Do you know how to avoid committing the worst mistakes when preparing for a liquidity event?
Most business owners do make the worst mistakes when preparing for a liquidity event. Depending on who you speak to, up to 90% of liquidity events fail.
Here’s another statistic for you when it comes to “successful” liquidity events. Most business owners leave 50% to over 100% of the deal value on the deal table.
In other words, most business owners hand over most of their hard-earned money to their buyers. Insult to injury, business owners don’t realize the money they’ve lost.
Who am I, and how do I know?
I started my eLearning business right out of school with no money, experience, or team. I failed forward all day, every day. My grit and passion kept me in the game long enough to experience success.
Success brought an unsolicited 7-figure offer. My gut instinct told me something wasn’t right. I said “no” to the 7-figure offer and “yes” to mastering the art of the sale.
Two years later, I said “yes” to a 9-figure offer.
What made the difference?
I created a 9-step road map of preparation that gave me the certainty to capture maximum value. Today, I pay-it-forward and help business owners prepare through a 90-day system.
The 90-day system, called the Deep Wealth Experience, teaches you the 9-step road map. You create a blueprint to help you optimize value. You also have the certainty of capturing maximum value on your liquidity event.
When preparing for a liquidity event, there are five strategies you must master.
What are these five strategies?
Preparing For A Liquidity Event Takes Time
A successful liquidity event takes years, not months – Jeffrey Feldberg
Preparing for a liquidity has you achieve three important things:
- Find and remove the skeletons in the closet.
- Find the hidden Rembrandts in the attic and put them out for public display.
- Provide enough time to deploy tax strategies
Why is it essential to find and remove the skeletons in the closet and display your Rembrandts?
You increase enterprise value.
The currency for both your investment banker and buyer is not money and instead is trust.
Showing up with a clean slate creates confidence with your investment banker. A clean slate stops your buyer from either walking away or lowering enterprise value.
A Rembrandt is an area where your business is world-class. Every successful business has at least one Rembrandt, and usually two or three.
Most businesses assume that what they do is no different than the competition. Don’t make the same mistake.
When you find your hidden Rembrandts and put them out for public display, you achieve three things.
First, you give confidence to your customers, and at the same time, attract new customers.
Second, you increase enterprise value with your buyer because your business is unique.
Last but not least are taxes.
The goal for your liquidity event is to keep as much money as possible when the deal closes. Most business owners make the mistake of overlooking taxes.
Effective tax strategies often take years to work. Preparing for a liquidity event gives you the time to reap the reward of tax strategies.
When preparing for a liquidity event, do you know one of the essential areas you must master?
Why You Must Have A Strong Management Team To Run The Business
The path to greatness is along with others – Baltasar Gracian
As you think about preparing for a liquidity event, here’s a question for you.
Does your business run without you?
If you answered “no” to the above question, you’re not ready for a liquidity event.
When you don’t have a strong management team to run your business, your future buyer will do one of two things:
- Walk away from the deal
- Penalize you and lower your enterprise value
The gift of preparing for a liquidity event before you start the process is time. If you don’t have a management team, you have time to hire talented people. If you do have a management team, you have time to ensure you have a strong team.
In the 9-step roadmap, step two focuses on X-Factors to increase the value of your business. One of the X-Factors is a strong management team.
Your future buyer knows what you did today and yesterday. At the same time, your future buyer wants to know what the business will do in the years ahead when you’re not around.
Imagine you have a strong management team that has a proven track record of success. Year-over-year, the business performs independently of you.
A strong management team gives a buyer both confidence and hope for a better tomorrow. As a result, you keep the buyer at the deal table, and enterprise value increases.
Speaking of your future buyer, do you know the one thing that you can do to help you get the best deal instead of any deal?
When Preparing For A Liquidity Event, Ensure You Run An Auction
With competition everyone has to try harder – Harold H. Greene
The benefit of preparing for a liquidity event is the opportunity to run an auction.
When it comes to offers for your business, most business owners make one of two fatal mistakes.
The first fatal mistake is either hoping for or welcoming an unsolicited offer. The second fatal mistake is dealing with only one prospective buyer.
In the world of mergers and acquisitions, it’s all too common for buyers to drop out.
When your universe of buyers is only one, you run the risk of losing time and money when the buyer drops out. You also lack leverage and options.
An auction allows for many buyers to take part in the liquidity event. The more interested buyers you have, the more leverage you enjoy.
