HATTIE: Number five. Sell to the best bidder. There are three groups who could be interested. One is business brokers and agents; that's much like real estate and selling your home. Another is the venture capital market. The other is the angel market.

TRACY MYERS (Co-founder, Advertising Arts College): I wasn't thinking about retiring. I thought, `Oh, I'll work for maybe another 10 years.' Then I got a phone call.

BOB ORENSTEIN (Founder, International Wine Accessories): It was like being a rat on a treadmill. I was running and running and running, and it was time to figure out, `How do I get off this treadmill?' And there were different ways.

HATTIE: (Voiceover)Bob Orenstein and Tracy Myers both used a broker and both sold to publicaly traded companies. Tracy showed us where in 1981 she opened her business, the Advertising Arts college. It offered curriculum designed to prepare students for a career in advertising. The school grew and in 2000 she sold to The Art Institute, a growing enterprise traded on the Nasdaq.

TRACY: I think I was in shock at first. I kind of thought someday it would be nice to be able to sell the school, and everybody thinks about an exit strategy. Do I have one? Do I need one? Is there someone to pass this to?

BOB: First thing I'd like you to do is I'd like you to just pick up this glass, roll it a little bit, and try to smell the aroma.

HATTIE: (Voiceover) In 1983, Bob Orenstein started International Wine Accessories in the spare bedroom of his condominium.

BOB: But remember, this is functional also.

HATTIE: (Voiceover) Bob grew the business to over $20 million in sales, and in 2000, he sold to the $5 billion conglomerate the Foster's Group. After the sale, he promised to stay on as president for three years.

HATTIE: How did you, A, come up with the valuation, and then, B, come up with the prospect list that you would pitch? BOB: The valuation is based upon — that you do all the financials going back five years, you project five years forward. And then it was Larry Starks from The Geneva Companies it was their responsibility to go in and make an evaluation.

HATTIE: (Voiceover) Larry Starks met us at IWA.

LARRY STARKS (Waterview Advisors): And very simply, it's contingent on a company's cash flow. And this is very much a financial model, the one I'm talking about now. But I look at discounted cash flow, I look at what I call market multiples. Those are, from a simple perspective, someone may know of a price/earnings ratio, and it's a similar kind of approach, but applied to private company valuation. (Voiceover) And then the last thing you would look at is the value of the assets of the business, not their book value, but their fair market value. And in Bob's case, the unique asset he had is an intangible asset that really had strong value, and that's his customer list.

BOB: (as voiceover, backgrounder) What else is coming down?

LARRY: (Voiceover) Now, should someone rent Bob's mailing list. It only has this much value, but the ownership of the mailing list in combination with the people he has in the International Wine Accessories brand, now that is a brand! It's something people come to trust over many, many years of looking at their catalog, understanding the products they carry, understanding it's a reliable source for high-quality top-line products. That's really what adds value. It's the combination of those intangibles. But the person making the buying decision, deciding what to pay for a company, is the CFO, and he's looking at the bottom line more often than not. Not always, but more often than not.

HATTIE: How do we build something that somebody else wants to buy?

BOB: The first thing you have to do is you have to have solid financial numbers, numbers that somebody can check and rely upon. A lot of small businesses put all their effort into growing the sales, growing the organization, investing in the future, but they don't invest in the accounting. We had everything on a trajectory that looked like you could project right into the future.