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Key Idea: Hire Experts

Larry Starks is the broker who sold International Wine Accessories to the Fosters Group.

Key Question:

A: 

When you are ready to sell, you'll need a business broker if you don't have your own buyer, an attorney for the legal documents, a CPA, and potentially, a banker.

Q: How do you identify the right experts?

A:
  All of these experts are important, but probably the business broker, sometimes called the "matchmaker" is the most critical. Tracy and Bob used different criteria in making their decisions and each made the right choice for her and his company.

Tracy was approached by a buyer directly and contracted with a broker with industry expertise. Bob had made the decision to sell and sought the "right" broker based on skill set, enthusiasm, and dedication; he was less concerned with industry expertise. You'll have to make your own choice in this area.

Get referrals from trusted advisors, interview candidates, and make the right selection for you and your company.

Q:
  Beyond the broker, should you use the same experts that have worked with your company over the years?

A:
It depends. The advantage of continuing with the same team is that your advisors know you, know your business and have proven themselves to be trustworthy. But selling a business is a different endeavor from operating a business, and you may need to augment your team to add the necessary expertise.

Q: Is the CPA who has done your tax planning and tax returns over the years able to help you with the valuation of your business?

A: Perhaps, but perhaps not. We all need to be aware of a program by the American Institute of Certified Public Accountants (AICPA); they offer an accreditation program to CPAs in business valuation. Once completed, the CPA is designated as an ABV, Accredited Business Valuation professional.

If your CPA is not accredited in this area, you should have a candid discussion with him or her about the need to seek additional assistance. The CPA, as a valuation expert, is particularly critical in circumstances where the broker is compensated with a percentage of the purchase price.

Think about it

Who do you know who has sold their business and is happy with the process? Could they recommend experts to you? Has your CPA been involved in selling businesses? Is your CPA an ABV?

Clip from: Sell To A Public Company

La Jolla and Dallas: Every day the press reports, especially The Wall Street Journal and Forbes, about how big business acquires small businesses in order to grow.

If you are running a good business and have market share in your industry segment, you should consider preparing for that call or knock on the door, "Can I buy your business?"   In most every episode of this show we explore how and why the founder of a business gets started and how they get over the hurdles. This week we look at how they received a very large check for the fruits of their labor.

Today, we spend time with Tracy Myers and Gary Cantor, the founders of Advertising Arts College, and Bob Orenstein, founder of International Wine Accessories (IWA). Both have completed all eight steps within the business cycle, and they define what it means to "Exit At the Top." You met Bob a couple of years ago when we did his story about starting IWA from the extra bedroom of his townhouse.

Both stories are important.

Gary and Tracy's story is for all of us who are not even thinking about selling, then there comes a knock on the door.  Bob's story is for the rest of us who know that we have created a substantial asset. Bob, however, knew that his "time" was coming. Bob was strategic and spent several years getting ready for the day, and then it took over four years to consummate a deal.

To say the least, every one of us should have an exit strategy.

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International Wine Accessories, Inc. (IWA)

Robert Orenstein, founder

10246 Miller Road
Dallas, TX 75238
2143496097

Visit our web site: http://www.iwawine.com/

Office: 2143496097

Business Classification:
Home products

Year Founded: 1988

Hire Experts

HATTIE: OK, how did you find the broker?

TRACY: I actually found them through a trade organization called The California Association of Private Post-Secondary Schools. They spoke there.

BOB: And then what I did is I said, `Well, maybe I should look to get a business broker, an investment banker,' and I started the interview process. Now I will say which was really interesting was that I did not choose — at the end, the broker I did choose did not have expertise in my field, because I decided to choose the person that I felt would give me 100 percent of their time and energy, and focus on my issues vs. me being basically a small fish in a large pond. I decided to go the reverse, and I wasn't a large fish, but I wasn't a small one either.

HATTIE: OK. And that person was Larry...

BOB: That was Larry Starks from The Geneva Companies (Now at Waterview Advisors). Even the contract for the sale of a business is negotiable.

HATTIE: So what are the pieces of a contract with a business broker?

BOB: Well, of course, the two biggest parts are: What's the time frame of the contract, and how much are you going to pay them as a commission on the sale?

HATTIE: OK. And so is it like real estate, that there's a standard commission for business brokers, or is it...

BOB: Pretty much.

HATTIE: How long should we give a broker to work with us before we say, you know, `You're not doing anything. I have to find somebody else'?

BOB: Well, they would like the longest period possible. They would like two years, three years to do it. They figure if it takes longer than three, it probably won't sell. From the seller's point of view, for me especially, I wanted to have the shortest term possible, because the shortest term gave them motivation to get the deal done quicker.

HATTIE: Sure.

BOB: So we compromised at probably 18 months.

HATTIE: How did you, A, come up with the valuation, and then, B, come up with the prospect list that you would pitch? BOB: The valuation is based upon — that you do all the financials going back five years, you project five years forward. And then it was Larry Starks from The Geneva Companies (part of Citigroup), it was their responsibility to go in and make an evaluation.

HATTIE: (Voiceover) Larry Starks met us at IWA.

LARRY STARKS (The Geneva Companies): And very simply, it's contingent on a company's cash flow. And this is very much a financial model, the one I'm talking about now. But I look at discounted cash flow, I look at what I call market multiples. Those are, from a simple perspective, someone may know of a price/earnings ratio, and it's a similar kind of approach, but applied to private company valuation. (Voiceover) And then the last thing you would look at is the value of the assets of the business, not their book value, but their fair market value. And in Bob's case, the unique asset he had is an intangible asset that really had strong value, and that's his customer list. BOB: (as voiceover, backgrounder) What else is coming down?

LARRY: (Voiceover) Now, should someone rent Bob's mailing list. It only has this much value (gesticulating a modest amount), but the ownership of the mailing list in combination with the people he has in the International Wine Accessories brand, now that is a brand! It's something people come to trust over many, many years of looking at their catalog, understanding the products they carry, understanding it's a reliable source for high-quality top-line products. That's really what adds value. It's the combination of those intangibles. But the person making the buying decision, deciding what to pay for a company, is the CFO, and he's looking at the bottom line more often than not. Not always, but more often than not.
 
 

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