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Reflections

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

When selling your business, be ready for a potentially "invasive" due diligence probe

Owners of private companies understand they will have to allow the potential acquirer to conduct due diligence on their business prior to buying it. But, what surprises many is how detailed, even invasive, this due diligence can be. We refer to it as a probe and it’s one that you’ll want to ensure your company is ready to successfully withstand.

We work with our clients in conducting due diligence dress rehearsals at least 1 year prior to beginning the exit process. This dress rehearsal walks through, in detail, all aspects of a business to ensure it’ll be ready to support an acquirer’s due diligence. Here is just a brief snapshot of some of the key areas you’ll need your company to be able to support:

  • All legal documents reflecting company ownership are current
  • Financial statements are accurate for at least the past 3 years and are reported to your industry norms
  • Gross margins at the customer and product/service level are available, not just reported at the consolidated level
  • Employee organization chart, compensation & benefits plan documents and employee handbook are all current
  • Customer purchase history for at least the past 3 years is accurate
  • Vendor purchase history for at least the past 3 years is accurate
  • Sales opportunity pipeline reflecting future growth potential is documented and available
  • Critical company procedures are well documented – such as work orders, bills of material and standard operating procedures are current.

We offer an online tool for conducting a probe of your business to help you conduct a private due diligence dress rehearsal. Use this link to our diagnostic tool (Yosemite Associates Due Diligence Dress Rehearsal) or call us for help at 949.874.0787.

Don’t wait until you are in the throws of an acquirer’s due diligence to find out you were or weren’t ready for it. Use time as a friend to conduct an effective dress rehearsal and ensure that your future due diligence will go smoothly and support your euphoric exit plans.

Ensure your business is ready for this key due diligence step

Company owners often think of due diligence as a time for the lawyers and accountants from the acquirer to probe their business. Although this is certainly part of the exit process, it’s not all of it. What surprises the seller often is when they hear their potential acquirer is requiring to speak to a variety of the selling company’s customers ahead of the transaction officially closing. Ask yourself this question, when I sell my business one day, am I highly confident that I will be able to present a good cross section of my customers for the acquirer to talk with that I know will speak highly of my company?

In many transactions, acquirers like to speak to customers of the selling company anywhere from 2 to 10 weeks prior to the official closing of the transaction. The acquirer prefers doing these as early as possible in the due diligence process but as the seller, you will want these voice of the customer calls to be made much closer to the final transaction closing date. The timing of when these calls will be conducted is generally a deal negotiating point between acquirer and seller.

At least 1-2 years prior to selling your business, you’ll want to give thought as to who you will one day present to the acquirer for conducting their voice of the customer diligence work. Have you established a strong relationship with customers so as to give you the confidence they will speak highly of your company when the acquirer speaks with them? The acquirer will ask your customer questions like; why do you select this company to do business with? How is this company better than alternatives you have available? Do your plans include continuing to purchase from this company going forward? Where would you like to see the company improve or possibly expand their products/services?

The bottom line is this. Preparing for your future euphoric exit event takes years to do properly as there are many facets to the preparation. One of these relates to establishing a strong working rapport with a cross section of your customers so that when exit due diligence time arrives, you’ll be confident in your preparation for this key step. Being ill-prepared for this step could be a reason they decide to back away from the transaction or try and negotiate a lower valuation…both bad outcomes but with the right exit preparation planning, can be easily avoided.

The right messaging today will help build value for a future company sale

Ask yourself this question, are my internal and external salespeople delivering a consistent and effective message to our current and target customers?

It’s very common in private companies to have salespeople that have developed their own messaging that they are delivering to existing and potential customers. But this messaging may not align with what ownership wants, marketing is trying to deliver or that the customers are finding effective.  This concept sounds basic but we often find this disconnect in businesses.

