-- It's a gem of a business story.
The founders of Silpada Designs took a small jewelry business and grew it into the world's largest seller of sterling silver through home parties. Then last year they sold it to Avon Products for $650 million.
Founders Teresa Walsh, Bonnie Kelly and Bonnie's husband, Jerry Kelly, reaped a huge payday. But it took much planning to get there.
CEO Jerry Kelly says they grew in a "conservative and stable and sound way," which increased the value of the firm.
When the trio began to consider selling the Lenexa, Kan.-based company a few years ago, they outlined what they wanted to obtain — and it included more than money. Among the most important items: keep Silpada a stand-alone company and continue to manage the operations.
They didn't want to cash out and quit. "We're all in our mid-50s right now, healthy, young, engaged," says Kelly. Instead, they hoped to transform into a global jewelry giant.
"This was not about selling the company and making money and retiring," Walsh says. "This was about making the future."
They thought about going public or taking on private equity but decided to align with a direct sales company. With its worldwide presence, Avon seemed ideal, Kelly says. It catered to women and would know how to work with Silpada's more than 30,000 existing sales reps.
"Avon stood out as the ideal partner, to be a big sister, if you will, to Silpada," he says.
There are many reasons an entrepreneur would want to sell: to link with a bigger brand, to retire, to start another firm or to lead a less-stressful life.
Yet, many of those sellers have to deal with similar emotional and financial issues. Among them: determining what a business is worth, getting years of paperwork in order and figuring out what role to play once the firm is sold.
Even the most skilled entrepreneur can make mistakes in the process.
Early on, owners should compile documents that demonstrate a profitable, growing business in an expanding industry, says Mike Handelsman, group general manager of BizBuySell.com, which helps businesses find buyers.
"You need to show a record of revenue growth and a history of stable profitability," he says. "That's going to allow a buyer to have confidence that they can succeed."
At the time of the Silpada acquisition, Avon CEO Andrea Jung said her firm was impressed with the jewelry company's proven track record of growth.
Thinking ahead about staff needs is another vital presales step, business experts say.
The Silpada founders knew that they wanted to stay on and continue to be active in the company — and achieved that arrangement. Jerry Kelly remains CEO. Bonnie Kelly and Walsh are the primary spokeswomen for the sales reps. The women also lead the product development and design departments.
What happens to employees?
The founders say they not only considered their needs but also the fate of their sales force.
"We needed to make sure that the future for (the representatives) was sound," says Bonnie Kelly. "And the only way to do that was to look at another company that was just as reputable as ours and that cared about women."
Barbara Corcoran, a real estate company founder who sold her business for $66 million in 2001, also thought hard about her future before selling.
"You have to decide before you even start to sell your business what exactly are you willing to do once it's owned by the next guy," she says. She stayed on for two years after the sale, but with less responsibility.
Although Corcoran wanted to spend more time with her family — and carefully prepared her exit — she was hit with some unexpected anguish.
After wrapping up her commitments to the buyer, she took a year off to write a book. But she soon floundered as she considered what to do next. She reached her goal of having the largest real estate firm in New York City, but then had to carve out a new professional life.
"After that, the real challenge of my life was: 'What do I want to do when I grow up?'" says Corcoran, now a business consultant and angel investor on the TV show Shark Tank. "That was a very, very hard transition."
The psychological side of selling is often difficult for owners, says Brian Wodar, director of wealth management research at investment firm AllianceBernstein Global Management.
"The business often feels like both their parent and their children," he says. It's like a child because a founder had such a vital role in helping it grow, and it's like a parent "because it has provided so much for them."
Adding to the mental strain: Sellers have to put a price on the firm they created, then time the sale so they can reap the biggest reward. Often, they think it's worth more than it is.
The median asking price for a business was $239,000 in the second quarter, and the median sales price was $150,000, according to BizBuySell's quarterly Insight Report, which analyzed 1,198 closed transactions. Those businesses had a median revenue of $340,000 and a median cash flow of $85,000. Buyers paid on average 0.65 times revenue and 2.43 times cash flow.
Whatever sales structure a seller may want, they have to be ready not to get it, says Wodar. Flexibility is essential.
While the Silpada founders wanted to stay employed, many owners want to cash in and head out, which often isn't a realistic goal.
Most buyers want the seller to stay on for a period of time, says Wodar.
"(They) want to keep that key person in place because so many of their relationships with consumers and suppliers are based on the relationship with that person," he says.