Thinking Big, Buying Small: Selling and Buying a Small Business in WNC

written by Bill Kopp

Many people dream of owning a small business. And while starting from scratch is often a viable means of achieving that goal, there exists another option: buying an existing business. Doing so has obvious advantages: picking up where a previous business owner has left off can mean that the new owner can build on the momentum already there. The reputation, prominence and established customer base of an existing business can all help increase the likelihood of ongoing success.

But there's a lot to know before entering into the world of buying -- or selling -- a small business. We've drawn on the wisdom of local experts -- professionals and entrepreneurs in Western North Carolina who've earned their knowledge through firsthand involvement in successful sales and/or purchases -- to bring together some of that hard-won expertise.

A Buyer's Market ... Possibly
According to a January 2021 report by online marketplace BizBuySell, 2020 represented the largest drop in sales of small businesses since the beginning of the Great Recession in 2009. While in 2019 nearly 10,000 small business were "reported as acquired," in 2020 that figure dropped some 22% to just over 7500 acquisitions.

But the news wasn't all bad: in 2020 the median price of small business transactions actually rose some 12% over the previous year. Median cash flow and revenue associated with those sales increased nearly as much. Even against the backdrop of global uncertainty brought on by the COVID-19 pandemic, small businesses continued to change hands. After what seemed like a full stop in the second quarter of 2020, the volume of transactions began to trend back upward.

"COVID initially put everything on pause, but now it's creating a lot of seller interest," says Chris Grasinger, Mountain BizWorks' regional manager for North Carolina's high country (the Boone region). "There's no doubt that [late 2020] has been a major growth period. Starting in Q3, the [number] of folks trying to sell their business has grown quite substantially. And in Q4, it was corroborated that this is a wave of individuals and entities trying to transition out."

Grasinger hedges ever so slightly when asked if these realities add up to a proverbial buyer's market. "Quite possibly," he says.

WNC is Unique
While there are many characteristics shared by small businesses across the United States -- compact market area, a small number of employees, high managerial control -- the Western North Carolina market has specific qualities that set it apart. "In larger markets, most small businesses lease the property," says Jeff McKeehan, managing partner at Asheville-based Viking Mergers & Acquisitions. But in WNC, many businesses own the property where their business operates. "And with the escalation of real estate values [here], the value of the property is often more valuable than the business," he says.

Grasinger points out a pair of qualitative differences that make Western North Carolina notable. Potential buyers of businesses might come from Charlotte, Raleigh or even outside the state; Grasinger observes that they're motivated to come to Western N.C. because they want to live here as much as work here.

And the region's business support systems are a draw too, Grasinger says. He ticks off several: "The small business centers at our community colleges, the small business technology development centers at the state universities, the availability of financing through alternative lenders, and community banks with the wherewithal to underwrite an acquisition of a local business." And that's just a partial list.

Those qualities have helped create a welcoming environment for many entrepreneurs to take the plunge and buy a business in the region. Each case has its own unique qualities, but the commonalities among them can provide useful instruction for those considering buying a small business in Western North Carolina.

A Healthy Business Cycle
Outfitter Bicycle Tours was launched in 1996 by Dick and Marilyn Powell. Originally based in Los Altos, California, the business was a logical extension of the couple's successful bike shop. It represented a way for the Powells to combine their business experience with their love of cycling, traveling and exploration.

Asheville couple Jamie and Joy Cadelina Gilpin purchased the company in 2010 and moved it to Western North Carolina. Their interest in the business was also built upon experiences both personal and professional. Both have backgrounds as competitive bicycle racers, and Joy's day job as an occupational therapist means that she has a deep understanding of the health benefits of cycling. "The marrying of passion and business made it very attractive," says Jamie Gilpin.

In fact -- as is often the case in the world of buying and selling small businesses -- the buyers had a personal connection with the sellers. "Joy worked at the Powells' bike shop for years, starting as a teenager," says husband Jamie. "I believe that they had a sense of pride in the thought that they were passing the company on to someone they cared for and wanted to see thrive."

Keeping an Eye on the Property
Proxy Home Watch is a service-based business in Hendersonville, N.C., working throughout the region. Proxy's business model offers a service customized to the specific needs of each homeowner. Because WNC has a large share of secondary residential properties -- vacation homes, rental units, homes set aside for retirement and the like -- many go unoccupied for extended periods. Proxy Home Watch provides technicians who look after those properties, addressing problems before they can become serious and cause damage and financial loss.

Classified into four categories -- remote and in-person home watch, maintenance and repair, larger-scale project management and "At Home" concierge services -- Proxy's suite of offerings has proven popular. Phil Murphy founded the company in 2006 as a way to apply his engineering skills to the community in which he lives.