Your company position in the market in the eyes of your customers (existing and new) is a result of the message your team is delivering. This message includes what the company does, how it’s unique and what value a customer can expect to derive from working with your team. When done right, your messaging can enable profitable sales and this in turn can enable building the value, or net worth, of your company. But a message that is inconsistent or ineffective in your marketplace can do the opposite to your company net worth. And when the day comes that an acquirer arrives to consider purchasing your business, during their due diligence, they could uncover ineffective market messaging from your team and view this as an inhibitor to future growth and this could impact their offer.

Try a simple exercise. Sit over a cup of coffee with each of your sales and marketing team individually or better yet make sales calls with them. Listen to the sales pitch being delivered and listen to see if the message is consistent from salesperson to salesperson, is the message aligned with what you want being conveyed and is the message still effective in today’s marketplace.

Don’t assume your sales and marketing team messaging is consistent and effective in their daily interactions with customers. Confirm or improve this area of your business and have your business on its way to building more scalable and consistent sales growth and building the enterprise value of your company.

It can be avoided by taking the right preparatory steps in your company sale

Deal fatigue is when the acquirer and/or the seller grow tired of the transaction process and often results in either withdrawing from the process. It most often occurs because the initial excitement of doing the deal wanes as both parties move through the exit process. You won’t generally see deal fatigue occurring in the first stage of the parties discussing and agreeing on the key deal points, but it occurs most often during the stage of due diligence or the final stage of negotiating final deal legal documents.

You would think deal fatigue would be uncommon but it’s not. It can be quite common especially in deals where the seller hasn’t effectively prepared for the sale. Here are common causes of deal fatigue:

  • The initial acquisition offer negotiated is too vague between the parties and both assume that the details will be hashed out later in the process by the lawyers. A seller and acquirer should both focus early on ensuring they establish a detailed offer document.
  • Acquirer or seller aren’t fully committed to applying the essential resources needed to move the deal process along efficiently and effectively. This could be because either party has other priorities and isn’t able to focus their people (employees or third parties) on expediting an efficient deal process. For the seller, it’s key to ask the acquirer early in the acquisition discussion whether they can apply the necessary resources (their employees and third party partners they will be engaging to do the deal) to move the deal along efficiently. And the acquirer will ask the same of you as the seller.
  • The seller isn’t fully prepared to support the acquirer’s due diligence data requirements. We tell our clients early on that they will have two decisions to make one day. The first is the decision to sell. The second is the decision as to whether their team and business are ready to support the acquirer’s due diligence timeline. Conducting a due diligence dress rehearsal at least six months prior to beginning the sale process is important to avoid this potential cause of deal fatigue.
  • Deal negotiating that too early on gets controlled by lawyers or accountants. This is a common cause of fatigue if the principal of the seller and the principal of the acquirer move the deal discussions and negotiations too early on to third parties like lawyers and accountants. Principals should work together to establish the key deal points, certainly with the help of an M&A lawyer but they should not be playing point position at this early stage. Principals should first agree upon deal points such as deal valuation and methodology for establishing the value, deal structure, source of funds, working capital adjustment approach that will be used, due diligence timeframe and process, assimilation plans for seller employees and facilities and other key deal points. In the most efficient deals, these points are negotiated in concept first by the principals and captured in an Indication of Interest or better yet the more detailed Letter of Intent and then this is handed to the lawyers and accountants to execute on.
  • A seller or acquirer who keeps changing initially agreed upon deal points or who too late in the process introduces new critical deal points so that either party begins to feel like the deal keeps changing. It’s most often the seller that causes this and it’s because they weren’t well prepared in identifying what their critical deal points were going to be before starting the acquisition discussions.

Optimize your exit preparation to ensure you and your team aren’t the cause of deal fatigue. Talk with an exit planning professional like Yosemite Associates to ensure that your deal won’t fall into the normal traps that cause deal fatigue. With the right exit preparation, or what we call exit optimization, you can reach your desired euphoric exit.

