Jim Kendall: Third try is charm for business' seller

It took three tries — maybe four, depending on how you count an Employee Stock Ownership Plan that was tossed aside — for Larry Johnson to sell his business. And Johnson was seeking to sell a profitable company well known and respected in its industry, one that came with a qualified and highly valued professional staff.

But Johnson says now, after finally closing the sale, those earlier failures helped him find success. “I learned a lot.”

Johnson is willing to talk about his often arduous sales process because he believes that what he learned might be helpful to others looking to sell their businesses.

First, though, the facts. Larry Johnson is not the owner's real name. To protect his privacy, the business' reputation and the standing of the new owners, any names used have been changed. The details, however, are real.

Briefly, here's what happened:

• Johnson admits the first sale collapsed partly because he “was dazzled” by the potential buyer's offer. The problem was that the buyer didn't have the dollars he offered.

• Johnson was more cautious when a broker brought him a second potential sale, but financing didn't hold up.

Then Johnson investigated ESOP (Employee Stock Ownership Plan) possibilities, but the numbers didn't work. “I was naive in thinking I could get big dollars from an ESOP,” he says.

If there's a plus to what became a multiyear selling process, it is that “The failed deals made me smarter,” Johnson says. “I discovered you have to do a deep soul search.”

For Johnson, that process involved a personal analysis of “What do I want to be? What do I want to do?” The decision, he says now, “was not about all the cash I could have in hand.

“I tried to sell the business twice and failed. But I failed only in a sense. I learned a lot in the process. I made a lot of choices.”

Eventually, three employees bought the business. However, the installment purchase structure Johnson insisted upon is a bit different:

• No one shareholder can dominate decisions, because Johnson insisted on a buying group structure that gave no one control. Buyers' shares are divided in a manner that requires at least two of the three newly minted owners to agree on any significant decisions.

• The new owners must share their business plan and company financials with Johnson, who stays on at full salary for 18 months to “give the new ownership team time to adjust to being owners.”

Johnson's role is to counsel the three; attend industry meetings and, by his presence, help assure clients and prospects that the ownership change was not catastrophic; and edit client reports and information.

That idea likely is solid, because it gives Johnson control for a specified period while the new owners adapt to their new responsibilities.

Financially, the deal is structured to give Johnson protections if the business goes sour. Much like a bank, he has liens on real estate the new owners own.

© 2019 Kendall Communications Inc. Follow Jim Kendall on LinkedIn and Twitter. Write him at Jim@kendallcom.com. Learn about Jim's skills at www.kendallcom.com.