Who Would Want to Buy Your Business? (Manny Clark)

Welcome back, Manny. Thanks for coming back for session two of our Creative Genius podcast. We’re talking about exiting your business and we had so much good content in the first round that we realized we needed to go back and shoot it again. So here we are. Yeah, I’m glad to be back and really excited to talk to you and the Creative Genius listeners. All right. Thank you. Well, I heard that the statistic is very low for the percentage of businesses that actually sell.

So let’s talk about why that is the case and what can be done to ensure that you can actually exit your business and get through the process successfully. Absolutely. So, you know, it’s likely the case that most businesses will never reach a sale as a form of exit simply because most businesses that are ever formed fail. I think the prevailing statistic that most folks in the entrepreneurial community

are aware of that 80 % of businesses fail sometime, I think within the first five years after formation. So it’s the case that it’s hard to reject it simply because no business was that such businesses weren’t able to ultimately achieve any kind of ongoing income that made their owner satisfied with keeping them around. Otherwise, I generally think it’s the case that a lot of businesses fail to exit simply because they never

really become attractive acquisition targets for potential buyers. You have to really think about why a buyer would want to purchase your business. Generally, there are two types of buyers. We may have covered some of this in our last session, but there are strategic buyers, which are other businesses that are operating also within your same space. They may be your competitors. They may be far larger than you, but still operating within your space and may see you as someone who

you know, ultimately is taking some share, you know, of the market away from them. And then additionally, there are financial buyers. These are your search funds. These are your private equity funds. In many cases, you could also consider VC, you know, as another potential buyer in this instance. And so for a seller to make yourself attractive to those folks, one, you want to have a sufficient amount of income associated with your business.

for them to say that you are an attractive acquisition prospect. And you also have to have potential for future growth associated with your business to make someone say, gee, I’m interested in potentially laying down cash now because the value associated with what I’m putting in as an investment now is expected to grow. And so for most sellers, because they’re not able either to achieve sufficient income and a large enough share of the market,

That would make them unattractive for strategic buyers who will say, gee, I can just wait this person out. Their business will likely go under, but their customers will need somewhere in order to source whatever thing that they need for the market. And they’ll be able to turn to me at that point. And for the financial folks, without sufficient income or sufficient growth, it’s just the case that they look around and say, I will put in money today, that unfortunately I’m not going to be able to return.

with any additional value to my limited partners. So that’s what makes it difficult for sellers to be able to achieve any kind of sale-like exit. So if you’re a seller and you’re thinking about, how do I ultimately achieve a future sale? It’s one, you need to have sufficient revenue and sufficient net income associated with your business to make you attractive.

And then again, you’ve got to find and execute a growth plan. And so that’s really integral to a decision ultimately about exiting in the future. It is how am I going to grow my business and my income to satisfy myself, my family, and my partners? And then additionally, if I’m looking at a potential exit, how does this grow enough that it makes a strategic say, I’ve got to get them out of the arena?

Or alternatively, I’ve got to get them into this company so that I can grow and increase the size of my own dream and my own business. Same with respect to a potential financial sponsor. What makes a financial sponsor look at your business and say, gee, that is so appetizing if I can get and make this person my partner, because really that is what a sponsor-backed deal is. It’s a partnership.

By making this person my partner and leveraging their management experience and their operating experience, how can I turn that into returns for my investors and therefore returns for me as well? So those are the keys that you need to be thinking about and executing on to ultimately achieve an exit in the future. And there are a lot of ways to exit. And you mentioned, since it’s an acronym, let’s define it. You said VC. So let’s talk about what a VC is.

Sure sure so BC is venture capital and their their investments often aren’t viewed necessarily as exits really they are their capital partner in this instance. So a VC investor and they fit under the umbrella of private equity. are professional investors. Often they are looking for very high growth businesses to make investments in their investments are geared towards

not just an attractive growth prospect where you see growth in the business at 8 % or 10 % a year, they are really looking for home runs. And so they will often back businesses very, very early in their life cycle. So you have early stage VCs, seed stage VCs. Those are among professional services firms. They tend to be a little bit difficult to find. There are not a lot of VCs within the space.

particularly those operating outside of the technology assisted professional services realm. So technology consulting companies may be able to attract them. You’re more likely within professional services, like for example, interior design firms, architecture firms to see private equity sponsors that may be interested in your business. They are like to VC in that they are laying down a monetary investment to be able to join you in your business. They will help you.

grow the business and ultimately sell it in the future to receive a return. But they are unlike VC in the sense that private equity tends to try and aim at a control transaction, which is effectively they want to have the ability to direct the business, determine what its capitalization will be, which is how much debt or equity you put into the business. Ultimately, with the goal of they have a tried and true method to growing it alongside you.

