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Reflections

Hold up our mirror to your business, as we share fresh Bank Your Moment® insights

Most attorney’s can get a deal done, the right attorney keeps you from getting sued post transaction

One of the key decisions owners of private companies must make in selling their company is what deal attorney they should partner with. The selection is critical, not just in helping you negotiate key elements of the deal but also in ensuring you’re protected years after the deal is completed. Selecting your future deal attorney is as important as your decision in selecting a broker/investment banker or even selecting the acquirer that is best for your business. Here are questions to ask when interviewing your potential legal partner in doing a transaction:

  • What size of company do you generally represent in transactions?
  • What experience do you have in doing transactions in my industry?
  • What do you see as your role in helping me get a deal done?
  • What are the key deal points you would be negotiating for me?
  • What are the common pitfalls you come across in transactions?
  • What are examples of key decisions you’ll be asking me to make during the process?
  • How does your fee structure work for representing me?
  • How do you work with our broker/investment banker?

The “when” to selecting your deal attorney is also an important decision. Our guidance to our clients is to engage your deal attorney early in the process so they are on board as you even negotiate Non-Disclosure agreements with a potential acquirer.

Your team for getting you a future euphoric sale event should include an experienced exit planner, like Yosemite Associates), a tax advisor and a deal lawyer. Use these questions to help you screen the legal partner that you believe can help you get a great deal done.

 

Could raising capital enable your company to a future exit event?

At some point in owning your business, you might consider raising capital to help accelerate your growth. Your options could include getting a loan from family/friends or a bank but often times these options have limitations that lead you to finding a capital partner that is seasoned at partnering with businesses to fuel their growth.

If you’re thinking about whether raising money from a capital partner makes sense, here are some initial questions to consider:

  • Have I identified what good looks like for my business years from now (i.e.: what type of exit I’d like) and how does raising capital from a third party help me accelerate achieving that desired exit?
  • Is the dollar amount I would want to raise enough to attract a capital partner or is it too small for what they would find of interest?
  • Have I developed a plan for what I would do with the money raised? Can I show a capital partner that I know how to deploy the funds?
  • Can I show a capital partner that my existing business has as solid track record of performance to give them the confidence I will deploy the invested money effectively and with a high probability of delivering a solid return for them?
  • What decision making authority related to running my company am I willing to give up to a capital partner?
  • In taking my company to the next level of growth, what experience do me and my team lack but could fill the gap with a capital partner that brings money and expertise to the table?
  • How would a capital partner work with my team or do I want my team insulated from a partner?
  • If I have a capital partner, will I be able to continue blending quality of life and quantity of life (i.e.: taking vacations whenever I want) in running my business or will their expectations change my quality or quantity of life balance?
  • What specifically am I looking for in a partner – what experience and capabilities would I want them to have and what role do I want them to play? What successes within my industry do I want them to have to build my confidence that they are the right partner with a solid performance track record?

These are just a few of the questions you’ll want to ponder before you consider going this route. Raising external capital to fuel your company sounds great and it very well could be but it also comes with challenges and risks. Go in with your eyes wide open and begin by answering these questions for yourself. Think about what good looks like one day when you sell your business and then determine if you need a capital partner today to help you get there.

Most owneres focus on their company readiness and neglect their personal readiness

It’s not uncommon for acquisitions to go south because a Seller realizes just days or weeks from a deal being completed that they aren’t prepared personally to let their company go. An exit planning professional will ensure your company is ready to command a premium but will also ensure you are ready as the owner/Seller to successfully move on to a new phase in your life. This readiness relates to your personal financial and mindset readiness. Here are great questions to think through that will have you preparing personally for a euphoric exit event:

  • Am I clear on what Net amount I will want to receive from an acquirer – have I conducted a Gross Proceeds to Net Proceeds analysis?
  • Do I have a tax efficiency plan for the proceeds of a future sale and is my estate plan updated?
  • Where will my personal monthly cash flow come from once I no longer receive a paycheck?
  • Where will me and my family get our health insurance from?
  • What will my calendar look like once I no longer have my company?
  • How will I introduce myself when meeting someone new and they ask what I do?
  • What will keep me from getting bored once I go from the busy schedule of owning my company to not having any company meetings to attend?
  • Will I need to be mentally challenged once I sell my company and if so, how will I address this?
  • Do I have hobbies that I will want to invest my time, money and energies in?
  • Is there an organization (i.e.: philanthropic) I will want to support with my time and money?
  • How does my spouse/family or partner spend their time today while I’m working and will the change in my life impact their schedule or routine?

