Pass The Baton Introduces 'Baton Partnerships' - Unique SMB Owner-Employee Business Sale Transition Process

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Pass the Baton's owner-to-employee business transition "Baton Partnerships" -- for small-to-medium-sized businesses (SMBs) with revenues between $500,000 and $25 million -- avoid bank financing and the use of sales brokers. 'Exit/Stick Around' strategy for selling owner who stays Involved on limited basis. Both parties have a role in the company, and both make money.

Steve Healis and Cosi Costa, Avalon Property Services

The sale of a company as a Baton Partnership—in which both parties have a role in the company—provides the selling owner with a long term income opportunity, and the buying employee with a rare opportunity for low-cost entry into business ownership.

Pass the Baton, a specialist owner-to-employee business transition consulting firm, has introduced a new concept called "Baton Partnerships" into the multi-billion-dollar national market for buying and selling small-to-medium-sized businesses (SMBs) with revenues between $500,000 and $25 million. The program avoids bank financing and the use of sales brokers.

Based on owners selling their businesses to key employees while maintaining partial ownership but limited involvement, Baton Partnerships are designed by Pass the Baton for any small business, e.g., service industry and product-based companies, family-owned firms, retail and rental companies, and other SMB enterprises.

The company's Baton Partnerships offer a unique method of business ownership transition designed to mutually benefit both company owners and key employees. The sale of the company as a Baton Partnership--in which both parties have a role in the company--provides the selling owner with a long term income opportunity, the buying employee with a rare opportunity for low-cost entry into business ownership, and other employees with job protection and a seamless ownership transition.

For half the cost of a traditional deal, Pass the Baton provides a range of services to support the transaction, including a business valuation and analysis, the actual formation of the sales and financing agreement, and attendance by a Pass the Baton partner at up to six monthly meetings providing direction, guidance, coaching and mentoring to ensure a smooth transition.

"Just like in a relay race, the root strength of a Baton Partnership is that both seller and buyer are dependent on each other to assure that the handoff works and the business remains successful," said Steve Healis, Pass the Baton president. "A Baton Partnership is particularly appealing in 'burnout industries' where owners have worked long and hard and want to retire or start another business, but can't figure out how to pull it off to their satisfaction. We say, why not sell the business to the key managers who are already running the company anyway? And let them buy the business for very little cash down. Pass the Baton will help them do just that."

The Baton Partnership concept evolved out of Healis' first company--Newport Beach-based Avalon Building Maintenance, which he founded in 1994 and grew in five years to $9 million in annual revenues. According to Healis, his personal experience at selling his business taught him that the traditional method of using business brokers is very expensive and can amount to what he calls "spying" versus "buying."

"Because an owner has to reveal his or her financial information to potential buyers during the selling process, that information could fall into hands of unscrupulous competitors," Healis said. He added that he also faced a problem with buyers who wouldn't commit to taking care of key employees--a priority for him--after he left the company.

When it came time to sell Avalon, Healis invented the Baton Partnership concept--a new way to structure business sale transitions and one that continues to pay him residual income years after he sold the company.

Healis noted that his company's Baton Partnership method can also be utilized early on by a business owner as a hiring strategy to recruit and incentivize key employees who might otherwise eventually leave the company to set up competitive businesses.

Key elements of Pass the Baton's Baton Partnership model include:

  •     Financing for the sale of the business comes from the business' current operating profits.
  •     The buyer can be a long-time employee, family member, or designated outside person who has joined the company and worked for a minimum of six months prior to the purchase. The target Key Employee will possess the organizational, operational and financial skills to run the business, and have good credit.
  •     Through a stock or asset sale, the selling owner retains a small percentage of ownership of the company for a pre-determined period of time, thus becoming a minority shareholder. Meanwhile, the buying employee obtains a large percentage controlling ownership.
  •     The selling owner continues to take money out of the company each month--the same amount that he or she had been earning--in the form of purchase payments and royalties, all of which are deductible for the company under the new owner.
  •     The new owner continues to receive his or her regular employee salary, with future raises tied to increased profits.
  •     By keeping a small percentage of ownership, the seller continues to have a vested interest in the success of the company, which benefits from the previous owner's existing relationships and experience.
  •     By paying the seller a percentage off the top, the buyer avoids the prospect of the former owner trying to make controlling decisions after the sale is complete.
  •     Though the former owner has no operational control after the sale, if the buyer misses or is late on payments or the revenue goes below a certain amount, the seller can take the company back.
  •     Both parties have the option to submit the final agreement to their attorneys for review before signing.

Pass the Baton is recruiting a network of consultants to market the Baton Partnership Program, first in Southern California and then nationwide later in 2010. The company has plans to establish Pass The Baton University for the purpose of developing Baton Partnership Consultants.

Pass the Baton is located at 2320 Fourth Avenue, Newport Beach, CA 92625; Ph|Fax: 949/334-6666; Web: http://www.passthebaton.com; Email: info(at)passthebaton(dot)com.

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