A decade after taking over the bike tour business, Jamie Gilpin bought Proxy Home Services in 2020. He sums up his motivation for the purchase in one word: independence. "I knew I had the skills, experience, and education to captain my own ship, so why not focus on building equity?" he says. Citing an article by Jeff Haden in Inc., he makes a point that has been made -- and proven -- many times over in the business world. As Haden writes, "If you hope to get really rich, working for someone else will never get you there."

Gilpin's experience buying and then running Outfitter Bicycle Tours provided a great deal of relevant skills he could apply with Proxy. As an already-successful entrepreneur with deep ties to the region, Gilpin says that he was quite familiar with Proxy's customer base: "wealthy families and individuals who want their time and assets taken care of for them with a very high service level." And that customer base knew him, too. "The clientele served was very familiar with my past professional experiences," Gilpin says. "And the growth opportunity using those experiences was readily obvious."

Beyond making an attractive offer to Phil Murphy for the business, Gilpin says that his proposal had another attractive (if unspoken) component: "the ability to see the founder's 'baby' grow and thrive into the future." Because of the personal nature of many small businesses, the prospect of ensuring continuity can be a subtly important factor in a successful sale.

Looking toward the future, Gilpin remains open to further business acquisitions. "I'm a big fan of vertical integration," he says, adding an important caveat, "as long as the brand and core business are not disrupted or diluted."

School Spirit
Mountaineer Mania opened its doors on King Street in Boone, N.C. in 1981. Offering a wide array of clothing, souvenirs and other items displaying pride for Appalachian State University -- both the school and its sport teams -- the business launched by Wanda and Bill Corriher has remained a popular fixture of Boone's main downtown thoroughfare for four decades. In 2020, Melody Pineda -- a longtime employee and a classmate of the Corriher's children at App State -- fulfilled a promise she made a decade earlier, buying the retail business in July 2020.

"I had always wanted to be a business owner," says Pineda. "The opportunity to purchase something that was already successful for 39 years seemed like the ideal." Her years as an employee equipped her with a kind of insight that another potential buyer might not have enjoyed. "Having worked in the store as a high school and college student, I knew the business well enough to feel comfortable with management and its financial security," she says.

Moreover, taking over Mountaineer Mania isn't Pineda's first foray into the business world. An active Realtor, she has a solid understanding of property valuation and appreciates the importance of the retail store's convenient, central location.

2020 might not seem like the ideal year in which to buy a business that sells to the consumer public. "I bought retail in the middle of a pandemic," Pineda says with a chuckle. "I wasn't even sure we were going to be allowed to be open." But she's philosophical: "In some ways, there's never a 'right' time," she suggests. In fact, for Pineda, the economic clouds of 2020 had a silver lining. "I saved nearly 2% on my loan's interest rate and got a 10 year instead of 5 year term," she says. "That would not have been possible under normal market conditions. So financially, it was a win."

"Melody saw the opportunity and had a methodical conversation toward feeling comfortable," says Mountain BizWorks' Grasinger. The business transitioned to Pineda's ownership in the midst of COVID, "which was super impressive," he says. "And she's been successfully operating Mountaineer Mania for six months, doing a really good job."

Pineda has also overseen Mountaineer Mania's expansion into online sales, a strategy that should serve the business well as the period of social distancing continues into the future. Going forward, Pineda has larger ambitions including starting other businesses from the ground up. And she views her start in entrepreneurship with Mountaineer Mania as a solid first step. "I saw this [business purchase] as portfolio building to create leverage for other ventures and to learn from standard operating procedures already in place," she says.

The Shoco Will Go On
Shoco Marine, LLC distributes docks, piers, trailers, lifts and other equipment and services to the marine market. Dale Short's father started Shoco in Shelby, N.C. in 1957; Dale -- who says he was "born into it" -- took over sales management in 1971, and became president of the family-owned and -operated business in 1986.

But after decades running the successful operation, he decided it was time for he and wife Angie to transition out. "I knew what to do and how to do," he says in a recent video piece made in connection with the sale of Shoco. "But I just didn't want to do it 12, 14 hours a day any more. I knew it was time to look for somebody who did." In September 2020 he sold the business to Brad Simpson and a partner.

Rather than simply list the business with a business broker, Short enlisted the services of a specialist, Asheville-based Viking Mergers & Acquisitions. Founded in 1996 by "serial entrepreneur" Brad Offerdahl and son Jay, Viking has facilitated sales of more than 600 businesses in the Southeastern United States.

