mug strausserA while back I wrote about the importance of succession planning in any private or public organization. In that article I noted that most of us in the collection industry surround ourselves with efficient and knowledgeable staff members to help navigate the dynamic industry in which we operate. We offer training to front line employees to decrease turnover and increase profitability. We strategize sales approaches to bring in the business needed to feed our collection machines. We mentor and entrust middle and top managers to ensure smooth sailing on a daily basis. What about upper management? Who mentors them? If you own the firm and make the decision to leave or sell an organization, who takes your place at the helm? If you are a principal in a company and should become ill, or worse yet die, do you have a written plan in place to handle the sale or transfer of your interests?

Over the last several years I have encountered unprecedented numbers of collection firm owners looking for early retirement or searching for greener pastures as they explore other career opportunities. The increasing challenges of running a collection agency have many disheartened and pursuing avenues to cash out. I recently had a long conversation with an industry expert, Michael Gillette, on Buy-Sell agreements and feel it is important to share some ideas with our readers who are in an ownership role.

The most important lesson is to reduce your wishes and terms to writing long before you are in a position to want to sell or need to sell. Very clear and thoughtful terms can mean the difference between a smooth and a disastrous transition of your firm. Knowing when and how to sell is key. Unfortunately I have chatted with a growing list of owners who feel defeated and worn out by our current industry culture and are letting their agencies die a slow death. Like the old country song, “you gotta know when to hold’em, know when to fold’em, know when to walk away and know when to run!”

Trigger Events

The most common trigger events that lead to the need to engage in a buy-sell are: death, divorce, disability, and bankruptcy.

If you have one or more business partners, addressing these events in an agreement now is critical. It is far easier to negotiate terms for business transfer when you are in a positive place with players. Often these proactive discussions are amiable when partners are happily dealing with their respective roles in the organization. Clearly outline in your agreement what will happen if any of the above events become a reality.

What is your Firm Worth? Herein lies what can be one of the more contentious discussions. How do you actually value the collection operation so that partners/co-owners are treated fairly? There are three common avenues:

Stated Value

The owners/insiders of the firm in a cooperative manner agree upon what they believe the value to be and annually update that valuation. When an event occurs they have already determined the value for the sale or purchase of shares.

Third Party Appraisal

This is often one of the fairest valuations. It can be costly but incorporates the knowledge of an industry expert into the valuation process. These professionals will use a variety of models to project the pricing.

Financial Multiples

This alternative is universally accepted, rather simple, cost effective and commonly understood. It often incorporates a multiple of a firm’s EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortizations). After a value has been determined you must finally pre-determine how the purchase/sale will be funded. In the event that a purchase or sale presents itself, partners have to strategize the best and most practical form of payment. The most common forms are cash, promissory notes or the dove-tailing of promissory note repayment with company distribution activities. The individual financial wherewithal of partners must be considered when negotiating this dynamic. There is far too little space in this column to outline the many intricacies of the buy-sell process, but the message to our readers is that the time to coordinate your thoughts and reduce them to writing to prevent problems in your future is now.

I would like to thank Michael Gillette of Gammage and Burnham for his wise counsel and advice. Michael can be reached at 602-256-4473 or This email address is being protected from spambots. You need JavaScript enabled to view it.. We encourage our readers to submit a “best practice” idea for inclusion in this column. Until next time, I’m in a collection office near you.

Harry A. Strausser III is the President of Interact Training and Development. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..