VC tends to try and stand back and they say, we want to give you the cash you need to be able to develop a new product, get that product to market, expand it rapidly so that ultimately we can either potentially sell to private equity or go through an IPO. And those are some of the most lucrative potential exit options out there. Yeah. And a lot of the people that were, that are listening to this podcast are probably not going to be at that level where they’re going to do an IPO.

I can only think of maybe two so far in the industry, but there are other ways for people to exit. So let’s talk about a couple of those ways. And you didn’t kind of touch on this that you could have a strategic buyer and they might be putting money into the business, which essentially is helping to cash you out somewhat. And then also ESOPs, which are your employee stock option plans. And I’m sure there are many others I’m not thinking of, but why don’t you tell us a little bit about options?

Absolutely so. think, and I might have talked a little bit about this in our first session, but I think the best way to conceive of potential exit options is to view them through the lens of corporate finance, which is where the concepts and all of the concepts associated with mergers and acquisitions emerge from. Functionally, all of these are just trades. They’re different kinds of trades. So when you’re thinking about

the diversity of potential trades that a buyer may seek when they are looking towards sellers, those trades are aimed at different purposes. Some buyers really just want to get rid of competitors and those are the strategics. So in that instance, a type of trade there is, we just make a full acquisition of another competitor. We buy out their business either through an asset purchase or stock purchase.

So that is a direct control transaction. You’re just taking them out of play. Another type of trade is an aqua hop. Those are generally a type of transaction where a seller may be experiencing a bit of distress, maybe in a period where they say, gee, I’m actually ready to exit this business, but maybe I don’t exactly have attractive prospects behind me associated with sufficient amounts of income or growth.

that make it attractive to the market to come and buy me, but my team is really good and maybe they’re underutilized. That is another potential trade and another potential exit option. There are the exit options that the financial buyers are also interested in seeking alongside sellers. So those are controlled transactions alongside private equity. Those are usually, or rather they usually occur in the context of

You have an active team in a business that you see attractive growth prospects that has attractive income associated with the business. And you have an outside private equity or other financial sponsor who says, if I partner with this person and help create some liquidity, which is just buying some part of their interest out, giving them some cash,

creating some lifestyle benefits for them. I’ll be able to participate in that business with them in the future and we can reach another potential sale transaction where we will get richer in this instance. There are a litany of these. There’s additional management buyouts which you will occasionally see and these are very closely related to ESOP buyouts which are employee stock ownership plan buyouts. Effectively, these are people who are in your company

buying you out as the owner. And those can occur, the ways in which they’re going to occur is multifarious. So you can have structures where they’re coming with cash, which is pretty rare for a manager to out. Very often what you may see is you have your management team and they say, hey, we love working with you. We understand you may be ready to transition. In this instance, what we would like is a loan, effectively.

You know, to buy out your business, we will pay you over time for the value associated with your shares or your ownership of the assets. And that allows you to transition and you receive the benefit of that. Those are a couple of the different options. I would say for most professional services firms, I tend to see a lot of minimum buyouts, quite a lot of buyouts alongside private equity sponsors. So these control transactions where private equity sponsors coming in.

is buying the company retains you as a 30 to 40 % owner of the company and you collectively go out and grow the business more to sell it again, where you will make a full semester or sometimes you actually continue on more. And then quite a lot of aqua hire and just direct purchases from strategic. Those are, I think are probably the three sets that I would say are most common among professional services for us to advise.

Okay, so aqua hire meaning acquire. Tell me about that. What does that mean? Yeah, aqua hire is acquire by hire. That’s really the concept. And it’s something that we really saw it grow quite a bit within the technology industry. Probably starting in the late 80s, there was quite a lot of activity in the 90s and then it exploded.