As you invest energy into ensuring your company is prepared to one day support a successful exit event, equally prepare yourself personally. Use time as a friend to ensure complete readiness professionally and personally to increase the likelihood of achieving your future euphoric exit event.

Year end financial decisions can enable a smoother future due diligence at time of company sale

Your business is closing out the books for 2023. Decisions are being made related to your income statement and balance sheet. Avoid a mistake often made during this process. The mistake is reflecting revenues or expenses in this latest year end inconsistent with how they might have been reflected in prior years.

Let’s fast forward to the day when you’re selling your company and a potential acquirer is doing their due diligence probe. One of their steps will be to analyze your financials and looking at year over year performance comparisons. If over the years you have been inconsistent in how certain revenues or costs are reported, this could cause year over year variances that can raise unnecessary questions by the acquirer. An inconsistent accounting methodology year over year can cause frustration and delays during due diligence. When this occurs, it can lead to the acquirer asking your team to recast financials so that all years are consistent or they may take it upon themselves to do so and all this adds unnecessary time and stress to the due diligence process.

An example of inconsistent accounting methodology relates to accruals, such as your company vacation accrual account or an employee bonus accrual. At year end if you have a negative or positive accrual, how you adjust for this can impact that years results and in some cases could be meaningful. You certainly need to adjust the accrual but you want to follow the same methodology from prior periods to avoid causing future due diligence confusion..

To avoid having this future due diligence disruption, meet with your financial team now as they are closing out the books for last year and discuss accounting methodologies to ensure consistency with prior years. Taking this step now can help you avoid a future due diligence headache.

Ensure your team is focused heading into the new year

A common issue we see with many privately owned businesses is they are trying to do too much. They have lots of ideas for things they’d like to work on, but they are missing two vital considerations. The first is they haven’t linked which of the things they want to work on will actually build the long-term value, or what we call the company worth, of the business. This could lead to your team working hard but confusing motion for progress. This leads to initiatives that may be nice to have but are they truly of strategic value to the enterprise.

The second issue we find is just the sheer volume of too many actions initiatives being worked on. This leads to the team many times not accomplishing many of them, and/or not accomplishing them well. When this occurs, the team gets frustrated and this then creates its own set of issues.

Setting the initiatives that your team should work on should flow in the following way:

  • What do I need to build or accomplish long-term with my business that will make it attractive to a future investor or acquirer, identifying the value drivers. (such as building an exciting growth path and sales pipeline, having a plan for strong profits/cash flow, developing unique intellectual property and competitively unique capabilities, building a strong team, etc)
  • Once you have #1 in place, you identify where does your company have gaps in delivering on the value drivers. What are the initiatives my team should work on to fill any gaps we have between where we are today and where we want to be in the future in terms of company worth.
  • Once the gaps are identified, then establish which initiatives that need work will require cross functional or cross-department resources. You want to avoid having your functional departments each having so many initiatives they need to work on that they don’t have time to commit resources to supporting cross functional department initiatives. So any gaps your company has that require cross functional resources to address, these should get priority. These initiatives are oftentimes of more strategic importance to the company.
  • Once you see what resources will be required by each department in supporting company-wide growth or improvement initiatives, you can then see what resources are available to work on improvements at the department level. These department level initiatives are often times more tactical in their importance to the company.

Meet with your team and discuss these four points. In addition, assess the past year and what you accomplished and why and then discuss what wasn’t accomplished and why. The learnings from this can be applied to helping set the focus for the year ahead. As the leader of your business, ensure your team is excited to be working on the initiatives you’ve identified, not frustrated by them because it’s another year of trying to do too much. Driving the right focus will get you on your path to your future euphoric exit event.

Promise yourself you’ll get your exit plan in place this year

Ask yourself this question – do I have an exit plan in place to help ensure that I’ll be euphoric when the day comes that I want to sell my business?

Owners of private companies should have a plan for how to optimize the future sale of their business and ensure they are ready both professionally and personally. Use time as a friend to get your plan in place and here is a sample of a plan snapshot (Yosemite Associates Exit Plan Snapshot Example). Exit planners like ourselves help owners prepare such a plan that can be summarized like this template with all the underlying supporting documentation.

Don’t let another year go by without getting your plan in place. Contact us (949.874.0787) to learn more about what steps you can take to get an effective exit plan in place this year and begin preparing for your future euphoric exit event.

