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CEO Advisor® Newsletter
March 2019
7 Critical Things to Know Before Selling Your Business

Selling a business is never a straight forward process. However, the upside can be a life-changing event. When you do decide to sell, there are seven key things you need to know that will help you prepare and optimize your value and chances of a successful exit. Getting it wrong can ruin your opportunity of a sale and can mean many months, or even years, of wasted time and a major lost opportunity. Red flags will be detected by experienced buyers and they will quickly pass on your business.

1. Don't Live in the Past
The previous success of a business (three or more years prior) is largely irrelevant at the time of sale, especially if it has been struggling in the last year or two. Buyers are interested in recent performance (Valuations are based on the last 12 months) and future sustainability and viability including your current forecast. Failing to grasp this concept will be very costly and waste a lot of time.

2. Buyers Won't Pay More for Potential
The valuation determined by buyers for the potential sale of your business will be based on the trailing twelve months (TTM) X an EBITDA multiple. I regularly speak to CEOs who believe they have a potential "Home run" and expect to command a top sale price based on perceived potential alone or a big Forecast. This is not how it works and buyers put minimal value on the future. If a business did $10 Million in sales last year, with $300,000 in EBITDA, the value will be minimized in the eyes of the vast majority of potential buyers, despite your lofty Forecast for $15 Million in Sales and $3 Million in EBITDA this coming year.

3. Buyers are Interested in Profits, Not Revenue
Another common misconception is that buyers are easily impressed with revenue figures. This holds true with SaaS software companies, but only to a certain degree. Revenue always sounds good, but when it comes down to it the only number that matters in the great majority of M&A transactions is the Net Profit and EBITDA a business generates. Experienced business buyers want to see Net Profit and EBITDA, not just revenue. Revenue of $10 Million or more will attract them as a potential buyer but EBITDA is primarily the factor for valuation.

4. Buyers Will Verify All Information in Due Diligence
Once an offer is finalized, Due Diligence begins to verify a lot of seller information in a 30 - 40 day period. Due Diligence requires expertise, organization and preparation. You will not progress to the next step of the sales process - the legal agreements - until you pass the Due Diligence phase.

5. Be Both Expeditious and Patient
The sale of your business will be extremely time consuming and require a lot of experience and expertise. You want to keep the sale process on track and make progress on a daily and weekly basis. Otherwise, the sale process will drag on and an excessive amount of your time will be consumed and expenses will mount up quickly. At the same time, show poise, professionalism and patience as this buyer is your future employer. An M&A advisor is critical to lead the sale process due to the time and expertise required to consummate a transaction.

6. Be Honest, Flexible and Extremely Prudent
The truth will prevail and you need to build trust with the buyer. Experienced buyers understand that every business is going to have positives and negatives. There is no such thing as a perfect business so the best method is to be transparent and respond timely to the buyers requests. If you are honest and transparent from the start there is less risk of a deal going sour because the buyer uncovered something during Due Diligence that wasn't accurate or an instance where the truth was stretched. Honesty is the best policy in all business transactions and selling your business is no different. With that, you must be very prepared and prudent in how you present the information to get the results you desired. Again, an M&A advisor should manage and lead the sale process, as well as, communicate with the buyer on your behalf.

7. You Need an Experienced Business/M&A Advisor to Ensue a Successful Sale
The goal is to consummate a sale at an optimal price and terms. This will require the experience, expertise and a tremendous amount of time invested by an M&A Advisor - from the preparation leading up to the sale, securing a buyer, conducting Due Diligence, advising the CEO through the entire process and keeping the sale on track all the way to the closing.

Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. at (949) 629-2520, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information or to schedule a no cost initial consultation at your office.
Source: Excerpt from the Philadelphia Business Journal, Aug 9, 2018
I'm a big believer in career advisors. For one thing, they help drive measurable and positive outcomes. That's clear from a wide range of studies over many years on the subject. Advisors, coaches, mentors - however you label them - have been found to improve competitiveness and leadership development.
A review of 25 years' worth of research on mentoring, published in the Journal of Vocational Behavior, found mentors "improve career outcomes for individuals. My own experience confirms all these findings." 
The type of relationship or counsel you are looking for also evolves over time. Ironically, many people abandon these sorts of partnerships as they climb the corporate ladder. They feel they can go it alone, but I am a firm believer in leadership under advisement. 
Early on in my career, I sought out coaches or mentors. As I rose through the executive ranks, and especially as a CEO, the stakes became higher and I sought out trusted advisors - individuals who sat outside of the organization that I could safely and confidentially bounce ideas off of and get insights from, in addition to my management team. These people continue to round out my thinking and help me navigate through challenging situations, prioritize opportunities, and improve performance.
When it comes to advisors, the duration of the relationship is an important factor. There can be people in your professional life who make a distinct impression. A great orator, a wise elder, or a paid consultant that gives you sound advice.
But, in my experience, when it comes to making an indelible mark on your career, finding a person who you implicitly trust, who truly understands your strengths and weaknesses, who pushes you to be accountable, who you are willing to take constructive feedback from, and who can be a thought partner - well, that doesn't happen overnight. That builds gradually and requires investing time and energy and deliberation. It's a relationship where there is no agenda other than making you the best you can be and reinforcing it through remarkable results.
I've been fortunate to have several long-time advisors. One of them has been working with me for many years as an executive coach. His role at that time was to help us think through executive leadership, transformation, and value-driven outcomes. I remember one of the first things that struck me that he was a "strategy guy," with strong business acumen and a hard drive for accountability and results. 
He asked thought-provoking questions, always pushed for more, challenged the status quo and was all about partnering to achieve the best outcomes for the organization. As a senior executive in the company, I quickly came to value him as a resource to help think through some of the complex issues we were facing. The relationship evolved to trusted advisor.
His experience is diverse. He was a Marine Captain and has worked for a range of Fortune 100 companies, such as Pepsi, GE and Citigroup, as well as smaller companies, including a recent one in the medical devices industry where he led the build-out of a top-tier domestic and international organization. His vast experience across a variety of highly competitive industries informs his keen insights, intuition and advice on business and cultural issues - all of which have been invaluable to me. 
While nothing fully prepares you for the challenges of being a chief executive, having a business advisor when the going gets tough or to just to be a thought partner is an enormous plus. Our always-evolving, never-ending agenda is building "a remarkable organization" and keeping it remarkable as dynamics change. 
Very few companies consistently outperform over long periods, so setting out to do so means you have to strategically beat the odds. It's a fluid and complex process - you have to get the right team and culture in place, set forth a clear strategy that the team can execute against, establish goals with measurable outcomes, and learn how to navigate and best serve a diverse group of stakeholders with different agendas. 
As time goes on and new opportunities and challenges constantly present themselves, organizations and cultures need to be rethought and assessed. It's important to have someone who is not ingrained with the day-to-day team, that you trust, to help you think through these issues, challenge you, and provide critical insight.
I'm enormously grateful for the impact my business advisor has made - and continues to make - in my professional growth as a trusted confidante. I now take elements I have learned from him and use it with others who are looking to grow as leaders. Whatever stage you're at in your career, make the time to cultivate a trusted advisor. 
CEO Advisor, Inc. has 38 years of advising some of the most successful CEOs and business owners of companies in the Southern California area. Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. at (949) 629-2520,by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for a no cost, no obligation initial consultation today.
7 Ways CEOs Can Continuously Improve Their Performance 
Continuous improvement is vital to performing optimally as a CEO. The best ones make time for it, because they see it as an investment in themselves and their company that will pay off in real dollars now and down the line. So what specifically can you do as a CEO to improve your skills and performance? Here are 7 ways. 
1) Attend Training Programs: For the past several years I have given an annual seminar on the CEO position. The biggest excuse I hear from CEOs for not attending is that they don't have time. From my experience the CEOs who do attend are typically the ones who are already better than most. Because of this, they know how to make time to improve their skills. If you think you don't have time to get better at your job, then you are not doing your job properly.
2) Read Books: CEOs who take the time to read about the experiences of other chief executives and other business leaders have an advantage. While the advice may not be perfect for every situation, I can tell you that I almost always come away from reading a top-rated business book with a couple of ideas that make a difference in my businesses.
3) Write Some Content: Writing forces you to clarify your thoughts in a way that is highly beneficial for future action. Taking the time to write a regular email to your company explaining your thoughts and actions can do a lot to improve your thinking as well as align the team with your vision. Many CEOs have begun a regular blog to comment on issues they find interesting. Formalizing your writing schedule will pay big dividends as a CEO.
4) Meet with Wise People: As a CEO it is part of your job to find people from outside your company who can bring knowledge and experience to bear on your problems. Make an effort to get to know people in your community who have relevant experience. Seek out the other leaders in your industry to establish relationships. Many times the relationships I formed within my industry provided tremendous value to the company.
5) Study Yourself: Learning about yourself, how you think and react, is critical to developing as a CEO and overcoming your internal biases. There are many different self-assessments tools available - from Myers-Briggs to Marcus Buckingham and Donald O. Clifton's strengths-based assessment. Many firms specialize in this area and may offer a free interpretation of your results. If you find one you like, extend it to your employees so you have a common language to address personality issues across your entire team.
6) Gather Feedback: If you are not getting feedback about your performance, then you have a problem. It is not enough to just ask for feedback and hope it comes to you. You should actively solicit feedback both from your employees as well as your board or outside advisors. Getting feedback from employees will often require an anonymous feedback mechanism or third-party gatherer. Feedback from your board should be both informal and formal as well as on a regular schedule.
7) Seek out Mentors and Advisors: Reach out to those who have gone before you to gain from their expertise and experience. The CEO job is unique, so make sure you have people in your circle who have been in the chair and know the challenges of the job. Avoiding lost time and missteps converts to big dollars in your pocket.
If you are not improving your knowledge and experience, you are letting the company down. Don't be the CEO who keeps doing the same things over and over and wonders why he/she doesn't get different results.
To learn how to achieve better results, accelerate sales, increase profits and increase shareholder value, call Mark Hartsell, MBA, President of CEO Advisor, Inc. at (949) 629-2520 for a no cost initial consultation. 
Making Your Company More Valuable and Attractive to Potential Buyers
Do you remember 2008? How soon the markets forget. Ten years ago you couldn't give away most real estate, and business valuations plummeted with very few buyers and minimal mergers and acquisitions (M&A) activity.