"I had never bought a business," Short says in the video. "And I had never sold a business. And if you've never done it before, you'd better have a guide that you trust to take you through that." Jeff McKeehan of Viking M&A had already been in touch with Short. "I reached out to Dale in early 2019 to ask about his plans for the future," McKeehan says. "That cold call led to a series of meetings that ran throughout the balance of 2019." Viking took the business to market in early 2020, and the sale was finalized by the end of summer. The new owners have a plan to grow and expand the business, McKeehan says.

Setting Up to Sell
The motivations leading to deciding to sell one's business are as varied as the businesses themselves and the men and women who own them. "One of the more common sale types is a business essentially selling its assets," Grasinger says. Other times, the business is a going concern, and the seller seeks to find a buyer who will take the business into the future, following -- closely or not -- the direction already established. The seller may be motivated by a need (or desire) to cash out. They may be looking to get into another unrelated business. Or maybe it's simply time to retire.

In those cases as well as others, there are many factors to consider. And those who have bought or sold -- as well as specialists who help them in those endeavors -- can offer wisdom gained from their experiences.

The first step, says Viking M&A's McKeehan, is identifying one's goals. "Typical business owners are so preoccupied with running the day-to-day operations that they never get around to thinking about the future," he says. "But the owner of every company should be proactive and take the time each year to assess their personal goals and determine how continued ownership of the business aligns with what they want to achieve." For many small business owners, their company's value represents the highest percent of their personal wealth.

Sometimes a crisis or burnout can lead a business owner to decide to sell. "By then," McKeehan cautions, "it could be too late to sell or get maximum value for the business." So planning ahead is essential. "The sale of a business is not transactional in the sense that it goes on the market today and is sold tomorrow," he says. "Selling a business is a process that takes time."

McKeehan also points out that a typical family business doesn't survive the second or third generation, so a succession plan isn't a strategy Viking often encourages. Instead, he says, sale of the business to another party followed by transfer of wealth "often proves to be the best option for the owner and the next generation."

Once goals are established, Chris Grasinger says sellers need to answer this question: "How do you get in front of the right people who could be potential buyers?" He suggests that business owners consult the email lists they've built up over time. "You've also got your employees, and you have social media channels," he says. Acknowledging that it can be especially difficult to get the word out in rural areas that make up much of the Western North Carolina region, he emphasizes that it remains essential to make sure that the potential market knows the business is for sale.

A business owner who has decided to sell should plan on doing plenty of homework. McKeehan strongly suggests that owners "meet with a credentialed advisor who is experienced in both the relevant industry and the specific market where the business operates." His firm is among those offering an initial consultation at no cost.

Accurate business valuation is key. And Mountain BizWorks recently added a valuation service to its suite of tools for clients. "Our valuation service helps the seller get grounded," Grasinger says. They get a sense if the proceeds will fund their retirement, provide seed money for another venture, or other uses. And if the number isn't what they had hoped, it can guide them toward reconsidering the whole idea. "It's just as much of a win for us when people say, 'You know, it's not quite time yet,'" Grasinger emphasizes. "It's powerful to give that knowledge, regardless [of the outcome]."

Many business owners hire a broker to help with and facilitate the sale. Grasinger says that on sales of $1 million or more, broker involvement is commonplace. "That's going to be their best option so that they can maintain focus on their business," he says. "Because one of the worst things you can do is 'take your foot off the gas' prematurely when you decide you want to sell."

Lower-dollar transactions can still benefit from the advantages that a broker brings. Though from Grasinger's perspective, they're more of a mixed bag in those situations. "It depends on the connectedness of brokers in the respective community," he emphasizes.

McKeehan enumerates some of the value brokers bring to the table. "A trustworthy broker should present the owner with an accurate assessment, including any foreseeable challenges that could impede the sale of the business," he says. "The broker may suggest improvements to increase the company's value and marketability, and in some cases may suggest delaying the sale based on market conditions or the current state of the business."

And the broker can provide a comprehensive list of critical steps the seller must take. Those, McKeehan says, can include sourcing financial records, resolving legal and/or tax issues and simply getting organized.

When a prospective buyer is matched with the seller, it's important that the former be properly evaluated, McKeehan says. "Prospective buyers should be vetted to disqualify those who are 'kicking tires,' seeking competitive information, financially unqualified or otherwise not suited for the business," he says. Brokers have experience in this area that can help the seller avoid costly headaches; they'll often make use of nondisclosure agreements to protect the interests of the owner.

Patience on the part of the business owner is almost always necessary. "At Viking M&A, the average list to close time is seven months," McKeehan says. "Smaller and less complex cash deals can close in less than ninety days." Larger, more complicated deals may take a year or longer to complete.