Protect your financials until your optimal exit process is clear

A common mistake we see business owners make is when they receive a reach out from a potential acquirer, have a good conversation with them and it turns into the potential suitor asking if the owner would agree to share their financials. When is sharing your financials ok and when is it not?

It’s very normal and acceptable to share your financials with a potential suitor when you have 1.) Identified what your optimal exit process is (see our blog post of May 4, 2024) and sharing your financials is in alignment with the process you’ve established. 2.) You know the potential suitor very well and trust them having your confidential financial information for the purpose of making an offer.

The majority of time, it’s not recommended to share your financials with one-off reach outs that you might receive from a potential acquirer. Here are just a few of the reasons to think about as to why it’s not a good practice:

  • When you send a suitor your financials, you are immediately playing defense. Because the potential acquirer uses your financials to build their narrative about what your business is and its future potential versus you building and delivering that narrative. You’ve missed the opportunity to present your financials WITH your narrative which is why financials should go with a pitch deck or additional information that positions your company in the best light.
  • Soliciting a one-off offer means you will have nothing to compare the offer to. If a potential suitor asks for your financials, play this movie forward and ask yourself if an offer comes in, will I really know if it’s optimal since I won’t be able to compare it to much.
  • In sharing financials with a single potential acquirer, you’re not allowing them to put their best foot forward. Seeing only your financials makes it a math exercise since they lack other critical pieces of information needed to place a strong valuation on your company. Be skeptical of an acquirer that says they can make you a great offer by just seeing your P&L and Balance Sheet as these don’t reflect the future potential of your business.
  • When you send your financials to a suitor, that implies your willing to entertain a sale. But have you conducted a due diligence dress rehearsal to ensure your team and company can successfully withstand the probe the acquirer will conduct? Soliciting an offer only to realize too late that you personally and your company aren’t ready to support an efficient due diligence can cause stress and create all sorts of unnecessary problems with the sale.

We would never say never when it comes to sharing your financials with a single, potential suitor but there are many things to take into consideration before taking this step. To get to your future euphoric exit event, it will require establishing the optimal exit process so know this before ever sharing your confidential information.

Excite your future acquirer by presenting a solid organization

When you look to sell your company one day, you are certainly aware that they will determine how much to pay you for your busines based on your service or product portfolio. But also have equally in mind, they will assess your team in determining how much they will pay as well.

To build a solid team, you’ll need your team to be good at interviewing, hiring and retaining talent. Think in terms of looking for team members that bring skill and will to your organization.

Ask yourself this question – when my team is hiring new employees, how good are we at interviewing to screen for candidates bringing the right skill (background, experience, capabilities) AND the right will (work ethic, desire to contribute and deliver results, desire to grow).

Too often managers and even senior executives aren’t very good at interviewing skills and this is the initial barrier to building the right team. Contact us today to talk about how to step up your team's interviewing skills to build an organization an acquirer will be drawn to and take a step on your journey to a future euphoric exit event.

When selling your company, having the right deal process is key

A common scenario is a company owner who receives an unsolicited reach out from a potential acquirer expressing a desire to discuss acquisition. Many times, the company owner “sees no harm” in sharing initial confidential company information for the purpose of receiving an offer to acquire their business. But this seemingly harmless step could have you starting an exit on the wrong foot.

Any merger & acquisition professional will tell you there are times when it could be in your best interest to run a process that includes only one potential acquirer, and there are times when it’s not. The general rule of thumb is your best offer is going to come when you run a deal process that includes two more suitors pursuing the acquisition of your business. The reason is simple, when there are two or more vying to own your company, they feel the competitive pressure of a race and will more often put a better offer on the table. When an acquirer knows they are the only option you’re considering, then they may hold back on their offer level because they know they are only competing against themselves.

Deciding what type of dance, or “deal process”, to run should be something you think about well in advance of considering the sale of your business. Each company is a case study of one in terms of what the right answer is. Engage with an exit optimization professional to determine what the best process will be for you and your company to have you on your path to a future euphoric exit event.