At the beginning of the 21st century, large companies like Google would just go and acquire another technology company, not for the purpose of actually buying the product or the income associated with the product, but rather they wanted just the engineering team. We now see that quite a bit within the professional services space, particularly with consulting companies.

So consulting firms, advisory firms, and I think this would be likely a life to engineering and architecture firms. The idea is, hey, this competitor may not be attractive as someone, don’t necessarily, I don’t want their customer list. It may be nice to have, but I don’t really want them. But their team is excellent. And I can take their team right now, fold them into my business and my business would grow substantially. I would be able to reduce, you know, I would be able to allocate.

you know what is now short bandwidth, you know, currently within my company. So it’s a really powerful tool primarily for strategic buyers. You occasionally see it from financial buyers. But it’s something to be wary of. It is a potential exit option. I don’t think it’s necessarily a favorable one, but it is one that is out there. And one that is if you are potentially looking to grow your business, it’s something you should also consider as well. It’s a great way to get new talent.

Interesting. Okay. Well, and that’s something to think about sometimes. Maybe the stepping stone for selling your business is, like you said, acquiring another business, growing a little bit more and then coming back to the table with a more valuable business. Many folks would say, and so I believe I sent across some show notes in our last episode and I refer listeners to that as well. Many folks would say that is one of the most powerful ways to grow your business.

It really is looking at the market, finding attractive acquisition opportunities, realizing when looking at those opportunities, what are the ways that upon folding them into my business, I can reduce the overhead costs associated with their business through that integration. And additionally, I can expand the customer, the income I’m receiving from this set of customers that we may share with the new customers.

that they may be able to bring in. It is a way to, you know, it’s a way to increase the multiple associated with your business, such that you may go from a 5X multiple with the business that is, you know, potentially EBITDA of a million, two million, three million to 10 million and more, you may be looking at a completely different multiple and completely different amounts of money associated with it. So I, there’s a,

One of the books I recommend there is the exit strategy playbook. I highly recommend that to the listeners. Take a look at that book. It talks a lot about buying in order to continue to build your business. Okay, that’ll be my reading list very soon. So I just want to go back and jump into what you said and maybe decipher that a little bit for the listeners because we have some people that aren’t financial people. So EBITDA is earnings before interest, taxes, depreciation and amortization.

which is kind of a long word for net profit plus some other things. And when we talk about multiples, we’re talking multiples of that. And that is an acquiring firm is going to pay you some number like two times, three times, four times, whatever that EBITDA number is. So the higher your EBITDA is, meaning that especially if you’re a million, two million, five million, your multiples keep going up for each of those different

points and correct me if I’m wrong. it is the higher EBITDA, it is more likely that you were able to achieve a larger multiple. The reason for that is that the higher EBITDA is it’s likely suggested that you may be in an industry with quite a lot of growth associated with it. So the whole concept around why we tack towards EBITDA.

Within corporate finance as a measure of profitability is we can’t necessarily look directly at net income associated with the business because net income also folds in stuff like taxes, which are variable among different companies and the same with respect to depreciation and amortization. So EBITDA helps us get closer to that net income concept. And additionally, the concept of EBITDA

All of this relates to what is the potential value of your business in the future, 10 years, 20 years. The multiple associated with EBITDA is meant to try and approximate that. So if it’s 5X EBITDA, the idea is that your business shot out into the future, including all of its cash flows, is equal to that number, EBITDA times that multiple.

As that EBITDA number grows, investors will tend to look at you and say, is a business that may be in a high growth area. This is a business also that may be very attractive to other potential players within our market. And so it is more likely that you will be able to command a larger multiple in that instance. it’s not necessarily that you always will get a bigger multiple for a bigger EBITDA number, but

the competition associated with buyers for larger EBITDA businesses, it is the case that often they do command higher money. Yeah. And it takes some work to get there. as you and I are both in the same group, it can take 15 years to build your company to a point where you’re really ready to exit with a good EBITDA and all the other factors that you need to consider. And so let’s talk a little bit about process of selling.

and ensuring that you have a smooth process because again, we, don’t know if you were on the call today, I was listening to this morning and there is a worksheet that Greg has that it’s like 115 questions you need to ask to get yourself ready to sell your business. And I was thinking, wow, I’ve got some work to do. I’ve got to go back and really think about that. And it is a lot of work to prepare your business to sell and you have to have a big intention.

