Jay Rodgers knows how to cash out and ride off into the sunset. Over the years, he’s built and sold almost two dozen companies of his own and helped dozens of other business owners either turn their companies around or sell them for top dollar. These days, the former Eastman Kodak–wunderkind/business consultant/rancher and rodeo rider has “retired” to his small horse ranch in Flower Mound. But he still keeps busy working as a consultant for small-business owners—a service he provides for free. We talked with him about the challenges—and pitfalls—of selling one’s company.
|HAPPY TRAILS: Jay Rodgers at his
Flower Mound ranch with his horse, Dirty Johnny.
Why sell the goose if it’s laying golden eggs?
Financial independence, health, retirement, a desire to pursue new opportunities. The seller may believe he can build more wealth with the proceeds from the sale than he can by continuing to run the business. Another excellent reason: The skills required to start a business and grow it to $10 million or even $20 million in sales are very different from the skills required to take it on to $50 million or $100 million. Personally, I believe in selling too soon and too cheap. Why would anyone spend $19 million trying to hit a $20 million home run?
What are the signs for a business owner that the time is right to cash out?
The time to sell is when you are climbing the left side of the bell, when things are going so well that no one is willing to believe it can ever end. Unfortunately, this is also the exact time when you, as the boss, engage in an activity I call “smoking your own dope.” Better to sell too soon than wait until there is no sizzle left to sell.
Is there a metric for knowing when you’ve made a good deal in cashing out?
Each industry has its own. It is definitely an art as well as a science, and you can’t produce a precise answer by simply putting numbers in a computer or using a formula. No matter how objective we try to be in business, emotions always play a role. That’s why cattle sell by the pound, certified Angus brings a small premium, and horses sell by the imagination.
What are a few basic tips for positioning a business to sell?
In positioning your company to sell, your No. 1 assignment is to make certain that you’re totally unnecessary to the company’s day-to-day operation. Your job is to make sure that if you’re not there, things continue to move ahead. When you’re showing a prospect through the company, each time you say “I, me, or mine,” you depreciate the value of the company by big bucks.
When you take a prospect on the tour, the real trick is to call the supervisor over to you and say, “Pardon me, George, but who is that in the corner office and what does he do?” The buyers at the top of the ladder want to know that they are buying something that continues to run because you have good systems and good procedures, not because you are a genius and you are there.
Don’t get “short-timer’s disease.” To cash out successfully, you need to operate the business exactly like you intended to own it for the next 20 years. And continue doing so until the buyer’s check clears. Many sellers cut back on capital spending and set aside the long-term view when they think the company is going to sell in the near future.
Early on, decide if you are going to tell your employees that the company is for sale or if you want to try to keep it a secret. There are dozens of pros and cons, but the most important thing is that you have a plan either to include the employees and ensure their support of the sale or to keep the secret truly a secret. Personally, I always announce the intent to sell loud and clear early on. In fact, I’ve even marked the calendar with the intended sale date. You decide, but decide and decide up-front.
>> Better to go out on top than to overstay your welcome.
>> Perfection isn’t always a good thing.
Most small- to medium-sized entrepreneurial companies have a hard time spending money for annual audited financials. In my opinion, audited financials are absolutely essential and will pay for themselves many times over.
Perfect isn’t necessarily good. Buyers don’t buy businesses to do worse than the seller has done. They only buy if they believe they can do better. What you have done right in building your company is usually rather obvious. Spend some time thinking about what you are doing that you should be doing better, what you are not doing that you should be doing, and what you are doing that you are doing wrong. Then include these opportunities in your presentation to prospects.
Why are you so adamant in general about getting out early and cheap?
Having been a farm boy, I’ve always found it rather easy to figure out that things invariably go from green and growing to ripe and rotting. It just never made sense to me to grow the biggest pumpkin in the patch and then fail to harvest it at the appropriate time.