How to Sell a Small Phone Business
August 16, 2007 3:21 PM   Subscribe

How can my friend market and sell his small phone business so that he can finally retire?

My friend is 67 and he is running a small phone business in Telluride, Colorado. He basically installs and supports phone systems in hotels, restaurants, large second homes, etc. He has a corporation setup and is a Mitel and Telelectronics dealer. He also has a small local paging company that brings in dwindling additional money and a small wireless Internet ISP business. He has had employees in the past, but is currently running everything as a 1 man show. There is currently some significant inventory and about 15 to 20 hours of work per week @$75/hr. My friend wants to sell the business and retire, but has not been able to find anyone locally that wants to buy it. The business is not worth enough to market and sell with a local real estate broker. Plus, he doesn't want anyone to know it's for sale until it is sold. Where should he try to sell his business in order to get something from it?
posted by maelanchai to Work & Money (12 answers total) 1 user marked this as a favorite
Plus, he doesn't want anyone to know it's for sale until it is sold.

That's going to make selling difficult.

Perhaps he could take out an ad in the newspaper. Or put it on ebay.
posted by sanko at 3:33 PM on August 16, 2007

Because this is a one-man outfit and relatively small (about $75k/year revenue on the high-end, at $75/hour * 20 * 50), I don't think the traditional avenues for selling a business are going to be useful or efficient as with a turn-key operation.

My two ideas are 1) hire an employee with the expectation that the employee take-over after a certain amount of time and perhaps arrange a pay-off schedule to your friend over time; and 2) discuss the situation with his vendors (Mitel, Telelectronics) and perhaps they might be able to serve as a conduit for locating other dealers that could acquire your friend's business. Of course #2 assumes a good relationship with the vendors.
posted by mullacc at 4:01 PM on August 16, 2007 [1 favorite]

There are lots of websites out there that you can list a business for sale. I know people that have used with success. And try googling "businesses for sale." Not wanting anyone to know it's for sale is completely impractical. He doesn't have to put a sign in the window, but he has to get the word out somehow. The business is not big enough to attract buyout offers from a larger corporation.

And, FWIW, I think Mullacc is on the right track here. The goal here is retirement. That doesn't necessarily mean selling the business. Think passive income here. What is his retirement timeframe? Does he have other assets to help support his lifestyle? What are the assets of the business? Are they valuable enough to support a sale or acquisition? Once he is retired, who's going to do the work? Most people who want to be a one man show have already started their own thing. This might make it difficult to market.
posted by blueplasticfish at 4:17 PM on August 16, 2007

Here's the thing. I don't see anything in this business available to sell. The equipment? If I can go out and resell the equipment myself, the only incentive to buy the company would be if I was able to buy the inventory at a serious discount. That would be bad for your friend. The idea itself? Well, all I need to do is spend a few hours on google and on the phone and I can find out all about the equipment he's selling and sell it myself.

The value in his company is him, which is the only thing he's not selling. His knowledge and experience, and the social connections he's built up, are what makes his company valuable.

Mullac has it with hiring someone else. It sounds like the main concern for your friend is having to keep the business up. Instead, he should just hire someone on to replace him with the understanding that the person will work for a given period of time and then pay a nominal cost to take over the company's customers and get ownership of the business.

If what your friend was doing was remarkably unique and had a unique profit margin or something, then it might be sellable as a business but installing phones, selling pagers, and setting up wireless Internet are hardly innovations, even if they were when he first started doing them.
posted by Deathalicious at 4:52 PM on August 16, 2007

Maybe he just wants to retire, wants to let go of the business, but feels bad about leaving his customers in a lurch? This is also suggested by his reluctance to advertise his desire to sell the business. I would say if this is his main concern, rather than getting money for retirement from the sale of the business, then he should just let go of the business. Sell off the inventory and start moving his customers over to other providers (yes, even if they're worse and "evil"). It's so hard to let go of people and feel that you're letting them down, but in reality this generally hurts them less than you think. They'll survive, and why should he not get a chance to finally let go of work?

If he needs the money for retirement, you should know: even if he can get full valuation for his business, I think the calculation is generally annual revenue x 5. That's not enough to retire on on its own, not if the business is too small to be sold by a broker. So if he was hoping this was the golden egg, I'm sorry to say that it's not.