A future euphoric exit event requires this critical step

Making the decision to sell your company one day is certainly an important one. An equally important decision is will you be able to sell your company…meaning can you successfully withstand an acquirer’s probe, known as due diligence. We find in working with clients that many are well-run companies but are not exit ready. They need help in identifying what gaps exist that will keep them from achieving their euphoric exit event and a key step as part of this is to conduct a due diligence dress rehearsal.

Use time as a friend in conducting your company due diligence dress rehearsal to ensure you can smoothly and successfully undergo third party scrutiny. With our clients, we look to conduct a due diligence dress rehearsal 1 to 2 years prior to beginning the exit process. The reason for this advance prep time is it’s common to find issues that may require upwards of a year to address.

Here are some examples of dress rehearsal items you’ll want to ensure you’re ready for acquirers to probe:

  • Are your company ownership legal documents accurate and current? Same with all legal documents associated with any real estate you own that will be included in the company sale?
  • If you lease real estate in the operation of your business, are you clear on what your lease agreement calls for in transferring the lease to a new company owner?
  • Are your legal documents current pertaining to proof of protection and ownership of company name, brand names, trademarks, website domains?
  • If your company has intellectual property such as patents or trade secrets, are these well documented and protected and able to be transferred to the acquirer?
  • Are your company financial statements all accurate and current for at least the past 3 years?
  • Is your company profit & loss statement formatted to your industry standards? (example: gross margin can be calculated differently industry to industry)
  • Are all customer and vendor agreements/contracts properly executed (both parties signed)?
  • Do any customer or vendor agreements have “change of control” clauses that you have to adhere to prior to selling your company?
  • Are all your company procedures and policies well documented as they relate to fulfilling your product or service? If you produce a widget, are all bills of materials accurate?
  • Are all employee documents ready for third party review – employee handbook, benefits plans, employee offer letters/agreements, organization charts, etc.?
  • Are company operating systems scalable and with proper security protections? Are all licenses current for software being used across the company?
  • If your company has product inventory, are inventory controls and reporting effectively in place?
  • Is your company sales opportunity pipeline being used by your team and reflective of both current and future growth opportunities?

These are just some examples of areas that you’ll need to have ready for an acquirer to probe during their due diligence. Leverage our Yosemite Associates Business Diagnostic Due Diligence Dress Rehearsal Tool to facilitate your dress rehearsal. There are many exit planning steps you’ll want to take to reach your future euphoric exit event. Make a due diligence dress rehearsal one of these critical steps.

Answering these questions can help you prepare for a better future company sale

As we close out the year, here are some great questions to discuss with your team. The best leaders ask the best questions, so begin the new year on a more strategic footing by thinking about:

  • What changes occurred in our market this past year and will they continue in the new year?
  • Will any of the changes in our market (that have or will happen) impact our value proposition (the value customers get from using our product or service)?
  • Where are we unique versus our competition and does our marketing and sales messaging communicate this effectively? Does each member of our sales team effectively deliver the right messaging about our competitive uniqueness?
  • Looking at our revenues for the year just ending, which of our products or services increased over prior year, which were flat and which might have declined? Do we know the reasons behind each that could impact the year ahead?
  • Looking at our gross margins for the year now just ending (by individual products or services), did our margins increase, decrease or were they flat? Do we know the reasons behind each that could impact the year ahead?
  • Looking at our revenue by customers, which tier of customers grew, declined or were flat? (example: Tier 1 our top 50 customers, Tier 2 our 51st thru 250 customers, Tier 3 our 251st thru 500 customers). For the year ahead, how will we deploy our resources to each tier and what is our growth protection for each tier?
  • Should we make any price changes to our products or services in the new year?
  • Looking at our market, which subsectors do we see growing, decreasing or being flat? As a result, should we shift any of our sales or marketing resources?
  • What changes should we make in the new year that will help us drive up the overall value, or net worth of the business? (Beyond just driving up revenue and profit – i.e.: reducing customer or supplier concentration issues, improving systems, increasing customer stickiness, building sales pipeline, etc).

We could certainly continue with great questions to discuss with your team but here are some to begin the discussion. Leverage your internal data to help answer these questions and see what new thinking comes out of your dialog. You can be sure that you will come up with value creating ideas that will help build a stronger company which will then enable your preparation for a future euphoric exit event.

Ensure company incentive plans enable a future successful company sale

Many private company owners and CEOs reward some, or all, of their employees with a monthly, quarterly or annual incentive plan. If you offer some sort of employee incentive, ask yourself, do my employees that have an incentive plan know what the plan is based on, what they need to do in order to get a maximum payout?

