Solution:
We needed to look at the problem with a more long-term plan. Although it would be easy to sell a business that was owned 100%, selling the minority ownership shares is more challenging.
The following five-year Plan was presented and agreed to:
- Expand the business in sales & profits to increase the Company value & ultimate selling price
- Hirer a General Manager to manage the day-to-day operations and employee issues
- Acquire 100% of Charlotte
- Acquire the 66% of Cleveland
The plan above provides for the maximum value enhancement of the Company by 1) developing a company with a single owner of each entity, 2) Developing a key employee, the general manger, which can be sold with the business and has technical knowledge of the industry, and 3) reviewing the operations to identify its weaknesses and installing better business practices so the Company would greatly grow in sales & profits.
Results:
Phase I was the hiring of a general manager with a strong sales & marketing experience in a similar industry. This was accomplished within 2 weeks. This individual took over the day-to-day employee responsibilities of Baltimore & Charlotte and was tasked with the responsibility to increase sales by 50%.
Phase II was the 100% acquisition of the Cleveland & Charlotte operations. The acquisition of the Cleveland operations met with opposition of the two shareholders, each owning 33% and working at the Cleveland operation and one of these owners owning 50% of Charlotte. The final result was the acquisition of Charlotte at no cost and the selling of our client’s interest in Cleveland for $75,000.
Phase III was the improvement of operational profits and sales. This was accomplished by studying the current conditions of the operations. This included their sales gathering techniques, estimation process, pricing methodology, production process, and delivery process. By the end of 2002, a profit of nearly 15% was achieved. By the end of 2005, the sales of Baltimore & Charlotte exceeded $2,500,000 with profits exceeding 15%.
In 2006, I asked our client if he wanted to sell his business, his response was NO, are you kidding! In 2007 I asked our client one more time if he wanted to sell his business. It was a qualified no, “but I am thinking of semi-retiring in 3-5 years and would like a plan to sell the services division and keep the training division.”
Ultimately, I knew this was the direction in which he would be going. During the past few years we have concentrated on the development & expansion of the training division. By the end of 2007, the training division will be $300,000 a year in sales with operating profits of 50%+. By 2010, the Training division will be $600,000+/- with 1/3+ of the revenue generated from recurring on-line internet sales.
The Company now has three key employees, all with an interest in purchasing the Company. I would expect an internal employee sale to go as high as $1,000,000+/-. A sale to an outside party will have a fair market value in excess of $1,500,000. Why is the Company worth this now and probably would not have sold for $100,000 in 2002: 1) steady sales growth, 2) steady profit growth, 3) multiple location diversity, and 4) product diversity. But more importantly, together we developed a plan and they stuck with it!