And you can’t wait till three months before you’re ready to sell and say, I want a great price for my business. So let’s kind of unpack that a little bit and talk about how to make sure you have a smooth process. Absolutely. And, know, I think a lot of this, you know, to, really get the process you want out of your potential active transaction.

You really need to start thinking about it as early as possible. Some people would say you need to about it as at the moment that you’re forming your business. The reason for that is that you in the course of running your business will begin to develop habits will begin to record items associated with your business or your financials in a particular way. You will stick with those habits if you have not thought about given a lot of thought to how you run your business.

then those habits can stick with you all the way up until you’re after transaction, in which case lawyers and accountants and advisors are trying to unwind those things to figure out, what is the actual value associated with this business? What needs to stay? What needs to change and get you to a sale? If you’re thinking about those things early, so for example, your accounting and your accounting systems.

you are accounting on an accrual basis early, which is you are accounting according to GAAP or otherwise accounting not on a cash basis where you’re just looking at what cash comes in and goes out, but you’re really taking and taking into account, how is my business on any particular day basis approving for our normal expenses as they come due or as they become relevant to us?

And additionally, how we accruing for income? If you’re getting that right from the beginning of the process, then once you get to potential sale transaction and that item in particular becomes a big point of due diligence, it becomes easy for a potential outside advisor, for example, a sell side quality of earnings provider. So that’s a person who helps provide what is called a quality of earnings report. It helps you do an analysis of what are you recurring?

income and revenue pieces that a buyer should be aware of and that plug into your ultimate EBITDA calculation. It makes it easy for that person to reach those calculations. It reduces the amount of time and just the expense and the dig through that they have to go through to separate out what shouldn’t be a part of the business and what shouldn’t. If you’re starting that from the beginning, the process goes quite a bit smooth.

The other items that I want to make the listeners aware of, it is the case when you’re an entrepreneur that in many instances you are running a business that fits your lifestyle. So your business may be trying to take advantage of potential tax breaks. You may be viewing, hey, I used some of my business assets in order to buy assets that I use in business and also separately use at home. Sometimes you can

you know, either wittingly or unwittingly commingle your assets, you know, with those of the business. Separating those out, I think, from an early stage and running your business purely as a business is, you know, I advise it and it’s certainly the case that once you get nearer to a sale, your buyer will insist upon it and want to ensure that the things that belong to you, the expenses that belong to you remain yours and don’t become a buyer’s issue in connection with the business.

So when you think about the process, the process really starts early on and it should start at least about three years before your sale where you are potentially going out. And if you have not already put yourself on an accrual basis for your accounting, then you are seeking an advisor that will help you for the future. There are quite a lot of buyers who I think would appreciate the benefit of audited financials associated with the business. And so that really takes

a lot of work from an outside accounting firm. And so it’s working with them, doing that from an early, early, early on alongside and giving them the time to do it and then doing it for several years. If you have about three years of audited financials, that’s something buyers love because that is quite a lot of history associated with your company. And now they have assured themselves that an outside accounting firm believes that that is in accordance with GAAP.

So those are some of the things starting early in the process there with respect to just getting your house in order are key aspects of the starting the sale process. From there, I’d say when you’re about 12 months out and you think I really want to put this business on the market, that’s where I would really recommend going and starting to look at potential advisors. I’m an attorney.

I will admit, think we’re one of the most important advisors, but I would strongly urge many of your listeners that if you are seeking to potentially sell your business, you are best served by going out and trying to find a transaction advisor. So that is an investment bank or consulting firm that does a lot of the work in an investment bank. It is very much the case that they’re usually able to help you attract a higher purchase price.

then you would be able to without one. You should be very, very cautious about entering into a relationship with them, not because they’re tough characters, individuals, but simply because you want someone who understands your business, understands the players within your business and can help you find a big pool of qualified, able buyers for your business. And so that takes some time. It takes meeting them.

It takes tacking to the right kind of advisor. So if you are a business that makes in EBITDA or even an income like a few million a year, that may be a regional investment bank that could be your best service. If you don’t make quite as much, you may be able to find some consulting firms that can still provide some of the same transaction advisory services. Working alongside those folks, they will help bring in some of the other characters.

