When it comes to selling your business you have one chance to get it right. You better make it count.
How do most business owners do when it comes to selling their business?
Two statistics say it all.
Up to 90% of liquidity events fail.
Of the “successful” liquidity events, most business owners leave 50% to over 100% of the value on the deal table. This is a polite way of saying that business owners hand over their hard-earned money to the buyer.
What can you do when selling your business to have a successful liquidity event?
Five proven strategies made all the difference.
Who am I, and how do I know?
I started my business right out of school with no money, experience, or team.
Failure became my new best friend. It was my grit and determination that kept me in the game long enough to experience success.
With success, I received a knock at the door from an experienced and successful buyer. The buyer presented a 7-figure offer.
I said “no” to the 7-figure offer and “yes” to mastering the art and science of a liquidity event.
Two years later, I said “yes” to a different buyer who had a 9-figure offer.
Today, I pay it forward. I help business owners through a 90-day system called the Deep Wealth Experience.
The 9-step roadmap helps you think like your future buyer. You learn how to find and remove the skeletons in the closet. You also learn how to find the hidden Rembrandts in the attic and put them out for public display.
There are five critical mistakes most business owners make. These five mistakes can cost you the deal or lower your enterprise value.
What are the five mistakes, and what can you do?
When Selling Your Business, Missing Your Projections Is Welcoming Failure
If you fail to prepare, you’re prepared to fail – Mark Spitz
Most business owners don’t prepare before their liquidity event.
When you’re selling your business, congratulations, you now have a full-time job. Your full-time job is otherwise known as your liquidity event.
When selling your business, you’ll give up your health, time, and money by not preparing in advance.
Both you and your team are under tremendous time pressures. Your investment banker and buyer need a plethora of reports and information.
You can look forward to early morning, late nights, and weekends. And by the way, while you’re scrambling to get the information, you still need to run the business.
A typical liquidity event can be up to nine months. During the liquidity event, your buyer is watching everything you do.
Some of the projections you provide will happen during the liquidity event. All eyes are on your business to see if you meet the projections.
Often, buyers will deploy many tactics that play to your ego and goad you to over-commit.
Meeting projections when you’re not prepared is challenging on its own. Overcommitting to the projections is next to impossible to meet.
What happens when you miss your projections?
Your buyer loses trust in both you and the business. In the world of mergers and acquisitions, trust is the currency.
When you’re selling your business, and you miss your projections, one of two things happen.
You either lose the deal, or your enterprise value goes down.
Neither scenario is ideal.
How do you avoid a situation where you miss your projections?
Prepare well in advance of your preparation.
What does preparation do for you?
When Selling Your Business, You Must Find And Remove The Skeletons In Your Closet
The future belongs to those who prepare for it – Jim Moran
When selling your business, your mission is to find and remove the skeletons in your closet.
Successful sellers remove the skeletons in your closet before their liquidity event.
The 9-step roadmap of preparation has you master three things.
First, you find and remove the skeletons in your closet. Second, you find your hidden Rembrandts in the attic and put them out for public display. Third, the culmination of preparation helps you grow your business.
What’s the result?
You increase the enterprise value of your business.
Not removing skeletons in your closet is a field day for your future buyer.
Buyers look for every opportunity to reduce their risk.
How do buyers reduce risk?
Buyers reduce risk through:
- Lowering your enterprise value
- Insisting on an earn-out
- Increasing the amount of the escrow
While some sellers do receive their earn-out, most don’t. Your mission during your liquidity event is to avoid an earn-out at all costs.
Finding and removing skeletons before your liquidity event gives you an edge.
In the world of mergers and acquisitions, you’re always guilty and never innocent. When a buyer finds a skeleton, you pay the price even when you clean up the skeleton.
The best strategy is to show up to your liquidity event without the skeletons. Do this today, and your enterprise value reaps the rewards tomorrow.
Why Speed Always Wins During Your Liquidity Event
Look to speed as your ally and friend when selling your business – Jeffrey Feldberg
When selling your business, speed is your new best friend.
Speed always favors the seller.
End of story.
Nobody knows what tomorrow brings.
A quick story.
If my deal closed a mere 14 days later, my 9-figure exit wouldn’t have happened.
The buyer of my business used bonds to finance the deal.
The Great Recession started 14 days after my closing. The bond market felt the impact first. The cost of interest in the bond market increased.