Too often the answer to this question is No. It’s because ownership is nice to have an incentive plan in place but it’s purely subjective so the employees don’t know what actions or focus they should have in order to achieve it. This is a missed opportunity by ownership to get employee actions and behaviors aligned with what it takes to drive improvements in the business and create short and long term value in the business. It’s also a missed opportunity to ensure readiness to one day show a potential acquirer that your incentive plan is well though through and is helping drive progress in your company.

The ultimate reason, and benefit of putting an incentive plan in place, is to help drive desired behaviors by participants. To do this, the plan should be linked to what the company is looking to accomplish strategically, something more objective than purely subjective. Then, when the day comes that you want to sell your business to a third party, you’ll be able to show them that your company has many good disciplines in place, including an effective incentive plan for driving desired employee behaviors. As part of an acquirer’s due diligence, they will assess whether your incentive plans are well thought through and linked to the strategy of the business because this is a plan they will inherit. If the plan is well designed, it will help underpin their interest and excitement for acquiring your business. If not, it could give them pause due to the risk they might have to incur by addressing a gap in your incentive plan as they make changes they believe are needed. When an acquirer sees risk in doing a transaction, it gets reflected in a lower purchase price and/or a different deal structure. Certainly, any gap in your employee incentive plan alone isn’t going to deter the quality of their offer to acquire your business, but if other factors also arise during their due diligence, collectively these could impact their offer.

Ensure therefore that you are getting the near-term benefit of the money you are paying employees for incentive plans and in doing so, you’ll be getting ready to check one more box for a future acquirer as they will look to see that you have good disciplines in place related to your employee compensation. Get maximum value from the incentive plans you provide your employees and help enable the future value of your business in the eyes of an acquirer.

Optimize your P’s and optimize your future company sale

As the advisor to our clients in helping them achieve their future euphoric exit, we regularly wear the glasses of a future potential acquirer in looking at their company. A key part of this view is constantly evaluating the company 4 P’s so that we help ensure they are optimized in advance of an attempt to exit. Here are the P’s and think about each as it relates to your company:

Purchasing – ask yourself, how competitive is our company related to our Cost of Goods sold, purchasing our raw materials and supplies that go into our product as well as the labor needed to make it? Your future acquirer is going to look closely at your Gross Profit and they will know what the norm is in your industry and they will compare yours to the norm. To excite them, you’ll want to show that your team is very efficient, effective and competitive in the purchase of raw materials and application of your direct labor and this will be reflected in a strong Gross Profit.

Pricing – ask yourself, how good are we at establishing and implementing an effective pricing strategy to ensure we are getting optimal price for the value we are delivering to customers? Do we base our prices on our costs or on the value the customer derives from using our product or service? Are we able to command even the slightest of premium in our pricing versus competition? Having a well thought through pricing strategy and being able to show a future acquirer that your company can periodically raise prices with no or minimal customer attrition will go a long way in exciting them.

Productivity – ask yourself, do we track how efficient we are in producing our product or service? Do we know whether we become more or less productive as our volumes increase or decrease? Do we know whether our business is more productive this year than it was last year? A future acquirer will delve in to this area also starting with your Gross Profit. To excite them, you’ll want to show that you measure your productivity and that as the business grows it improves.

People – ask yourself, will my team be viewed as solid in the eyes of an acquirer and will the right members of the team be remaining with the business once it’s sold? Will the acquirer see that ownership isn’t needed for the business to continue growing? Excite your future acquirer by showing that you have the right people, in the right roles, with the right backgrounds/pedigrees and with the right focus.

Use time as a friend to ensure your 4 P’s are ready to impress a future acquirer. Doing so will greatly increase the likelihood of reaching your euphoric exit event as the acquirer will be willing to pay a premium for a business with all 4 P’s being solid.

 

This is a key question to ask well in advance of selling your business

We often hear private company owners and CEOs talk about finishing a year and they refer to whether they grew their revenues or not. And although this is important, it’s not indicating whether their company actually increased in value or not.

In prior posts, we’ve shared that private company sellers are often surprised to learn that 80% of the valuation a third party will place on their company one day will be driven by the intangibles of their company and 20% on the tangibles. The tangibles are your financials (revenue, profit, cash flow) so whether you strengthen these year over year is certainly important but not the majority basis for what the acquirer will be willing to pay you for your company.

The intangibles, or 80% of what they will base their offer on are things like:

  • How strong is your culture (team/organization)? And how strong is your organization without you as the owner or CEO if you’re not remaining after sale?
  • What is the future growth trajectory for your company and how exciting is that trajectory?
  • How predictable are your revenues? Do you have great visibility to future revenues?
  • How scalable is your business? Are your systems and infrastructure able to support growth or will large investments be required?
  • How unique is your product or service offering versus competition?
  • How efficient is your company at producing your product/service?
  • Has your company created any valuable intellectual property?