Many times they will bring a lawyer. think it is always very important, almost in all of these &A transactions, you will need an attorney to help assist you. That attorney will, because of their unique relationship that attorneys have with clients, your attorney’s responsibility is to zealously guard you and try and advocate for your interest and connection with your transaction. So that attorney will be very helpful to you in understanding, you know, hey,

Here’s how to negotiate fairly along side your investment banker. Here’s also how to negotiate fairly alongside your buyer. They may also suggest your investment banker, your attorney, tax advisors. it is, I find it is very often the case that professional services firms like to elect S corporation status. I think it is important and I would recommend to the listeners, if you have elected S corporation status, even if you haven’t, you should consider

prior to a sale transaction hiring a tax advisor. I’ve seen a few horror stories associated with defaulted S-elections. And so it is the case that you want someone who can help advise you, hey, you have an issue associated with that S-election, you don’t have an issue associated with that S-election, and then separately you need those tax advisors to help you understand what are the best potential structures for your transaction.

that will help you make the most and reduce your taxes the most. And additionally, some, your buyer will occasionally propose, you know, one or other, one or more structures for you for a sale transaction. And you need someone to help you evaluate what is the ultimate tax associated with this. So those are the set of advisors that I’d recommend, you know, bringing in. And so that’s part two, that’s about 12 months out. It’s really digging in with them, beginning to form your team.

And then about three to six months prior, you are hot and heavy. You should have, alongside your advisors, going to market, created a list of buyers, potential buyers for your business, both that you have provided input on based on your knowledge of your competitors and separately that your investment bank has provided its own knowledge of, you should have reached out to them, created teasers, IOIs.

You’re now in the period about three to six months out where you might have received a purchase agreement. You may be negotiating an LOI at this period. Letter of agreement, right? Yeah, letter of intent. That’s exactly it. Apologies. You just know this stuff backwards. Exactly. So this is a period where you’re really using that team and bringing them to bear.

And I think it’s really important to have that team and to also have your internal team set up. There are many sellers who are afraid to bring some of their employees into their potential exit transaction. Some of them that may be for good reason. You may be contemplating the sale that ultimately you may not have appropriately rewarded them in the past and you’re worried.

about the potential, you know, bringing them in and then seeing, you know, what kind of exit you may have. If you have folks who you trust alongside you, and it is a small group and they are your experts, then it is the case. And this is by leveraging confidentiality agreements and non-disclosure agreements, you can bring them in and they can help you move this forward. You will become overwhelmed in an MNH transaction.

It is very difficult to run a business respond to diligence, but you know, correspond with your advisors who are dealing with the economic aspects of your sale and your lawyers who are dealing with the legal aspect of your sales and maintain your sanity. It is always the case about three weeks before closing. We get sellers who are saying, if it fails, if the whole deal fails, I don’t even care. I just want, I’m done with it. And so, but.

The folks who are smart have their teams ready. Their teams are helping them continue to operate the business normally. They’re helping them also respond to their buyers and run the process. And ultimately, those are the ones who reach successful exits. And then after the deals, those are the ones the buyers are most happy with because the buyers realize they’ve not taken their hand off of the It’s not the case they’ve taken their hand off of the wheel and their business has suffered because of the &A transaction.

So those are the things that I recommend if you’re looking to potentially approach a sale, start early, three years out, two years out, get your team as you’re getting closer about a year out, leverage that team when you’re within the peak of it. Yeah. Well, there’s a lot to think about with this. And of course, one of the things that you mentioned a few minutes ago, just going to go back and pick up another acronym GAP, which is general.

generally accepted accounting practices. And you’ll hear that word occasionally. And that’s, you just want to be working with somebody who’s following those good practices. So another thing that you mentioned briefly is valuation and evaluation of the business is very important. And at what point do you do that? And does the buyer also need to do their own valuation? How does that happen?

