The Wolf On Main Street: Stages of the Deal - Wendy Dickinson

The Wolf on Main Street: Interview with Michael Mitchell

Show Notes written by Wendy Dickinson, Catalytic Conversation$.


IBGR.Network - PROFIT Radio. Everything a business owner needs to start, grow or exit a business. GROW WITH US.

Introduction:  
Today we look at the process of selling your business.  You may hear of this process referred to as The Deal or the Transaction.  Your deal, or transaction, is the culmination of your years of hard work, blood, sweat and tears.  The amount of money you walk away with is dependent on a number of variables.  I hope that your biggest takeaway for my shows this month is that preparation is your key to successfully selling your business.

Selling your business is a process.  Today, I want my guest to give you a peek at what happens behind the curtain of the deal.  I want you to be ready for the business colonoscopy.  I want you to be so prepared, so ready, that you don’t feel a thing!

We’re going to talk about the things owners do that get in their own way, that they do wrong, or how they subconsciously sabotage the entire deal!  This happens all too often. 

Michael and I want you to know what you don’t know.  What you don’t know can definitely hurt your deal.  Finally, Michael and I share our recommendations for steps that you can take to sell, and then integrate successfully once it’s sold.

I think you’re going to want to take notes!

SHOW OBJECTIVES: THE WHY

• 4 out of 5 businesses that go up for sale, don’t successfully sell.
• Of the businesses that close the deal, 80% fail to integrate successfully.
• 73% of business owners are unhappy with the results of the sale of their businesses 1 year out from the close.
• Over 60% of business owners are planning to use the proceeds from the sale of their business to fund their retirements.

KEY ISSUES: Problems You May Encounter:
In my experience, these are the obstacles that owners don’t prepare for, lead through, or navigate successfully, during the transaction.

1.   Owners don’t really know what their priorities are before they begin the transaction process.  It is too late to think about the well-being of your employees once the purchase agreement is signed.
2.   Owners don’t think about who their ideal buyer is or what their attributes should be.
3.   Owners don’t really know how much their business is worth.  Michael recommended the Goldilocks method - ideal price, acceptable price, minimally acceptable pricing.  It is very important to get the pricing right, to attract the interest that you want.
4.   Owners have built the entire business around the owner.
5.   Owners have failed to build value within their business - value to a prospective buyer, that is.
6.   Owners fail to run the business successfully once the transaction occurs.
7.   Owners don’t get the timing right.
8.   Owners don’t have the right advisors.  Many try to sell the business as a DIY project - without knowing the fair market price, how to protect their proprietary knowledge, and how to weed out the tire kickers.
9.   Owners don’t have a communication plan for their team and word leaks.
10. Owners try to lead the negotiation process without the input of their advisors.

What You Need To Know - THE WHAT:
Folks, you need to know what other companies in your industry and in your geographic area are selling for – I encourage you to do some market research.  

If you belong to an association, ask for the names of other owners who have successfully sold their company. Get in touch with them and find out what their experience was like and what they would do differently if they could have a redo.  I also recommend that you listen as closely to what isn’t said as to what is said in those conversations.

Next, make sure you build relationships with advisors who have had experience as part of a deal team.  That experience will be a huge source of strength during the transaction process.

Almost every deal has moments where the door opens to renegotiate the purchase price, or an accounting practice is questioned, etc.  you want your advisors to be calm, professional, and to add value to your position, not detract from the value of your company.

Here are the steps that Michael outlined for your transaction:

1. Get your business appraised.
2. Talk to your accountant.
3. Determine the kind of sale you will execute.
4. The book of information is written.
5. Advertising.
6. Attracting and educating the buyers about your company.  NOTE: This is the time to get those prospective buyers to submit their personal finance documents and to sign an NDA.
7. Letters of Intent are submitted and the top prospects are chosen.
8. Due diligence begins.
9. Purchase and sale agreements with terms and conditions are signed.
10. Transaction closes.
11. Transition begins.

What You Need To Do - THE HOW

Here are my rec’s:
1.   Know what your priorities for the transaction are: employee wellbeing, location of company, name of company, etc.

2.   What are your expectations for exiting the business?  Immediate?  Two years after the sale?  
   1.   What role will you play during that time?  
   2.   Who will be the ultimate decision maker if you are no longer in the owner’s seat?

3.   Get a valuation by an independent source.

4.   Consult your financial planner to determine the amount you need to live comfortably in retirement.  

    1.   Could you manage an earn out, or reinvest as minority owner?  If so, for how much?  
    2.   What would it mean for your bottom line to take part of the proceeds and divide it among your most loyal employees – or those who were particularly helpful during the transaction?

5.   Develop relationships with a broker, attorney and accountant who have this kind of expertise.

6.   Conduct an inventory, a cash flow analysis, account receivables over 90 days are considered a lost cause.  Collect on those ahead of time.

7.   Consider the “curb appeal”.  Clean and spruce up ahead of time.

8.   Prepare your team, and your customers, for transition.  It will cost you if your key performers/customers up and leave once the deal is closed.  

9.   Many business owners describe due diligence-  the period of time between the letter of intent and the close as the equivalent of a business colonoscopy. What do I mean by that?

    1.   Your prospective buyer will go through your books with a fine tooth comb.  So, clean up your books and accounting ahead of time.
    2.   Your prospective buyer will assess your inventory and other assets according to current market value – not what you paid for it, or how much YOU think those items are worth.
    3.   Your systems and processes will be examined, questioned and then evaluated, as will your customer concentration.
    4.   Real estate assets are also subject to comps and the market.

Resources:

1. Michael Mitchell, Business Research Group, Michael@brgbrokers.com, or 1-804-381-6667.  Visit Michael’s website here.
2. The Growth Zone: 10 Roadblocks You Must Overcome To Create a Business with Enduring Value, by Michael Mitchell, Outskirts Press, January 2020.
3. Visit my website, to get your free downloads here
4. Exit Rich, by Michelle Seiler Tucker and Sharon Lechter, An Inc. Original, June, 2021,.  Preorder here. 
5. “The Most Common Mistakes Business Owners Make When Selling Their Company”, by Rex, March 28, 2016, howtosellmybusiness.com, 
6. Work The Bugs Out: Practices To Work In, & On, Your Business, by Wendy Dickinson, Publish: TBD.  Excerpt: Free Downloadable PDFs to work through.​

You can connect with Wendy Dickinson on FB, LinkedIn, and Instagram.

E3.11.4NA