founded their business in 1981, began preparing the shop for sale about a year in advance, decluttering and sprucing it up. They also organized the necessary documentation, such as several years of profit and loss statements and annual cash flow, along with an equipment list and inventory. They handled the financials themselves, with lawyers providing the required paperwork. Closing in March 2023, the sale took about seven months to complete, says Hood, who with his wife now owns Hood Marine Canvas Consulting, which is focused on helping marine canvas shops improve their products.

Documentation is key

To make the sales process swifter and smoother, sellers should be prepared to provide financial records, says Bergesen. “Including having the most recent year’s tax return filed and not on extension,” she adds. “Next, operational and employee manuals and procedures should be current and documented. Equipment should be maintained and serviced, if necessary. Customer relationships should be strengthened and key employees retained. Everything about the business will be scrutinized by the buyer. Preparation is 90% of success.”

A business valuation is an important proactive planning tool, so don’t wait until you’re ready to sell, Bergesen counsels. Valuations illuminate two things, she explains. First is whether or not your exit strategy/objective is currently achievable. Second, it will reveal how the company is valued and identify measures you can take to potentially boost the selling price.

“Knowing what your business is worth and what you must do to build its value is commonly the bedrock of a successful plan for the future, whether you intend to exit today, tomorrow or far into the future,” she says.

An issue she touches on, one mentioned by Hanks and Hood, concerns the owner’s role. If the seller becomes the “irreplaceable hub” of the operation and will no longer be involved after the sale, this could discourage some potential buyers, she says. Her advice is to make the business less reliant on the owner and put a team in place who can guide the business post-sale.

For larger operations, creating a team of upper and/or middle management to serve in this capacity may be possible, but for many independent fabrication shops it isn’t. In response, owners can offer to stay on for a set time after the sale to train and help in the transition. Hanks has proposed this arrangement to any would-be buyers; the Hoods offered the same and still provide as-needed advice to their buyer.

Sell strategically

For sellers not relying on a business broker or some other form of professional assistance, connecting with those who may be interested in purchasing a fabrication business takes a bit of legwork. 

Hood says they received a lot of inquiries through Facebook and from people they know in the trade as well as students from their Marine Canvas Training School. They had also purchased an ad in BizBuySell but said it was expensive and didn’t result in any real leads. Ultimately, they sold it to Krisha Plauché, owner of Onboard Interiors LLC in Marblehead, Mass.

“Krisha wanted to create one-stop shopping for her customers, interior and exterior,” says Hood. “She didn’t want the canvas school portion or our intellectual items we sell on our new website, so the final price reflected these changes. All in all, things went smoothly, as Krisha and I had a business relationship for years.” (They turned their classes and school over to Keri Ames of Yachtsman’s Canvas in Rock Hall, Md.) 

Hanks advises searching for those who love boats and building and who perhaps want to own their own business.

“You may find that someone who has worked in the corporate world and is looking for a new passion for the remainder of their working career,” he says. “That was pretty much the case with me.”

However, publicly casting your net far and wide isn’t always in an owner’s best interest, says Bergesen, describing maintaining confidentiality as “critical.” 

On the one hand, sellers want to stir up as much interest as possible in the hopes of creating a competitive bidding situation, she says. But on the other hand, this publicity could negatively affect customers, vendors and employees, perhaps even causing retention issues. 

Buyers don’t want any surprises, she adds. Sellers must be completely open and honest about their business, providing a “warts and all” portrait, which a proper business valuation should reveal. Anything less is a red flag that could send would-be buyers fleeing. 

“The decision to sell a business is incredibly personal,” Bergesen says. “Having been through it myself, one thing I recommend is that business owners take some time, when you’re feeling at peace, to write a list of the top three things you want to get out of the sale, ranking them in order of importance. 

“Later in the sales process you can go back to this list as a way to stay focused and centered,” she continues. “Our goal is to have you look back on your transaction—five to 10 years out—with a strong sense of satisfaction, knowing you did everything you could to honor and maximize the value of what you built.” 

Pamela Mills-Senn is a freelance writer based in Seal Beach, Calif.

SIDEBAR: The buyer’s perspective

He didn’t set out to purchase a fabrication business, says John McMahon, president of Scandia Canvas Works & Sail Loft in Sturgeon Bay, Wis. But in January 2021, an acquaintance asked him to check out a marine fabrication business he had just bought.

“He wasn’t sure if he’d made the right decision and wanted me to take a look and provide him with an assessment,” McMahon recalls. “I came to realize he had paid too much. He had basically purchased a canvas business with no real assets except two sewing machines and a fabricator.”

Worse, the original owner and the one fabricator were leaving. Additionally, the amount of work the low-tech company could handle was limited by the small staff and by using only “old-school patterning techniques,” says McMahon. 

McMahon and this acquaintance (now business partners) began looking for marine fabrication companies that were selling assets they could potentially leverage and ran across Dorsal Sail & Canvas. The location was good, and the company had digital 3D and CNC technology, two employees and a business model that included sail making and repair. Seeing the potential in expanding the canvas business into a wider market via sail revenue and vice versa, they made a bid for the company in July 2022 and closed the deal a few months later.

Because the seller used a business broker, McMahon says they had immediate access to the financials, including five years of profit and loss statements, balance sheets, revenue by customer, revenue per fabricator, customer acquisition costs and so on. Upon vetting the data and doing their own financial analysis, they determined that combining the two companies would create a stronger business than if they kept the two separate. (The two employees stayed on; the staff currently numbers seven.)

McMahon says the fact that he and the seller got along quite well was a big help, creating confidence and trust that the purchase was a solid idea.

“You have to be able to access the seller past the closing, no matter how experienced you are,” he says. “There will always be a time when you will need to reach out. Sellers should also make sure they’re open and willing to be honest about the state of the business they’re selling.

“I also think potential buyers have to make sure the business they are interested in has a stellar reputation for quality and customer support,” McMahon continues. “Without those two factors, it’s going to be a bigger challenge to acquire new customers. Talk to their customers, look at their reviews. Don’t just trust what the seller or broker is telling you.” 

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