Absolutely. So I think it is certainly the case that you need to have some understanding of the valuation associated with your business. Usually that’s going to be done somewhere early within. So this is if you’re looking within the three periods that I just mentioned. So three years, that’s a little bit far out. About 12 months, nine to 12 months is when you would usually see valuation exercises being undertaken by sellers. And that is in consultation with their investment.

bank. So your investment bank will help you reach that. They have quite a lot of data about other potential sales. So these are comps effectively very much like comps that you may see in connection with the purchase or sale of real estate. They use a kind of they use a similar technique to be able to arrive at purchase prices for a business. And so undertaking that alongside your investment bank, you will get a general sense of

the range and it will be usually the structures of a range of potential valuations associated with your business. And your buyer is absolutely doing that in all instances, your potential buyers. So some of these items are going to be suggested in connection with reaching out to buyers when your investment bank undertakes that effort. But your buyers, different buyers come with potential, and that then is important for all listeners. No, different buyers can

come with different valuations associated with your business. It’s usually the case that a strategic buyer, although this is becoming less the case, usually a strategic buyer is able to offer a higher purchase price associated with your business because they’re able to leverage synergies, which are effectively, it is the benefits associated with bringing in your business, integrating it into theirs.

So it’s cost reductions that they’re able to eke out between the two businesses once they’re integrated and additionally increases in revenue, income and the like that they’re able to capture once your business is integrated. They’re able to factor that into your ultimate valuation. And in many cases, their valuations tend to be larger than what you may be able to achieve with a financial sponsor. It is sometimes the case that if a financial sponsor has win,

that there are strategic involved with the sale, they’ll say, I don’t know any part of it because we’re fighting with players that we can’t beat. It’s not always the case anymore. You will now find some very aggressive financial sponsors who also able to offer quite high valuations associated with the business. So it’s important to know, yes, absolutely, you should be engaging with your financial advisor at least 12 to nine months out prior to potential sale transaction, one evaluation exercise.

and your buyer is doing the exact same thing and wants to arrive at a place that this is a good deal for you. Additionally, it’s a good deal for them. And sometimes that involves you including synergies into a deal. So you mentioned another type of transaction. a financial sponsor. So what exactly does that mean? Yes.

So a financial sponsor is separate from a strategic in the sense that a strategic is really another player within your industry. They’re one of your competitors. Most often they are, you know, another company. A financial sponsor really is, it’s, it’s like a private equity fund or it’s, you know, a search fund or what’s called an independent sponsor. These are, you know, people very often financial professionals who are not operated within your business may have

never actually work within your industry, but they want to buy your company so that they can partner with you, help achieve some of the growth targets associated with your business, and ultimately sell it in the future. That sale helps support their business, which is they trade effectively. Their investors invest into them and their ideas and potential theses about the market.

they then return money to their investors that are able to achieve some fraction of the money they ultimately return to them. Wow, this is complicated. is. basically, it really is corporate finance fundamentally that we’re dealing with. And so there are so many financial players that are included within this. And that’s really a lot of the reason that I strongly advocate having the team.

you know, associated with this before you undertake it. And that’s why I say it’s at the 12 to nine month mark. It’s really when you’re starting, you’re having the team. It is, you we often will see sellers who are coming in. I’ve seen some sellers try and attempt these transactions without a lawyer. See them very often try to attempt these transactions without an investment banker. It is just, it is simply the reality that the people you are dealing with on the other side are financial professionals.

You many times it is just all they have done. They’re coming from investment banks. They are even if they have not come from the investment banks, they are long time corporate development experts. So you’re trading against, you know, someone who has done this their entire life. You need to have the right people in there to back you. I can imagine. So you talked about the last three weeks in the last three weeks for the person that is trying to sell and probably the buyer as well on the other side.

they’re ready to throw in the towel and give up on this. And what is it that is causing that much stress right at the end? Absolutely. So usually within the last three weeks, you are encountering probably some of the more significant deal issues that both parties have been hung up on for maybe one or two drafts of a purchase agreement or depending on what other agreement is outstanding.

So usually it is, hey, if you’ve had a really serious tax issue or otherwise, if there is a really serious economic issue and your buyer is saying, we just not doing a deal unless I get this or unless I get some good compromise about it, that’s what’s tends to stick out. So that’s one item. You’re probably still in a fight about three weeks out.