Valuations have fully recovered and are extremely high again, and M&A activity is strong. Today, one of the limiting factors of deals getting done are over zealous CEOs and business owners that demand extremely high prices for companies that were not sellable less than a decade ago. Another limiting factor is that your business may simply be too small to attract a buyer (under $10 million in revenue) which means you need to gain help in accelerating your growth.

Whether you decide to sell your company in today's hot market, or prefer to hold and grow your business further (and risk another drop in the market), there are certain key areas that you need to focus on to build value and make your business more attractive to current and future buyers. A strategy to make your business irresistible to prospective acquirers may generate the greatest return in your life time. After all, I tell our clients on a regular basis, you never know when the perfect buyer will knock on your door.

Below are key factors that you must employ in your business to build value, make your company sellable and attractive to current and future buyers.

Growth Rate
The growth rate of your business is critical to the value of your business and the attractiveness of an acquirer. Small to mid-size businesses that grow at 10% or 20% per year are not attractive to buyers given the many other options they have to acquire faster growing businesses. If your growth rate is slow or stagnant, there are issues that you need to address in your business if you expect to exit at some point in the future. This key factor applies to all types of businesses all the time.

Size Matters
Companies that are dedicating people and resources (their M&A team) to acquiring other companies tend to focus on larger companies. It takes just as much (actually more) time to acquire a small company than it does to acquire a mid-size or large company.

Acquirers are looking for revenue and profits that will move the needle of their business. They want strong management, large markets served for future growth, and revenue that is substantial and predictable. Kick into growth mode to increase sales, profits, the value of your business, and to generate your golden opportunity to sell.

Recurring Revenue
If you are only as good as your last project, you are in trouble today. Acquirers see value in recurring, contracted revenue. Not just loyal customers that buy semi-regularly, but a strategy and business model with long-term, contracted customers that is forecastable and predictable. Not all customers need to be this sure bet, but you need to have a business that has staying power to attract buyers and have them pay you handsomely for the customers you have secured and for your many years of hard work.

Gross Profit and Gross Margins
Your Gross Profit Margin (GPM), or Sales less Cost of Goods Sold divided by Sales, is the number one factor that points to the profitability of providing your product or service (before overhead/expenses). Acquirers are attracted to businesses with high GPM as this will typically result in high Net Profit, Net Profit Margin and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).

Depending on your type of business (manufacturing vs. service vs. software have very different Gross Profit Margins), you need to have a GPM that is at or higher than other companies in your industry to optimize your value. If your Gross Margins are low, seek advice from a business advisor as you are leaving a lot of profits on the table, as well as, penalizing your business value substantially.

Management
Strong management is always a key factor in running and growing a sustainable business that is attractive to buyers. Interim management (business advisors, CPAs, attorneys, etc.) work well for smaller and mid-size companies until they reach a certain size where a full permanent management team can be hired. If you are the lone senior executive in your company or your management team is lacking a full realm of expertise, you need to gain additional expertise and experience from a seasoned business advisor to help you grow and build value in your business.

CEO Advisor, Inc. has decades of experience and expertise in hands-on advising of small and mid-size businesses, including growth and strategy, building value, growth capital and buying/selling companies.

Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. for a no cost initial consultation at (949) 629-2520, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.

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"Over a one year period, Mark helped me to understand what my role entailed. Together, we segmented my numerous headaches into achievable goals. I learned to focus on specific issues and predict obstacles by looking at my business in monthly and yearly models. Mark taught me how to understand financial reports as well as the implication of spending. I now understand how to measure the performance of my company and profitably grow my business."


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CEO/President, Engineering Services/Manufacturing Company


Whether it is growing a business to the next level, turning a distressed company around or preparing a company for an exit, Mark's firm, CEO Advisor, Inc, provides a broad range of services and Mark is there for the CEO every step of the way."

 


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Words of Wisdom


"True leaders are the first to admit that they don't know everything and that they need help."

Bill Byrd
Author of Sweet Success: 12 Proven Habits of Winning Leaders