As business owners, we’re competitive and want to win.
Why would it be any different for buyers?
An auction creates pressure that causes buyers to be on their best behavior. You neutralize buyer tactics of stalling for time or low-ball offers.
In the 9-step roadmap, step three focuses on your future buyer. One of the strategies you learn is how to spot the buyer with the best cultural alignment.
The highest offer isn’t always the best offer when you factor in cultural alignment.
An auction gives you choices amongst buyers. You’re in the driver’s seat and can choose the buyer that is the best fit for you and the business.
Next up is the topic of investment bankers.
When preparing for a liquidity event, do you know how to find the best investment banker?
Do You Know How To Find The Right Investment Banker That Will Help You Secure The Best Deal?
Honesty is the first chapter in the book of wisdom – Thomas Jefferson
When preparing for your liquidity even, do you know how to find the right investment banker?
When it comes to your investment banker, there are three essential points to keep in mind:
- Cultural fit
When searching for an investment banker, avoid cold calls or internet searches. Look to your network for referrals of trusted investment bankers.
Be wary of an investment banker who is an intermediary. An intermediary is not loyal to you and is loyal to a pool of buyers.
An investment banker that is an advocate does not have a list of buyers on speed dial.
An intermediary focuses on any deal, whereas an advocate focuses on the best deal.
When do you hire an investment banker?
Timing is everything. Smart business owners onboard an investment banker after an internal due diligence audit.
Preparation has you find the skeletons in the closet and the hidden Rembrandts in the attic.
Once you’ve removed skeletons and displayed Rembrandts, you hire an investment banker.
Perception is reality. Showing up prepared impresses your investment banker and increases enterprise value.
Let’s suppose that you’ve completed your internal due diligence audit. You’ve also found an investment banker advocate. You’re still not done.
The last piece of the puzzle is cultural fit. You must ensure there’s a cultural fit with the investment banker.
In the Deep Wealth Experience 9-step roadmap, step six focuses on hiring the advisory team. The right strategies and scorecards ensure you make the right choice.
When preparing for a liquidity event, do you know the one thing you must do with your advisory team?
When You Align Your Advisory Team, You Ensure The Team Works So That The Dream Works
The smartest person in the room is never as smart as all the people in the room – John C. Maxwell
When preparing for your liquidity event, ensure that you’ve aligned your advisory team.
Most business owners make the fatal assumption that the advisory team is on the same page as them. Paying your advisors does not guarantee alignment.
The downfall for most advisory teams is on getting any deal done instead of securing the best deal.
How do you align your advisory team?
In the Deep Wealth Experience 9-step roadmap, step six is all about the advisory team. Write out every member of the advisory team. While you’re at it, include your board of directors if you have one.
With the list in front of you, tune into everyone’s favorite radio station, the What’s In It For Me (WII.FM) station.
For key employees on your advisory team, consider a liquidity event success bonus.
For your investment banker, have a bonus if the deal value exceeds enterprise value.
Your mission is to ensure that your advisory team wants the deal as much as you do. Everyone needs to be on the same page with the same goal: securing the best deal.
Keep in mind that for your advisory team, you’re riding off into the sunset with a bank account full of zeros. You’ll secure the best deal when you have alignment with your advisory team. In the process, you create a win-win-win.
As you think about liquidity events, keep in mind that the odds are against you. Up to 90% of liquidity events fail.
The root cause of failure is a lack of preparation on the part of the business owner.
When preparing for your liquidity event, there are five essential strategies to master. Each strategy builds upon the other strategies.
How do I know?
I said “no” to a 7-figure offer and “yes” to preparing for a liquidity event. After preparing for my liquidity event, I said “yes” to a 9-figure offer.
The 9-step roadmap of preparation I created did two things for me:
- Create a blueprint to optimize the value of the business
- Provide the certainty to capture the maximum value
What can you do, and where do you start?
Start with the first of five strategies I revealed for preparing for a liquidity event. Stay with this strategy until you master it. Once done, move on to the next strategy until you’ve mastered all five strategies.
The best time to prepare was years ago. The next best time is today. Whether your liquidity event is in one year or ten years, the time to prepare is today.
Increasing your enterprise value comes from preparation itself and not the liquidity event. Preparation positions yourself to secure the best deal and not any deal.
Your liquidity event is the most important business event of your life. Make your liquidity event count through high-quality preparation.
Here’s to you and your success.
Your Raving Fan,