As we are now closing out 2023, ask yourself, did my company create greater value in the year? If you grew revenue and profits over 2022 then you improved the 20% of your business that an acquirer will assess. But ask yourself about the intangibles, the 80% they will base their offer on, did you strengthen these?

Good exit optimization planning begins with understanding what intangibles a future acquirer will want to see with your particular business. Use time as a friend, especially in getting ready for a new year, to identify which intangibles are going to drive your future payout and ensure you are taking steps to improve these areas and get you on your way to a future euphoric exit.

Often an under leveraged position in helping you grow the value of your company

Every department leader on your team is important to the near and long term success of your business. But the one person we find most often under leveraged in building the long-term enterprise value of a company is your finance partner, be that a controller or CFO. When this position is staffed properly and given the right focus, it can make all the difference in the world between a euphoric exit event and a disappointing one.

Ask yourself, am I getting enterprise value enabling results from my Controller/CFO?

To help you think about this further, here is a list of things your finance partner should be doing for you to build enterprise value:

  • Ensuring your financial statements are reported accurately, in a timely manner and to industry norms (i.e.: calculating your company gross margin consistent with how they are reported in your industry).
  • Providing you with proforma financial statement projections (forecasting) looking out 12 months, using historical performance as an indicator of future results. Weak finance partners will only tell you what happened in your business, strong finance partners will work with your Sales and Operations leaders to develop proforma forecasts to tell you what will happen using historical performance as the basis for their projections.
  • Providing you weekly (or minimum monthly) a 13 week rolling cash flow projection for your company.
  • Serving as a key member of your leadership team in building an annual operating budget that is linked to your company strategic plan. And will bring forth meaningful financial data to help facilitate strategic thinking and planning dialog amongst your leadership team.
  • Negotiating key terms with partners such as banks, health and benefits providers, facility and equipment leases. These negotiations can save your company meaningful dollars which can positively impact cash flow and create long-term enterprise value.
  • When the day arrives that you want to meet with potential acquirers, your controller or CFO will play a key role in conveying confidence, knowledge and experience related to the financial performance of your business – one of the first members of your team that a potential acquirer will evaluate is your finance partner and this role is often the one your potential acquirer will spend the most time with through the due diligence process. Is your financial partner experienced and skilled enough to play this key role through due diligence?

Certainly, your Sales and Operations leadership are important in their roles to help you build your business. But often overlooked in their value creation role is the controller or CFO. Give thought today as to whether you are benefiting from the right finance partner and all that they can do today and will do tomorrow when it’s time for you to sell. The right finance partner can help make or break your future euphoric exit event.

The timing to sell your business is a key part of an exit preparation plan

In working with clients to help them prepare for their future euphoric exit event, a key part of the discussion and planning relates to the “when” should they consider selling. At the highest level, there are two options related to exit timing. The first is obvious and that is as the company owner, when do you want to sell your business. The second is less obvious to many owners and that is the timing to sell your business related to when acquirers are most active and interested in buying your company. In the perfect world, you sell when these two intersect.  Meaning, you sell when you are ready personally and it happens to coincide with acquirers being the most active acquiring companies within your industry. But for most sellers, these two often don’t coincide.

Our advice to clients is you should build a business that is ready to exit when you want or when the right acquirer comes knocking and is ready and able to reward you with a premium offer. You want to avoid being that seller that regrets missing the cycle of acquirers being active but didn’t sell because you weren’t personally ready to part with your company. Then the day comes you are ready to sell only to find that acquirers are not as active and certainly not paying the premiums they once did.

In your exit planning, give quality thought to the timing both as it relates to your personal desire but also monitoring the cycle of acquirer activity in your industry. Timing of your exit can mean the difference between a euphoric exit for you, your family and shareholders or one that is less rewarding.

Leverage this template to facilitate healthy dialog with your sales team

In our discussions with private company owners, a discussion topic early on relates to the effectiveness of their sales teams’ process and overall capabilities. When the day comes you want to sell your business, the sales capability of your company will be evaluated closely by the potential acquirer. Given this reality, use time as a friend to build a solid sales engine to impress your future acquirer.