Even when an offer has been made and accepted, much work remains to be done. "Typically, there are attorneys, CPAs, lenders, underwriters, landlords, insurance agents and other entities involved in the long list of action items that must be completed in a time-phased manner," McKeehan says. "In our business we say, 'time kills deals.' The longer a deal takes to get done, the less likely it will close."

And even when the ink is dry and checks have been cut, McKeehan stresses that -- as part of many deals -- the business owner is likely to remain involved for some time to come. "It's very rare that the owner walks away from the business on the day of closing," he says. "Business owners should understand the buyer may need them engaged post-acquisition to ensure a smooth and successful transition. And it's essential the seller do everything they committed to in the deal agreement to make the ownership transition successful."

Buyer be aware
Many of the factors important for business owners to consider remain equally critical for buyers. And for those, the aforementioned business support systems can prove invaluable. In addition to helping business buyers acquire funding, a central component of Mountain BizWorks's model is lending and business coaching. Those services "set us up to be able to work with an entrepreneur or somebody considering buying a business on what to prepare, what to look at, what to analyze before you take that big step," says Grasinger.

Drawing upon his experience as a successful buyer, Jamie Gilpin suggests what he calls pre-preparation: "Write a target statement: What kind of business do you want to buy? Where, geographically, do you want it to be? What [level of] revenue? When do you want to complete the acquisition?" He recommends writing a mission statement as well, and then combining the two to make sure they're in alignment. Those steps -- ensuring that the buyer knows what he or she wants -- can help smooth the path forward.

Jeff McKeehan points out that most small businesses are acquired by individuals who seek to own and operate those businesses. That means that a potential buyer should ascertain whether the business' cash flow will provide a market-comparable salary, funds to cover debt servicing and an acceptable return on investment.

Gilpin suggests asking oneself several more questions. "Are you in the right place personally to take on a business? Will it be overly disruptive to your family and personal life? Is the business in alignment with who you are and where you want to go in life?" The answers to those questions will help with the buyer's ultimate decision-making process.

And establishing realistic expectations is important. "Many first-time prospective buyers envision owning a business as fun and exciting without realizing the hard work, long hours and years of sacrifice that growing a successful business requires," McKeehan observes. But at the same time he emphasizes that the intrinsic and financial rewards can make it worth all that effort.

Potential buyers must get their financial house in order. "Determine how you are going to finance a deal," McKeehan advises. He makes the point that a prospective buyer often has to make a quick assessment of a potential purchase; the best opportunities are likely to have other potential buyers eyeing them as well.

Timing is important, but McKeehan cautions that "trying to time the market is as risky for a buyer as it is for a seller." Melody Pineda agrees. "It's always just about balancing risk with reward. Use wisdom, but know that futures are always unpredictable." In the end, she says, "it's about how you respond to good luck and bad luck."

Gilpin believes a buyer can sort out the right time to purchase a business. "And once you realize the time is right, you'll be regretting that you didn't start earlier," he says. "Research the market until you're blue in the face, then keep going. Later decisions will be easier if you're well prepared and educated in the business and market you're entering."

He also emphasizes the value of getting solid advice from financial/accounting experts. "And legal experts, he hastens to add. "Find an attorney who's clever and who will advocate for you. Bring them in early, but be willing to tell them 'no.' Don't let them ruin or take over the deal; you're in charge."

"If I knew then..."
Mistakes are inevitable when entering the world of buying and selling a business in Western North Carolina. But those who have been through the process say that missteps can be minimized if the parties involved free themselves from misconceptions.

Jamie Gilpin says that one common mistake is underestimating the length of time the process takes. "Acquisitions are a dance, and toes will inevitably be stepped on," he says. "First, there's the period of getting to know each other. Then there are the negotiations where things can fall apart for silly reasons. Then the lawyers -- and often the banks -- get involved." And he says that reaching the finish line -- closing on the deal -- "can be a combined rush of frustration, confusion, and joy" for everyone concerned.

McKeehan concurs. "As much as we try to describe the complexity of the deal-making process, clients and customers tend to underestimate the amount of work that is required unless they have been through the sale or purchase of a business before." Getting a deal done, he says, "requires significant engagement from the seller and buyer."

And that, he says, underscores the importance of getting the right kind of help with the purchase and/or sale. "A lot of business owners think about selling their business as a do-it-yourself project," he notes. "What they don't realize is the amount of work that goes into selling a business, the time and effort that is required, the number of entities that will be involved and the expertise needed to get a deal done."

Melody Pineda notes that some small business buyers cut corners and fail to draw upon outside expertise. "Get good advisors," she says. "Especially ones who are in your corner and don't depend on your purchase for their own financial gain." Emphasizing that the entire process need not be scary, she likens it to a mess covering up a beautiful floor. "It takes time, diligence and attention, but eventually you will be able to see that floor."

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