Merchants often place a lot of consideration into starting their companies

Merchants often place a lot of consideration into starting their companies, but not so much into leaving. Having a suitable exit strategy can allow merchants to sell their companies far more efficiently, also making the procedure less emotionally taxing.

We recently spoke with Dale Traxler about his adventures in selling his company. Within a ten-year period, Traxler and his wife, Cynthia, bought, assembled, and then sold — in March 2012 — Beaded Impressions, a household of four different jewelry-related stores.

Traxler has blogged for Practical eCommerce, at”Evolving eBiz.” Having marketed Beaded Impressions, he’s currently a contributing editor.

Practical eCommerce: How long did you have Beaded Impressions? When did you get it and when did you sell it?

Dale Traxler: “We acquired it in February 2002. It was a really small website named ABeadStore.com that had some grip. It was the times when there was not lots of competition and it was a really good chance for us to get into ecommerce at a really fair price and see if we could grow the company. We offered it, ironically, March 1, 2012, nearly 10 years and one month later we bought it.”

PEC: Who did you sell it ?

Traxler:“We sold it to a gentleman who made a new thing. His purpose is to grow the company substantially. He had been interested into getting into ecommerce. He saw this as a platform for expansion and he made the investment.”

PEC: It’s another individual that purchased the company, versus a bigger corporate-type buy.

Traxler:“That is accurate.”

PEC: Did you always plan on a 10 year exit plan?

Traxler:“Initially, we were thinking more of about a seven-year plan. We were working to this route, until the recession hit back in 2008. That took things off the trail for us and also for a good deal of other ecommerce companies out there, I am sure.”

PEC: Why did you sell it?

Traxler:“For a whole lot of different reasons, some of which are recognizable to other small business owners. Cynthia (my wife) and I love to create things, build companies, and build organizations and processes. We never imagined ourselves running the daily operations of a company once it reached a certain stage. When you move from a start up to something that is a bit more organizational and older, you bring in various leadership frequently.

“We were at the point where we needed a leadership shift to control a larger company, and we were confronted with a stage in our growth where we actually needed to accelerate the expansion again. Every business goes through different phases. We were at a point where we felt we had to bring a good deal of merchandise to move the revenue stream up to support the cost model we had. And that will require us procuring some more funding. What we would have been doing is creating another 5 or 10-year devotion to the company, and we just decided that it was time to move on rather than do that. We’ll go and do our next thing and we moved the company into a person’s hands. It was the perfect situation for the buyer.”

PEC: Could you please explain the setup of your company, the platform which you used, how you conducted your company, and how big your business once you sold it?

Traxler:“We serviced about 12,000 clients last year worldwide. Many of these were what most websites would think of as retail customers, although we’ve got a significant wholesale customer base of jewellery designers. We processed, in a month, approximately 2,000 orders. We had a significant run-rate of goods and customers. A good deal of consumer loyalty built up over ten years.

“We conducted a small staff. We only had a couple of people fulltime, and then we had several part-time individuals which were based on the amount of the enterprise. We had a powerful infrastructure and it enabled us to leverage that and never need to have a great deal of employees.

“We sold jewelry supplies, primarily. We sold beads as the first starting point, but as the business grew, we added an increasing number of jewelry — binding and stringing materials and things like this. Our target client makes jewelryas a hobby, as a craft or for professional purposes.”

PEC: You carried the stock and fulfilled the orders ?

Traxler:“That’s correct. We purchased and inventoried all our things and did all of our own fulfillment. We ranged between 3,800 SKUs and 5,000 SKUs at different times through our lifecycle.”

The Beaded Impressions home page.

PEC: All of this was outside of Boulder, Colo., where you’re located. Could you describe the company selling process to us? How was the price determined? Did you get the cash up front?

Traxler:“If anyone is thinking about selling their companies there are quite a few things you will need to consider and hopefully you have thought about it beforehand. We actually had the notion of an exit strategy many years ago when we began the organization.

“One of the essential elements that we invested in, as part of our exit strategy, was a powerful infrastructure. We believed that we had to grow the company to a place where it was — to use the word loosely — a turn-key firm we can sell to another company owner, and the procedures were strong enough that others could learn them, the vendor relationships were created, the infrastructure could handle the customer relationships, had all of the information required to support clients, vendors and all those kinds of things. That’s the reason we spent in NetSuite, the hosted ecommerce platform. We’d been considering an exit plan for some time and we knew where we believed we could point to center valuations beyond just the pure cash flow of the company or the seller’s discretionary earnings, as some folks refer to it.