One of the ways to impress them is to show that your sales team has an above market performance win rate. And there are two win rates you will want to track and share with them. The first is what percentage of orders you get when trying to sell to new customers and the second win rate is what percentage of orders you win when pursuing work from existing customers, those you’ve done business with before. The general norm for many industries is the win rate of your sales team when chasing new customers should be north of 30%.  Meaning, out of every 10 new customer opportunities your sales team pursues, you win at least 3 of them. When chasing repeat work from existing clients you’ve done prior business with, that win rate should be north of 70%, or 7 of every 10 opportunities that your team pursues.

Attached is a helpful template (Steps To Improve Our Win Rate) for facilitating a great discussion with your sales team. Use this to explore steps the team could take to improve your company win rate. Building this capability today may reward you handsomely when the day comes you want to attract and excite a third party to acquire your business. Having a strong sales engine takes time to build, use time as a friend and ensure you’re building that sales engine today.

Knowing the difference can have a big valuation impact when you sell your business

If I asked you to name the brand names that come immediately to mind when I mention commercial airlines, you might reply with American, United, Delta and Southwest. In this answer, you “recalled” these brand names as they were top of mind for you. Then if I asked, have you heard of Alaska, Frontier or Allegiant, you might say yes, which means you “recognize” these brands but they weren’t top of mind. Building your company brand to be “recalled” can be the difference between an ok exit event one day versus achieving a euphoric one.

So ask yourself, if someone asked a target customer in my market sector about the brands that they “recall” pertaining to the products and services we provide, would they recall ours? If no, would they “recognize” it when our brand is brought to their attention? If you are unsure, might be an opportunity to do some market homework about your brand. If the answer is yes, discuss with your team how to protect and nurture this great brand position you’ve built in the market. If the answer to being “recalled” is no, brainstorm with your team how to address this.

Ask any third party acquirer if they generally see more value in “recalled” brands versus “recognized” and the answer will be a resounding YES. This is because a recalled brand has invested successfully in capturing the heart/mind of a target customer and that will benefit future growth. Now of course the built-in assumption here is that the customer’s recall is a positive image of your business and if not, this also gives you an idea of identifying steps your team should be taking to leverage the good news of being recalled, but improving the image.

This is a great topic to discuss with your team. The difference between recall and recognize can be very impactful to the valuation you might receive one day from a third-party acquirer. Use time as a friend to know where your company/brand stands in this regard and begin taking steps to either protect it or build it.

Avoid these common deal killers when you sell your company

Studies related to private company merger and acquisition activity continue to show that the majority of sellers who try to sell their business, aren’t successful in doing so. In fact, various studies show that roughly 80% of private sellers who want to sell, aren’t able to do so.

There are multiple factors why deals don’t get done and here are a few that often surprise sellers to hear:

Seller Valuation Expectations – this is when the seller believes their company is worth much more than a third party believes it’s worth. This is a reason many acquirers don’t like to be the first one to make an  offer for a private company, because they will be the first to potentially call the baby ugly and offend the seller with their valuation offer. The seller is unable to then find an acquirer that is willing to pay what they want for it.

Seller Gets Cold Feet – this occurs when a seller begins to negotiate a sale with a third party but through the offer, due diligence and legal document negotiations, the seller realizes they aren’t ready to part ways with their baby. Realities hit them of how their life will change once they sell their company and they realize they aren’t actually ready to separate from their company.

Acquirer Retrade – this occurs when the seller and acquirer agree on an initial valuation and deal structure for acquiring the business but after conducting some or all of their due diligence, the acquirer conveys they plan to change their initial offer, obviously not as favorable as what was first agreed upon. This retrade can offend/upset the seller and end further discussion.

Deal Fatigue – this occurs when either or both parties get tired of the exit process taking too long. This can happen when the seller isn’t able to keep up with the acquirer’s due diligence requests (i.e.: providing requested data or documents) and/or when the seller finds the acquirer not applying enough resources to getting the deal done in a timely fashion and believes it’s taking too long and they tire of the process.

Final Agreement Deal Terms – this occurs when the beef is getting put on the legal contract bones of the deal. The initial offer is generally broad, vague in some areas and non-binding to both parties but it gets both parties to agree at a high level to do a deal. Once due diligence gets underway, both parties begin working on the final legal agreements including the Sale & Purchase Agreement (SPA). This agreement addresses the details of the transaction and it’s during these negotiations of the SPA that the parties find they can’t agree on final deal terms. So, although both parties initially were able to agree on broad deal terms, once the details are negotiated the parties find they are not aligned on specifics and the deal falls apart.

The key here is knowing that all of these common deal killers can be avoided with the right level of exit preparation. Contact us and we can help you think through what steps to be taking today so you avoid ever experiencing these issues when the day comes you want to experience your euphoric exit event.

