By Steve Michaels
I was doing some work for a client who had signed an agreement with me to find sellers in his area. In my search, I learned that potential sellers did not share similar attitudes and ideas regarding the sale of their business. Some of the prospective sellers I talked to had heard about a local competitor selling their business and learned the terms and selling price of that particular deal. They then applied the exact terms and selling price for their own service. What they didn’t know was that this type of pricing couldn’t be further from reality.
There are as many ways to sell a business as there are ingredients in a pie. They both require basic ingredients. For the pie, that includes flour, butter, shortening, and pie filling. For the sale of a TAS business, that includes accounts, equipment, location, and profitability for the answering service. However that is where the similarities end. Here are some of the different ways to sell your business:
All Cash: This is probably the most desired method preferred by the seller but it depends on location, the number of potential buyers, the salability of the business (with profitability being a major factor) and all of the other accoutrements that a buyer might want such as management in place, all medical accounts, and so forth.
Percentage Down with a Note: The most common type of sale is where the buyer puts a down payment of anywhere from 20% to 50% with a note for the balance. Some sellers will use the business being sold as collateral for the note while others want some other form of collateral such as a home or another business. If the business deteriorates to nothing, the seller still has a means for collecting the balance on the note.
Paying Percentage of Receivables: The most desirable way for a buyer to purchase a business, especially just the accounts, is to pay the seller a percentage of what the buyer receives over a period of time (anywhere from 1 to 5 years). There are many variations of this formula such as the buyer putting something down along with paying a percentage of the receivables.
Check of the Month Club: Another option that has played out in the past few years is what I call the “Check of the Month Club.” This method is used when the seller of a company still wants to own their business but wants to eliminate the headaches of equipment, the phone company, and labor. The seller outsources all of their call traffic to another call center that sends them one invoice at the end of the month. They in turn invoice their clients and retain a 10% to 20% profit while experiencing the advantages of a larger, more sophisticated system owned by the outsourced call center. This works particularly well if there is a need to buy new equipment to keep up with the competition but the business can’t afford it or when owners are looking for a retirement income.
Sell/Merge Offshore: The latest trend is to sell or merge with an offshore company. Some larger telemessaging businesses are looking for an exit strategy that will allow them to complete a buyout in a maximum of three to five years. They sell a portion of their business to an offshore partner with a negotiated selling price based on earnings and billing set into the future. The seller has the advantage of reduced labor costs along with not having to worry about staffing, since its overflow traffic and specified accounts are being sent offshore. The offshore company benefits by having more business and a local presence in the United States that typically charges more for their services
Currently, it is a sellers market. It used to be that the only viable candidates for acquisition were one’s local competition. Due to today’s enhanced technology using 800 numbers, T1’s, PRI, and even the Internet, the whole world is now a prospect for acquisition.
With all of the roll–ups and consolidations that are happening in our industry lately, the old adage of “supply and demand” is especially true which is driving the prices of telephone answering services up. Sellers should look carefully at all of their options. Selling to your local competition is only one choice among many.
Steve Michaels and TAS Marketing have been serving the TAS industry in the mergers and acquisitions market for over 24 years with over 230 businesses sold nationwide and internationally. He may be contacted at 800-369-6126 or email@example.com.
[From Connection Magazine – September 2003]