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Bowing out: Timing can be key with exit strategies

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“It's important to have an independent third party take a dispassionate look at the company and evaluate it.” — Sunbelt of New Jersey's Charles Mizejewski
“It's important to have an independent third party take a dispassionate look at the company and evaluate it.” — Sunbelt of New Jersey's Charles Mizejewski - ()

If only every transaction were so simple.

A New Jersey business owner in his 50s had run a successful retail operation for some two decades “when he decided it was time to cash in and get out,” said Robert Frawley, a Morristown attorney who mainly focuses on business-related matters.

“I helped to connect him with a business broker, the enterprise was fairly valued, and he was able to sell it and move on with his life,” Frawley recalled.

Unfortunately, not everything works out so easily, if left unplanned in advance.

“Exit strategies can be an unpleasant topic for some entrepreneurs, especially if the business has grown significantly,” Frawley noted. “Unfortunately the person who starts a company may not be the right person to keep guiding it once the business gets beyond a certain point. The problem can be compounded because it’s not unusual for that individual to be unable to recognize this.”

He recounted how a client had established a manufacturing company and then brought in outside investors.

“He and the investors couldn’t agree on how to manage the company. It struggled, then eventually went out of business,” the attorney explained. “Some clients recognize when the time has come to bring in professional management and step back, perhaps become chairman and have a professional manager run the company; and some just don’t. … But there’s no easy way to predict when that point is reached. It depends on the entrepreneur and on the specific business.”

Robert Frawley
Robert Frawley

Billy Procida, who owns Procida Funding in Englewood Cliffs, said it’s a good idea to have an exit strategy percolating a good while before actually exiting a business.

“They’re usually long-term until something makes me think that it’s time to make an exit,” Procida said. “As an investor, it’s not uncommon to have to push the original owner to move on at a certain point. They may have had a great idea initially [but] at some point they may not be the right person to keep moving the company forward. Sometimes it’s evident to them, but sometimes it’s not.”

In addition to timing, putting the correct price on a company is a vital part of a successful exit strategy. Yet many business owners are too wrapped up in their company to value it soberly.

“It’s important to have an independent third party take a dispassionate look at the company and evaluate it, and then determine a reasonable price for it,” said Charles Mizejewski, vice president of Sunbelt of New Jersey, a Metuchen-based business brokerage and M&A firm.

Billy Procida.
Billy Procida. - ()

Business brokers typically start by examining a few years of documents, including tax returns and financial statements, and they’ll check up on assets like buildings, equipment and inventory.

“It’s not just the physical assets, though,” Mizejewski said. “We’ll also review the company’s operations and the number and quality of employees. We want to get a feel for the way the business runs.”

Once they’ve completed that phase, Mizejewski and his crew will determine a price tag and start to get the word out on the street.

“Often, the seller wants to maintain some degree of confidentiality,” he noted. “It may be that employees and customers, for example, don’t know the owner is planning on leaving. So we may advertise a ‘successful auto repair company in Central New Jersey’ for sale, without naming the company. When potential buyers express interest, we have them sign an NDA (nondisclosure agreement) before revealing any details to them.”

A broker can also help scope out the potential buyer.

“We’ll meet with prospective buyers to get a feel for the person,” Mizejewski said. “And then we screen them to be sure they’ve got the financial and other resources on hand — or can qualify for SBA or other financing — to actually close the deal.”

Meantime, a bit of patience with the process helps. In one recently completed deal, Mizejewski’s firm represented an auto body and paint shop in Central Jersey that was listed for a year until a good match was made.

“A number of people expressed interest in the shop, which has about 10 employees and is very profitable, but things didn’t quite come together until we found a fellow who had a significant amount of cash and had recently been downsized from his employer,” he said. “The guy was too young to retire and he wanted his own business. He wasn’t a body man, but he likes cars and enjoys dealing with people.”

Mizejewski helped the two parties to close the deal.

“We helped them negotiate a note, which the former owner — who is in his late 60s and wanted to retire — will hold,” he said. “This deal was especially noteworthy, because we brokered the original sale to the owner years ago, and when he was ready to retire he called us up to help him sell the business.”

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