Effective segmentation can drive up company value at time of sale

When the day comes that you want to attract and excite a third party to acquirer your business, it will be critical that you show them that your team deeply understands the various customer segments in your market place that you serve today, even those that you may not yet serve but may provide a future expansion opportunity. You serve a clustomer when you group all your customers into a single cluster and treat them as if they all have common buying needs. Over time, this is a dangerous and growth limiting assumption to make. You serve customers when you segment them according to how their needs may differ from each other. Segmenting your customers by their unique needs is the optimal path to exciting a future acquirer.  Your business is ideal for conducting customer segmentation if any or all of these apply:

  • We have customers that use our product/service differently than others do
  • We have customers that purchase our product/service differently than how some others do
    • where they buy from, such as direct versus thru middleman
    • have a different purchasing process, such as the timing of their purchasing need or their process for how they find/select/buy our product/service
  • We have customers that vary by geography or even culture (i.e.: domestic versus international)
  • We have customers of different sizes (i.e.: small mom & pop versus larger corporations, public companies versus private)
  • We have customers with varying needs in terms of the support they need from us (i.e.: sales support, technical support, customer service, etc)

These are just a few of the ways that companies will segment their customers. Help strengthen your business today and prepare to impress your future company acquirer by talking with your team about the effectiveness of your customer segmentation planning and build the future value of your enterprise.

When selling your business, it’s most often the jockey that drives company valuation

In the M&A world, professional acquirers think in terms of each business having 3 critical components.  They evaluate your business for each of these and study after study shows, of the 3 it’s the jockey that most often is the critical underpinning to the dollar and deal structure they offer.

Jockey – an acquirer wants to know who is/are the brains, the talent and the experience behind the success of your business. And they will look to the history on this and apply it to what talent and experience they will be acquiring. If any or all of this talent and experience that underpins the success of your company will be leaving or has a risk of leaving upon the acquisition occurring, then the dollars and deal structure they are willing to offer you will be less attractive. If the jockey (a person or team) is remaining, the value they assign along with the deal structure they offer maybe much more attractive.

Horse – an acquirer wants to know what your special sauce is related to your products or services. How unique is your offering in the market, what value do you deliver to customers that is better than alternatives they can purchase, these are key questions an acquirer will have. The greater your uniqueness in the market, the greater the offer will be from the acquirer. We say to our clients, to command the highest valuation one day from a third party, let’s not just have a unique offering, let’s find ways to have the only offering.

Race – an acquirer wants to know what markets you serve and what position you have in these markets. They will look to see what the market dynamics are projected to be going forward in terms of growth trends for the markets you and/or they could serve. It’s one thing for your successful business to have operated within your market historically but they will determine what the market dynamics will be going forward for them in owning your business. Selling your business at a time when these market dynamics are showing continued tail winds for an acquirer to enjoy, the offer they make you will be stronger.

So, of these 3, studies show the majority of times it’s the jockey that the acquirer is basing their offer on and is the difference between a poor to great offer. The horse and race are certainly important and to some acquirers maybe more important in setting their valuation, but the jockey is most often the lead driver. If an acquirer simply wants your company for its products/services and doesn’t see need in you as the seller or your team, then to them the jockey is less important. But this occurs in a minority of the transactions.

Ask yourself, in selling my company one day, which of these 3 will be a key driver to the offer I receive? If for my company it is the jockey that they will see as key, how will my company present in this regard to give the acquirer the confidence that our talent and experience will remain post acquisition? To achieve your future euphoric exit event, think about your business and how future acquirer’s will view your company jockey, horse and race.

It’s time to ensure your strategic plan will support a future euphoric exit

For many businesses operating on a calendar year, it’s this time of year that ownership/leadership should be thinking about their strategic plan. And not just their plan document but more importantly the process (or campaign as we refer to it) that goes in to developing the plan. The right strategic planning campaign involves the right degree of strategic thinking first…then proceeds to developing the strategic plan.

At our guest speaking events we often reference General/President Dwight D. Eisenhower and his famous quote, “Plans are nothing; planning is everything”.

We agree wholeheartedly with him. The strategic plan could be nothing if two key elements are not in place:

  • A plan that lacks meaningful “thinking” is nothing. Too often executives look to check a box and rush to get a document in place that they call their strategic plan. But if ahead of documenting a plan there was an absence of asking the right strategic questions to facilitate strategic thinking, then the plan itself maybe nothing.
  • A plan that is lacking continuous monitoring to ensure performance progress and that allows for updating based on new learnings, such as market/customer changes, is nothing. Plans of this type are stale as soon as the ink dries.