Think beyond products and services to build the net worth of your company

Let’s put on the glasses of your company’s future acquirer. They are going to look very closely at your revenue and the customers that generate it. They will want to fully understand your sales model for attracting and retaining customers so they can be confident that not only will existing customers continue purchasing, even if the acquirer takes over, but also looking to see if you have a scalable sales model for adding new customers and growing the business even further.

To excite them that your sales model is effective today and scalable for tomorrow, think about how you manage your customer relationships and turn this into a well-thought through, well documented standard operating procedure. Picture the day you’re discussing your sales model with the acquirer and being able to excite them because in addition to selling your products and services, you’ve actually created an additional product of value and that is how you identify, attract, retain and nurture your company’s customer relationships. In other words, you have built a new product and it’s one that makes you very sticky with your customers.

Build your customer relationship product by sitting with your sales team and discussing/documenting what you’re doing every day, at a step by step level, that has your team finding, onboarding and nurturing customer relationships. Discuss and develop your playbook:

  • How do we decide where to deploy our sales team – what geographies, what markets, what specific customers?
  • How are we deciding which customers we do and don’t want to do business with? Have we profiled an attractive target customer and a customer type we don’t want to do business with (i.e.: lower margin customers, don’t pay their bills on time, require you to tie up your working capital for their benefit, difficult, high maintenance customers, etc)?
  • How do we identify the decision maker at our target customers?
  • What steps do we take to attract the decision maker to want to purchase our product or service? What have we learned in terms of what works and what doesn’t work related to conveying our value proposition and unique selling proposition to the decision maker(s)?
  • What is our process for building and communicating our sales proposal to the target?
  • What is our process for onboarding a new customer?
  • What steps do we take to ensure we retain and nurture the relationship as we work with the customer?
  • If the customer we built a relationship with leaves our current customer and moves to another, what steps do we take to maintain contact with them to try and attract their new business?
  • How do we think our customer relationship management is better than our competitors?
  • Are we able to show over time that decision makers have repeatedly selected our company for their business needs so we show we are sticky with customers?

As you think about these questions, the answers can help you begin to build your documented sales playbook. This playbook can then be used to accelerate the training of new salespeople and will be helpful during the acquirer’s due diligence to impress them with the product you built around how you manage customer relationships. This could help support you asking for and receiving a premium valuation for your company at time of sale because the acquirer will see you have a proven customer relationship playbook that they too can leverage.

Build the leverage and build your company net worth

When the day arrives that you engage with a third party to potentially acquire your company, they will look at many aspects of your recent historical financial performance. One such performance area they will probe is your company operating leverage.

The acquirer wants to know about your recent and projected revenue growth and what the cost and expense relationship is with this revenue. They want to know if your revenue growth is driving greater efficiencies and economies which would reflect in better gross or net margin.  A positive operating leverage is when your margin improves with incremental revenue and a negative leverage is when margin decreases with higher incremental revenue.

Here is an example to illustrate how to determine your financial operating leverage. Let’s look at it through your Gross Margin. Gross Margin operating leverage is your incremental gross margin divided by the incremental revenue:

Q1 Revenue: $10,000,000

Q1 Gross Margin $: $4,000,000

Q1 Gross Margin %: 40%

Q2 Revenue: $11,500,000

Q2 Gross Margin $: $4,200,000

Q2 Gross Margin %: 36.5%

Incremental Revenue Q2 versus Q1: $1,500,000

Incremental Gross Margin Q2 versus Q1: $200,000

Gross Margin on this incremental revenue: 13.3% ($200,000/$1,500,000)

This company owner can factually state that their Q2 revenue and gross margin grew over Q1 in whole dollars. But, an acquirer will question why the incremental revenue of $1,500,000 came with a lower gross margin (13.3%) versus the overall gross margin of the business (40% in Q1 and 36.5% in Q2)?