The buyer shared that had the deal closed after the Great Recession, there would be no deal.
Preparing in advance of your liquidity event saves you time and can save you the deal.
At the same time, preparation in advance saves your health and money.
When you’re selling your business and prepared, you welcome:
- A shorter due diligence
- Negotiations are quicker
- Less time in the market
You save your health and time because you and your team have done the work in advance.
You’ve removed the skeletons in the closet. You also bypass the need for expensive outside consultants to complete the work for you.
Please know that you do need an advisory team. Your advisory team helps you get the deal done.
The time and money saved come from your ability to perform an internal due diligence audit.
Speed wins. Always.
Prepare in advance of your liquidity event when selling your business.
Do you know one of the biggest mistakes business owners make at the start of their liquidity event?
Why A Well Crafted Letter Of Intent Paves The Way For Both Deal Certainty And Success
Let our advance worrying become advance thinking and planning – Winston Churchill
When selling your business, don’t make two fatal mistakes with the Letter Of Intenet (LOI).
What are the two mistakes?
Believing that the LOI is a done deal and not have a detailed LOI.
When selling your business, you maximize your enterprise value through an auction.
An auction is where many buyers are part of the liquidity event. An auction puts pressure on buyers to be on their best behavior.
You have the greatest leverage before signing the LOI. Once you sign the LOI, you go into exclusive discussions with one buyer.
Part of the 9-step roadmap has you identify your deal points and no-fly zones.
Deal points are things that must happen for you to say “yes” to the deal. No-fly zones are items that have you walk away if they are present in the deal.
When you know both your deal points and no-fly zones, you can incorporate these items into your LOI.
Deal points and no fly-zones include:
- How long you’re in the business after the liquidity event
- The type of buyer financing that’s acceptable to you
- No earn-out
- A deal structure that minimizes taxes
- Protecting key employees
When you have an auction, the buyer knows that you have choices. Incorporation of your deal points and no-fly zones in the LOI provides deal certainty.
Your future buyer is more likely to agree to your terms before signing an LOI.
When selling your business, ensure you have a detailed LOI.
Do you know the one area that can either make or break your deal?
When Selling Your Business Know That When The Team Works The Dream Works
Great things in business are never done by one person, they’re done by a team of people – Steve Jobs
When selling your business, your advisory team is what can make or break your deal.
A common mistake business owners make is not hiring M&A specialists for their advisory team.
Don’t think for a moment that you don’t need an investment banker. Whatever you pay for the right investment banker is a rounding error.
You may have the greatest business lawyer around. Smart sellers hire a mergers and acquisition (M&A) attorney.
Here’s a rhetorical question for you.
How can anyone master something they have done before?
The answer is that you or anybody else can’t master something you’ve never done before.
When selling your business, your mission is to surround yourself with a team of the best M&A advisors.
Find and hire the best M&A lawyer, investment banker, and Quality of Earnings specialist.
You have one chance to make it count when selling your business. The right M&A advisors help ensure that you make the most of the opportunity.
Before starting your liquidity event, the 9-step roadmap has you hire two M&A advisors. First is a Chief Exit Advisor. The second is an M&A lawyer.
With your Chief Exit Advisor and M&A lawyer by your side, you start the process of preparing.
Once you’re prepared, you’re ready to hire the remaining advisors.
Your advisory teams both protects you from you and know what you don’t know.
When selling your business, always remember that when the team works, the dream works.
Selling your business is the largest and most important decision of your life. You have one chance to get it right and better do everything you can to make it count.
There’s a reason that up to 90% of liquidity events fail. The reason is that these business owners aren’t prepared.
There’s a reason why most business owners leave anywhere from 50% to over 100% of the deal value in the buyer’s pocket. The reason is that these business owners aren’t prepared.
Five essential strategies that protect you and help you maximize enterprise value.
At the heart of all five strategies is preparation before selling your business.
The 9-step roadmap helps you prepare. When you’re prepared, you achieve two things.
First, you’ve created a blueprint to optimize the value of your business. Second, you have certainty that you’ll capture the maximum value.
It’s one thing to believe, and it’s another thing to know. The majority of business owners fail because they believe and don’t know. When it comes to selling your business, you must know.
Whether you plan on selling your business in a year or ten years, now is the time to prepare.
When you prepare today, you ensure you succeed and prosper tomorrow.
Here’s to you and your success!
Your Raving Fan,