When the day arrives that you want to excite a third party to acquire your company, you’ll want to be effectively prepared for an early due diligence question they will have – do you have a documented strategic plan for them to review? They are asking to see your strategic plan for two simple reasons. The first is they are checking to see what discipline you have internally for conducting effective planning and second, they want to see your team’s ideas that you’re pursuing to keep the business growth robust for the period ahead under their potential ownership. For these two reasons, you not only want a plan document in place but you want the planning muscle also in place to impress them and give them the confidence that paying a premium for your company may be warranted.

As you think about 2024, don’t just check a box. Think about how to strengthen your teams strategic planning muscle. Starting to strengthen this part of your business today will pay you great dividends in the future.

For those wanting to sell their business one day, it's critical to answer these

When we meet with potential clients a common question is what specifically will our deliverables be if they engage us? This of course is the right question to ask and our answer is simple. We prepare you to achieve a future euphoric exit event.

Our specific deliverable is to guide company ownership through development and execution of a plan that will help greatly increase the likelihood of achieving a future euphoric exit event. And at a very high level, here are the 4 areas that we help owners discover and prepare for. And these are the 4 areas that every company owner should think about today in preparing their business for a future successful exit event:

Exit Target - ask yourself - 

  • what is my desired gross valuation at time of exit that I want to receive from a third party?
  • what is my desired timing for an exit to occur?

Valuation Gap - ask yourself -

  • do I know what my business might be worth today to a third party?
  • how does the current valuation of my business compare to how much I’d like to one day receive….how large is this gap?

Valuation Drivers - ask yourself –

  • do I know what the top 5-7 “must have’s” that future acquirer’s will base their valuation heavily on when they look at my business?
  • what is my company status/readiness to deliver on these “must have” valuation drivers?

Strategic Plan/Priorities - ask yourself –

  • is our current business strategy audacious enough to close any valuation gap we might have in terms of what the business might be worth today and what ownership hopes to receive for it one day??
  • is our team working on ensuring the “must have’s” will be in place when the acquirer’s come to consider buying our business, are these part of our strategic priorities?

There is no mystery to what it takes to prepare an owner and their company for a euphoric exit event. What it takes is addressing these 4 areas and using them as the basis for your exit preparation plan. Don’t reinvent the wheel here, get guidance from an exit planning organization so you can focus on getting to your euphoric future event.

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Use Greenpoint Testing to Achieve Your Desired Exit Valuation

It only takes 106 questions, scanning 10 essential business functions, to stress test your readiness for a successful exit.

However, these questions require thoughtful commitment to achieve your desired exit valuation.

During this up to hour-long online testing, you'll see questions such as the following.

Sample Question 02

After internalizing each question, select among three answer options – Agree, Unsure and Don’t Agree – choosing the answer which best describes you and your business.

Then, complete the Greenpoint questionnaire to unlock your personalized report, which will reveal any gaps in your planning, pointing to the action steps needed to maximize your desired exit valuation.

Format: Digital

Delivery method: Email

Report included: Your Greenpoint results

Stethoscope Frees You to Work On Your Business, Beyond In It

120 questions, scanning 10 essential business functions, free you to work ON your business, rather than solely IN your business.

With each question requiring thoughtful commitment to identify opportunities to further your success.

During this up to hour-long digital Q&A, you'll see questions such as the following:

Sample Question 02

After internalizing each question, select among three answer options – Agree, Unsure and Don’t Agree – choosing the answer which best describes you and your business.

Complete the Stethoscope questionnaire to unlock your personalized report, which will expose gaps [if any] in your planning, and tips for future growth, resulting in action steps needed to maximize your thinking as a business leader.

Format: Digital

Delivery method: Email

Report included: Your Stethoscope results

Be Ready for The Probe of Due Diligence

109 questions, scanning 10 essential due diligence disciplines, to prepare for a roadblock free Probe of your business in anticipation of sale.

And to potentially increase the value of your business by your professional transparency.

With each question requiring thoughtful commitment to identify opportunities to further your success.

During this up to hour-long digital Q&A, you'll see questions such as the following:

Sample Question 02

After internalizing each question, select among three answer options – Agree, Unsure and Don’t Agree – choosing the answer which best describes you and your business.

Complete the Probe Diagnostic Tool questionnaire to unlock your personalized report, which will expose gaps [if any] in your planning for a due diligence Probe, resulting in action steps needed to maximize your readiness when diligence is due.

Format: Digital

Delivery method: Email

Report included: Your Probe results