The acquirer will want to understand what’s causing this to determine if it’s a new trend that will impact their ownership. They will look at the gross margin and net margin calculations (net margin adds your SG&A costs to the formula).  If they see your operating leverage as positive, it could build the purchase price they are willing to pay you for your company. But if they believe the operating leverage trend will be negative, it could reduce how much they are willing to pay.

Each month, review your operating leverage at the gross and net margin levels and monitor them for trends. Use time as a friend to strengthen your leverage and be ready to impress and excite a potential acquirer.

Managing family member expectations is key to a successful company sale

Recently a company owner called and said he tried to sell his company but after telling his two sons that he had accepted an acquirer’s offer, the two boys quit. They quit because they felt blindsided that their father never spoke with them about exit plans. This caused the acquirer to back away given the important role the two sons played. The owner was now looking for help to reset his attempt to exit.

Key to a future euphoric exit event is preparing your business and yourself personally. Part of the personal equation includes family members that may play roles in the running and/or owning of the business.  If you’re the owner of a company and have family members working at the business or with ownership stakes, ask yourself these questions:

  • How might my family members, who are working in the business, react to my wanting to sell?
  • Will my family members who are working in the business want to leave when I do or will they want to stay and work for the acquirer?
  • How will family members, who don’t work in the business but who do have an ownership position, respond to my wanting to sell? Does their ownership position give them voting rights in a sale?
  • Would any of my family members be capable of taking over the company from me? Would they want to? Are they expecting to take over?
  • Have I spoken openly with my family members to share my thoughts related to a future exit and solicited their thoughts?
  • Have I talked with family members about what a sale of the company might mean for them and solicit their thoughts?
  • Would it be an exit option to have members of my family, who are working in the business, acquire my portion of the company? Could we structure a way for family members to purchase my stake in the company?

Use time as a friend in communicating effectively with family members to prepare for your future exit event. Don’t get close to exiting only to find out that this topic hasn’t been effectively addressed.  Selling a company is stressful enough without adding the unnecessary pressure of dealing with family members that have not been well prepared along with you. Start that dialog today and get any issues on the table so you can manage them now and not while also trying to sell to an acquirer.

Selling your company one day could be enabled by doing less today

When owners and CEOs think about building the net worth of their company, they often think about adding to their business, not subtracting. They think about adding more capital, more space, more talent and/or more products or services . But sometimes less is more.

As Steve Jobs was quoted as saying, “I am more proud of what we didn’t do than what we did do.”

So before taking steps to add to your business, discuss these thought provoking questions with your key managers and see what progress driving dialog these could facilitate:

  • What processes in our business are the most labor intensive? For each, when were these processes designed and are they still efficient and effective?
  • Are we applying labor to activities that were once of value but perhaps are not any longer? Could we redirect labor to activities of greater revenue or profit importance?
  • What are our top 3 expense categories? Have we identified productivity improvement initiatives we could take this year to reduce the expenditure (or hold them flat while we grow)?
  • What is our annual expenditure for office/facility space and related utilities, insurance, etc? Before we consider adding more, are we optimally using what we have?
  • Do we optimally manage the utility expense of our equipment? Do we regularly calibrate our equipment and ensure effective preventative maintenance protocols are in place?
  • Are Lines of Credit or short/long term loans being optimally leveraged? Have we investigated any streamlining or new sources of funds that could be more optimal for us?

Before thinking about what to add to your business, ensure first that you are not missing opportunities to subtract first. The profitability of your company might be accelerated more by investing time and energy into initiatives that help you reduce labor, reduce raw materials, reduce space, etc. Meet with your team and brainstorm how less might be more on your journey of building your long-term company net worth.

Give thought to how your age might impact selling your company

A company owner recently commented, “I’m 32 years old now and I’d like to sell at 37 and move on to something else in my life”. On the surface this sounds fine, but to most acquirer’s, this might trigger a red flag.