“Last May, my wife and I had been talking getting some more funds to radically expand the company, and we said,’That’s simply not what we would like to do this let’s figure out how we will sell this monster.’ Oftentimes people look to their opponents as what’s the most logical place to do an acquisition and we believed that was the last place we wanted to go since the valuation are the lowest. We buy from the very same men and women. All of us know everybody and we did not see that there were any vendors in our area that were seeking to grow through acquisition. We have never seen it happen and we just didn’t believe that was a workable choice.

“So, we decided to engage with a business agent. We moved to BuySellEbiz. We’d decided that we did not need to do it all ourselves since the procedure was going to be quite intricate. You understand filtering qualified buyers, assessing their financing situation — it’s extremely embarrassing for the vendor to do all that. Therefore, we ended up choosing Manny Shah, who really blogs for Practical eCommerce, and that exclusively represents ebusinesses. We spent some time talking to him about his process and how he’d do a valuation. Then I spent the whole month of July — and I mean that literally, I did lots of iterations — writing a prospectus for the sale of our organization and also a very, very detailed operation guide that we would give people as we move them throughout the cycle.

“I ended up with about a 40 page prospectus and another document of a similar size which went to the operational details. That became a enormous differentiation through the process since we were very transparent and we did a lot of the upfront work on paper rather than having to become involved in conversing with each and every buyer who had been a prospect. We went to the market sometime in August.

“As far as the evaluation itself, Manny did lots of research and because he only sells these companies, he’s a good pulse on what the earnings ratio is in the market today. Unfortunately it’s not really that great. It’s somewhere between 1.5 and 3 times yearly cash flow, which can be called’discretionary earnings’ We ended up in the higher end of this, in the procedure we did, but a few years back it was 5 or 6 times your discretionary earnings. What we focused on was justifying our vendor’s discretionary earning, justifying the higher sales ratio since we had more of a turn-key business than many surgeries do.”

PEC: So the scope there has been predicated on cash flow of the organization, and the valuations range from 1.5 to 3 times the yearly cash flow. Is that what you’re saying?

Traxler:“Yes, the 3 times was in the very top of this market once we started back in August. There was lots of pushback but we were patient and we stayed with it. We actually ended up with three written offers in early January from various kinds of buyers, different kinds of supplies and we had to sort through the best buyer for us who could minimize our risk, as practically nobody will pay all cash for a company now. Any deal that we have been presented with had any sort of an earn back or a return. So you had to assess at least what is the probability of the and what the price of the offer is and things like this.”

PEC: Can you still have a job with the organization?

Traxler:“We’re transitioning out. We’re out of the daily operations pretty much today. We’re doing several other projects for the new owner. We might continue to do some work in the future if he decides to perform certain kinds of expansion, but we are drifting from it.”

PEC: What’s your next move?

Traxler:“I’m not 100 percent sure at this time. In between things I have done in my career I’ve done a lot with plans for startups — particularly around the region of go-to-market strategies and those kinds of things, growth plans. I have done that for many companies and I love doing this. I enjoy learning and working a new market or a new company and help people develop. I’m actually talking to some people I know here in Boulder and we are thinking of an ecommerce consulting firm. I’ll leave it at that for right now.”

PEC: Let us discuss different merchants, as they consider selling a company, and deal with the psychological issues of walking away. Those issues aren’t discussed enough for company owners. We guess Beaded Impressions was a huge part of your life for a couple of years. Now you’ve walked away from this, and we suspect there’s some psychological toll there. Would you share that with us?

Traxler:“You get an emotional pull in numerous various ways. In the procedure itself you will engage with buyers that are likely to low-ball you, they will criticize you, they do not get it and you do not understand why they do not get it. I believe we were lucky to have a relatively quick sale cycle. We were efficiently 6 months to an offer. Manny Shah did a excellent job of screening out most of the non-qualified buyers, but you still wind up speaking with some people that sort of waste your time. And you need to be willing do this and battle through it and grit through it.

“When you finally get supplies is when it actually starts to become psychological, because the prospective buyers have a strong feeling about what your cash flow is or they might have a strong feeling about the reason why they should not pay you the inquiring ratio that you’re searching for. It can get pretty emotional. We did. It was a really stressful four-week period as we stumbled through these many offers. They’ve got to find financing and you’re not positive if they will get the financing. You’re attempting to bring everyone to the finish line at exactly the exact same time. So should you ever enter the sales process and are lucky enough to get a number of offers it is very stressful.

“Then you get into the entire detachment part. We were lucky enough to have a company that the purchaser hired our workers. Among the buyers wasn’t going to. So I was faced with having to terminate employees who had been with me for many, many years and work out how to compensate them fairly and things like this. We ended up not needing to do that but it’s certainly a real issue which you will be faced with as you proceed through this procedure.

“Now that we’re out of the company, it is very strange — with a new owner come in, work with workers, begin to reorganize the business and hire new people. I moved out, just so that I was not in the daily operations. It’s ideal to pull yourself out rather fast.”