And then additionally, you have now gone through diligence. It has been probably at least nine months, maybe more that you’ve gone through. You’ve done quite a lot of work. You are dealing with a litany of documents at this point. So it’s a purchase agreement, maybe an employment agreement, an operating agreement if you’re dealing with a financial sponsor. Other, you know, maybe.

equity incentives if you’re being bought out by a strategic and you’re trying to figure out your compensation package at that point. And this is the case that you are overwhelmed and your deal is potentially coming to a close. And I had one of my colleagues at another firm describe that is it’s the point that you cave in close. And the point being that it’s usually you recognize that you are you are or you are.

and most of the time you are about to enter into a sale, it’s likely and you just want to get it over. It’s just a really high stress time. It’s a lot of fights. It is often the point where I hear sellers say, you know what, we’ll just keep running the business. We’re fine with this. We’ll be okay and we’ll just try this in two years. They’re never telling the truth. They always close after that, but I understand.

And the best way to avoid, you’re going to feel overwhelmed, but the best way to avoid that is rely on your team, have them in place. Particularly if you don’t have them in place, you will feel that and it will feel more acute. you can manage it. You’re going to feel it, by the way. OK. Well, we have covered a lot of ground in two sessions. So let’s kind of focus on today and pick three things that you think would be

really important to stress to the people that are listening to this, not to add stress, but to just give a little emphasis to so that they, if they’re thinking about a sale, that they’re putting things in order of priority. Yeah, absolutely. I think, you know, the one of the most important, and this is probably like the three years out thing is what kind of exit do you want? You know, you, you have to exit.

there is going to be an exit associated with your business, we’re all mortal. And so you have to be cognizant. One day my business is going to transition either into someone else’s hands, or it’s going to be bought, or I’m going to leave it. In some respect, what is it going to actually look like? Thinking about that ahead of time actually helps direct a lot of the other stuff here. So if you know, look, this is my baby.

and I can’t entrust it to anyone else but someone in my family or a close employee, you’re probably doing a management buyout, you know, ultimately. And so you’re not gonna have to worry about all of the stuff associated with a potential future exit to, you strategic or another outside buyer because it’s the case that everything that you have formed, you’re going to hand to someone else. And so really your goal then is how do you structure the business so that you’re handing them, you know, something that

They can appreciate what you hand in and they can continue to grow it. And there are other structures. mean, obviously, if you want to do a big sale in the future, it’s getting your house in order and really running a business like a business. And so that’s some of the things that we talked about earlier today, which is, know, assuring that you are, you know, using accrual basis accounting associated with the business, that your books are clean, that, you know, otherwise you’re not commingling assets associated with the business.

Figuring out what you really want out of your exit, think number one item will help decide a lot of this. That number two item that I mentioned again is, you’re gonna have to, you need help associated with these kinds of transactions. They’re really hard. They’re deeply technical, very heavily tied into corporate finance. And so finding people you trust, and trust is a key element there associated with the transaction.

is key. You are selling in many instances the most important, maybe the largest asset that you have. If you don’t trust your lawyer, you don’t trust your investment banker, if you don’t trust your tax advisor, it is painful. And I’ve seen that, know, with that, you know, dealing even now with clients who are having struggles with, you know, their advisory firm can’t find them any buyers. Wow. They just don’t

prolongs the sale process, feels terrible, and ultimately, they don’t feel like they’re getting real value. And they can achieve exit in that instance. Having folks you trust, seeking guidance and advice from the folks around you about good folks who can work with you, transactional advisors and lawyers, I highly recommend that. And then finally, it really is leveraging your team in connection with the potential transaction. There’s gonna be just so much line at you.

when you’re in the thick of it. And what I often find to be the case is that you don’t think, you think you may have command over every aspect of your business, but you may have been delegating items that someone now is just, they’re the expert on your business. Seeking that counsel from them, if they’re an internal employee and you trust them with knowledge about your sale process.

Seeking that kind of counsel from your outside advisors is going to be crucial as you get closer to sale because you’re simply juggling too much. If you can follow those three things, it’s know what you want, get the right team around you, and then leverage that team, you can accomplish a sale transaction. And that’s how I see every great sale transaction accomplished by folks who focus on those three things. Great words of advice. Thank you so much, Manny.

And as always, now you’ve given us two great episodes that we can refer to. And I would highly recommend anybody that’s thinking about this talk to Manny. He’s he knows his stuff and I really appreciate you being on our podcast. Like what’s really appreciate it was great to be on. Thank you so much. Thank you.