At time of selling your company, the acquirer will want to know what your personal plans are for going forward. Are you planning to leave immediately, leave after a transition or do you want to continue on working with and for the acquirer? If the seller is around 60 years of age or older, the narrative is easy. It can be they want to leave at time of transaction or soon after simply because they want to retire, take financial chips off the table and perhaps spend time with their family. This type of narrative makes sense to an acquirer.

But what if the seller is much younger, say 55 and under? Now the narrative might be more challenging. Challenging because an acquirer will question a seller of this young age that doesn’t want to keep investing time and money into their own company. If this seller doesn’t want to keep investing in their company, why then should the acquirer want to? The acquirer will wonder what the seller knows about their business that is causing them to want to leave it.

Every seller is a case study of one when it comes to developing your personal exit narrative. In your case, think about your age and what it means for the future narrative of presenting your company to acquirer’s for a sale. You want to use time as a friend to plan for your narrative to ensure it helps you manage to your euphoric exit event.

Use time as a friend to get prepared personally

When it comes to preparing for your future euphoric exit, there are 2 key elements:

  • Preparation of your company
  • Preparation of yourself

In preparing yourself for a future sale of your business (or in the event of your untimely passing prior to a company sale), here are key questions you’ll want to have answered – answering these questions is all part of building your estate plan:

  • Is the legal structure and ownership structure of my company up to date?
  • In the event of my untimely passing, does my spouse/family know who to contact about the legal and tax aspects of the company?
  • In the event of my passing, does my spouse/family know what I want to have done with the company and all business assets?
  • Does my spouse/family know their role and rights as it relates to the company in the event of my passing?
  • Have I met with a tax professional to ensure upon selling my company or upon my passing that my assets will be managed in a tax efficient manner?
  • Have I identified my cash flow needs after selling my company and do I have plan to meet those needs? Or in the event of my untimely passing, is there a plan for providing the cash flow needs for my family?

Use time as a friend to develop your plan with an estate planning professional. Selling your company one day is a process that will keep you busy and it will be stressful enough without also having to rush building an estate plan at the same time. Building your estate plan years prior to an exit event will allow you the time to give the plan the needed quality time to optimally think it through.

Alignment is key to build company net worth before selling your company

Ask yourself this question – are the key managers in my business aligned with me and with each other in terms of what I want us to accomplish with our business?

At the outset of our engagements with new clients, one of the early discussions we have with key leaders in the business is to determine their alignment around company direction and daily in working with each other. Frequently we find lack of alignment which means these teams are often confusing motion for progress.

Check the alignment with your team by using this template (team alignment template). Use this template to facilitate productive dialog with your key managers. Taking this step and building alignment is a step toward driving progress and ultimately building company net worth.

Engaging your team is key to moving your business forward

When the day arrives that you want to sell your business, there are three key areas of your business the acquirer will look to understand. They will assess your historical upto the current performance, future potential performance and strength of your culture and organization. And it’s your culture and organization that are key to helping you deliver on past, current and future performance.

So, if your organization is key to your business performance, then what steps can you take to help increase your team’s engagement? Ask yourself these questions to help identify ways to get your team more engaged in helping you build your company net worth:

  • Have we met with key supervisors and managers across our company to discuss what we want to accomplish this year, what we want to get better at?
    • Have we shared how each department can support what we want to accomplish?
    • Have we reviewed what metrics are important for each department to monitor?
    • Have we refreshed our key metrics to help facilitate continuous improvement dialog?
  • Do we meet monthly as a senior team to review the progress we are or aren’t making on what we want to accomplish this year?
    • Do we bring facts and data to these monthly meetings versus just having emotion based discussions?
  • Do we periodically (i.e.: quarterly) meet or communicate with all employees to let them know where our company is making progress and where we may need their help in facing challenges?
  • Do we review our employee compensation plans, specifically bonuses, to ensure they are linked to supporting what we want to accomplish this year?
  • Do leadership and department managers encourage our employees to share ideas for improvement in how we serve our customers and how we better produce our product/service?

