#22: Selling Your Business? John Starr's Crucial Advice on Brokers, Legal Counsel, and Timing

Welcome to The Exit Plan, a podcast for business owners interested in learning more about selling their business.

In this episode, we welcome John Starr, a business owner, mentor and co-founder of PR agency Clairville. Clairville began in 1989, emerging from a publishing company. Facing challenges, they sold the design agency, focusing on PR. With no clients initially, they secured the first within weeks. John discussed their growth, deliberately maintaining a manageable size for 20 years.

The decision to sell arose from a desire for tech focus, seeking a partner. Failing to find one, John explored selling and engaged brokers, facing valuation misalignment. Simon Rine Tut, from Relationship Audits, connected John with a buyer, initiating a year-long negotiation.

The deal involved selling the business, not the limited company, for tax reasons. The structure included a third upfront, and the rest was an earn-out based on fee income over three years. John explained the importance of a balanced earn-out, aligning downside and upside.

Post-sale, integration faced challenges. Clairville's strengths in communication clashed with a "not invented here" sentiment. Cultural fit was good, but the top-down approach from the new owners created difficulties. John shared past acquisition experiences, emphasizing the need to swiftly replace top management to ensure successful integration.

John Starr delved into the intricacies of selling his PR agency, providing valuable insights for potential sellers. One notable aspect was the common practice of overpaying founders during acquisitions for a smoother transition, although this strategy didn't yield success for John due to his disposition and the earn-out structure tied to performance.

The three-year earn-out coincided with the onset of the pandemic, resulting in a significant 40% loss in fee income within a month. Despite the challenging circumstances, John highlighted the buyer's flexibility, which involved a temporary payment pause to navigate the financial uncertainties.

Post-departure, John faced challenges as his former agency struggled to replace a major client. Nevertheless, he continued his professional journey through consulting, specifically running press centers for global exhibitions. Notably, he shared his involvement with a space company, Spacebit, working on an innovative project involving art being sent to the moon aboard a SpaceX NASA rocket.

Imparting valuable advice for prospective sellers, John emphasized the importance of engaging with multiple brokers for accurate valuations. He urged sellers to maintain meticulous records from the outset of considering a sale, streamlining the process when negotiations begin. John stressed the significance of the disclosure letter, a tool for sellers to protect themselves from unforeseen liabilities post-sale.

John advised sellers to secure legal counsel with experience in deals of a similar size, cautioning against unnecessary legal complexities that might inflate costs. Finally, he underscored the necessity of time management during the deal process, reminding sellers to balance their efforts between negotiating the sale and continuing the smooth operation of their businesses to avoid potential downturns. Tune in for a deep dive into the world of selling and buying businesses, with practical insights from John Starr's wealth of experiences. What You Will Learn:

• Selling Strategies: John Starr shares insights on selling a PR agency, discussing strategies, challenges, and post-sale integration nuances.

• Earn-Out Dynamics: Explore the intricacies of a three-year earn-out structure, its importance, and balancing downsides and upsides.

• Pandemic Impact: Learn how the pandemic affected the agency's fee income, and the buyer's flexibility during uncertain times.

• Post-Departure Challenges: Understand the challenges post-sale, including integration difficulties, top management replacements, and client transitions.

• Valuable Advice: Gain practical advice from John on engaging brokers, maintaining records, crafting disclosure letters, and effective time management

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