Sorry these answers are so depressing. Hopefully a really keen MBA will show up or something and make us all look like ignorant asses.
posted by Deathalicious at 5:02 PM on August 16, 2007

even if he can get full valuation for his business, I think the calculation is generally annual revenue x 5

Usually the 5x refers to a multiple of EBITDA or cash flow, not sales. In any case, that rule of thumb is so over-simplified as to be useless in most cases. Sorry to nit-pick.
posted by mullacc at 5:25 PM on August 16, 2007

Instead of a real estate agent has he tried a broker? There are firms that specialize in matching potential buyers with potential sellers.
I know the business is small but it might be worth a shot. Using the broker would most likely keep his selling a secret so to speak- they don't place a sign in the window. Other than that I think mullacc's idea of hiring a potential buyer is the best course of action going forward.
posted by bkeene12 at 7:16 PM on August 16, 2007

Response by poster: Thank you so much for the answers so far. Some clarifications: he does not need this money to retire on. He has tried hiring and grooming someone in past, and after 2 tries is done with this route. He is willing to sell at a huge discount--he just wants to get something for it. We live in a small ski town -- there are less than 5000 year round residents. There are only 2 games in town for supporting the phone systems involved in keeping tourists here: my friend's and another one that does At&t and avaya systems. If someone were to buy the business, they would not have any competition for any of the systems that my friend already supports. Ideally he wants to sell it to a guy for say 1 year's worth of earnings plus less than wholesale cost of equipment. What's hard is how to find the guy that would love to buy it and move to Telluride? Where to post and sell? I like the suggestion of and will pass that on. How to sell a whole business on Ebay? Any other suggestions? Thanks!
posted by maelanchai at 8:11 PM on August 16, 2007

My father is a small business broker in the Southeast. THere are lots of brokers like him all over the country that specialize in selling this exact type of business. Heck, my dad once sold a strip bar by having the potential buyer sit with the doorman and the bartender for a few nights to see how much cash they were raking in. Many small businesses are a function of the owner and his connections. There is still value there. Especially if the new owner can get the seller's seal of approval. He gets introduced around to all the clients as a good guy who is taking over the business. The seller also says that he will be helping to transition the business. Every business is sellable.

There are lots of small business buyers who approach these brokers looking for a small business with no idea what specific business they want. Often they were laid off in a large corp downsizing or they cannot stand working for the man. They are just looking for a good location or a certain lifestyle or cash flow. Many of these brokers have willing buyers with no businesses to sell. Find a broker locally. It costs nothing to call. Or call one in the nearest bigger city (Denver?). I would guess that there is a phone worker in the area who works for the local loop provider who would either love this type of business or would try to do it on the side. Another great group of people who might be interested in this are firefighters who work for extended on periods and the extended off periods. They could pair up and buy this type of business and work counter hours to each other at the house and thus can cover the business full time. Another potential purchaser is the ski bum who is too old to work the ski slopes, is injured or looking for more permanence. If he is handy and can learn electronics, this sounds like an ideal business.

Good luck.
posted by JohnnyGunn at 9:56 PM on August 16, 2007

Since it's a one-person business, it's also sort of a job. Seems like people who are looking for employment in the industry might also entertain the idea of buying their own shop, especially if it's a local monopoly in a desirable area.

Try posting it as a job on Monster and in the telecom trade rags, mentioning in the posting that it's a "buy-in opportunity."
posted by contraption at 10:03 PM on August 16, 2007

JohnnyGunn is right that business brokers do this sort of thing for a living. I hesitated to recommend that route before because there are a ton of shady business brokers out there that promise business owners the world and never deliver (or deliver very poorly). I was recently involved in a transaction that involved a shady, pain-in-the-ass broker that really fleeced his client on the fees and let our side negotiate a fantastic bargain price for the business.

If your friend hires a broker, make sure to get a solid recommendation from a trusted accountant, lawyer or friend.

And I still think talking to the equipment vendors would be interesting place to start. Their sales people don't want to lose the business and might help bring in a possible buyer.
posted by mullacc at 11:05 PM on August 16, 2007

Inc Magazine has a pretty businesses for sale page that is widely read. I would actually suggest he list it in the in New York Times or the Wall Street Journal, as there are many brokers and businesspeople outside of New York who read those listings.
posted by parmanparman at 8:44 AM on August 17, 2007

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