Building your business is a team sport so as the coach of your team, identify steps you can take continuously to engage your people to care about what you’re trying to accomplish. Ensure your employees aren’t confusing motion for progress…meaning, ensure they know what you’re trying to accomplish and bridge for them how they can help. Giving this the attention it deserves will have you well on your way to building company net worth and more likely to achieve your future euphoric exit event at time of sale.

Know which type of acquirer may be best for your company at time of sale

A common question we get from company owners is who is most likely to have interest in acquiring their business? The first part of our reply is you want to build a business that will be attractive to the largest number and type of potential acquirers simply because this will generally get you the best competitive offer. The second part of the answer is explaining what 3rd party options they may have.

Venture Capital – the name implies their focus, which is on businesses that are “venturing” into the market so their interest most often is on investing/acquiring earlier stage,  less mature companies. VC firms many times invest/acquire pre-revenue or early revenue businesses that need capital and outside expertise to help them scale. And these days, many VC firms are technology focused and want to acquire software or tech oriented businesses.

Private Equity – the name implies their focus, which is they take an equity stake most often in private companies that are more mature and established in the market. Private Equity firms are also called financial sponsors because they are strong at bringing capital to help an established company scale to new heights. They leave the early-stage businesses to the VC firms and the PE firms focus on companies with established products/services, customers and revenue streams.

Strategics – the name implies their focus which is they strategically understand and operate in your industry. Strategics are well-established companies and are often direct or indirect competitors to your company. They look for businesses that will enable and complement their products/services and/or customers/markets. It’s often said amongst acquisition professionals that your best offer may come from a Strategic acquirer because they can factor synergies into their valuation model. Over the last few years however, Private Equity has sharpened their pencils to compete with Strategics so they too are making strong offers for solid businesses.

A note on PE that has invested in a business that serves in your industry, these are called Quasi Strategic acquirers. Meaning they are a PE group but because they already own a business in your sector, they also act as a strategic acquirer because of the potential synergies that may exist with your company.

For most sellers, they won’t be attractive to all 3 of these potential acquirer types. Early-stage companies will most often be attractive to VC and potentially a Strategic. More mature, established companies are more attractive to PE or Strategic acquirers. Knowing which of these will be in your future is important to begin identifying now because it will help you in making important business decisions today. Decisions you’re making in the near term related to your company will increase or decrease the interest a future acquirer may have in your business. Start giving this thought today and ensure you’re building a business with optimal attractiveness to future acquirers and increase the likelihood of achieving your future euphoric exit event.

Rethink your metrics to gain strategic insights

When you look one day to sell your company to a third party, they will look at your financial, customer and operational data to see what strategic insights they can gain. They will be looking for the opportunities and risks associated with owning your business. Prior to them doing this analysis, benefit yourself by doing that analysis years prior.

A common issue we find in working with new clients is they have become stale in terms of how they look at their business performance. We find they are looking at the right things but not perhaps in the right way and this is causing them to miss key strategic insights that could help build the net worth of their company. Ask yourself these questions about your key metrics:

  • Do we look at performance metrics both in percentages AND in whole dollars or units?
  • Do we look at our sales performance on a portfolio consolidated level AND by individual sku (each of our products or services)?
  • Do we look at revenue dollars by products/services AND by units? Your dollars could be increasing or decreasing but your associated units or weights could be doing the opposite and this could be caused by a variety of reasons such as price changes.
  • Do we look at revenue and profit performance of our product and service revenues by month AND at performance trends over multiple years?
  • Do we look at our revenues by customer (by specific products and services they purchase) by month, by quarter AND over the course of multiple years to identify trends?
  • When is the last time we reviewed our key metrics and updated the targets we’ve set for each?

If it’s been awhile since you evaluated the strategic insights you are getting from monitoring performance metrics, refresh them today. Doing so today will help you gain insights that can help you improve your business and get you ready to attract and excite a future acquirer to pay a premium for your company.

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.

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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