CEO Advisor Newsletter November 2018
10 Questions to Ask Prior to Selling Your Company
CEO Advisor, Inc. provides business consulting, funding and mergers and acquisitions advisory services to CEOs and business owners of small to mid-size companies. A major benefit to our clients is that Mark Hartsell, MBA, President works with each client first hand on a weekly basis. Other M&A advisory firms will solicit your business and then assign a junior associate to handle the great majority of the process - an extremely risky roll of the dice.
Mark has 38 years of business experience with decades of mergers and acquisitions experience. He is certified in Mergers & Acquisitions from the Wharton Business School, University of Pennsylvania, achieved a Master's Degree in Business from Loyola University and has a hands-on approach to guiding entrepreneurs through every aspect of the sale.
Here is your opportunity to discuss with Mark these and other valuable questions regarding your most valuable asset - your business. Contact Mark Hartsell at (949) 629-2520 or email MHartsell@CEOAdvisor.com.
10 Critical Questions to Ask
Exit Strategy - Do I have an exit strategy? Do I need an exit strategy? What is an exit strategy? Well, this is actually 3 questions but all point to one important issue - You never know when a potential buyer with a fat check is going to knock on your door, so Yes, every company needs an exit strategy. Simply stated, an exit strategy is a plan and process suited to you and your business to optimize the value of your business and to facilitate a sale at the proper time.
Readiness - Is my business ready to be sold? The answer is typically a resounding, No. Preparing your business for sale can take up to a few months; optimizing the value of your business can take years. At a minimum, you want to always be prepared to sell (when that proverbial buyer comes knocking on your door) and this is where an M&A advisor such as CEO Advisor, Inc. is extremely valuable as we optimize your value and attractiveness to a buyer during this preparation process.
Timing - Is this the right time for me to sell my business? There are many considerations here, but I like to look at it slightly differently. I ask CEOs and business owners, when is it too late to sell your business? Meaning, what things could happen that would make it very difficult and burdensome for you to sell your business? Things such as, A) if a deep recession hit and now you had to wait 7 more years to sell to retrieve a good value or to find a legitimate buyer; or B) if my illness were to return, how much risk would occur to my business surviving or how much burden would it be on my family and employees; or C) if stiff competition surfaced or a disruptive and far less expensive technology, product or service directly encroached on my business how would I recover or reinvent my business and how long or how much money would that take?
Market Timing - Is the market right to sell my business? Today, valuations are extremely high. The economic cycle is now 10 years old with the average economic cycle ending at 7.9 years over the past 75 years. With high valuations and a low interest rate environment, it has never been a better time to realize the best value for your business in our opinion. And this window of opportunity will not last indefinitely, in fact it is shrinking by the month with a lot of volitility in the stock market.
Time Commitment - How much of my time will be involved in selling my business and how long will it take to sell my business? Selling your business is a commitment and will take a substantial amount of time over six to nine months or longer. With the right team of experienced advisors, your time involved will be weekly, but far more manageable, predictable and minimized with a far greater opportunity of success. To minimize your time and optimize your value, efficiency and likelihood of securing a buyer, you will need to engage a team of advisors to zero in on a buyer and complete a transaction.
Team of Advisors - What is the team of advisors I will need to take me through the sale process and how do they benefit me? It is absolutely critical that you continue to manage and grow your business, keep it on track and not have any downfall in your revenues or profits if you expect to find a buyer and optimize the sale price. To enable you to do this, CEO Advisor, Inc. acts as your business and M&A advisor to:
A) Strategize, research and create a list of 200 - 300 prospective buyers
B) Create the needed materials in preparation of the sale, such as an Executive Summary, 3-Year Forecast, PowerPoint Presentation specifically for buyers, make sure your financials and tax returns are in order and current, and many other preparation steps
C) Contact the 200 - 300 prospective buyers multiple times by phone and email to arrange conference calls and meetings to secure a bonafide offer in the form of a Letter of Intent
D) Negotiate and finalize the Letter of Intent
E) Prepare for, gather and coordinate the extensive amount of Due Diligence information the buyer will require to validate your valuation and proceed with the sale
F) Coordinate with your CPA/tax advisor to ensure your tax situation is optimized
G) Coordinate the legal documents with your corporate/transaction attorney and assist you in negotiating the many business issues that arise from these documents
H) Negotiate your future compensation for after the sale
I) Prepare for the closing of the transaction and coordinate all aspects of the sale to completion. In summary, you will need an M&A Advisor, Corporate/Transaction Attorney and CPA/Tax Advisor. Remember, there are over 1,000 variables that must occur properly to close a sale, and just 1 misstep can kill the deal.
Valuation - How will buyers value my business? Most businesses are acquired based on a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). The multiple varies based on your type of company, growth rate, your gross profit margins, your profitability, the size of your market, the strength and depth of your management team, and many other factors. In some cases with technology companies, in the absence of profits, but in the presence of an extremely high growth rate, margins and size of the market, businesses may be valued on a multiple of revenue, as well as, other factors.
Cash at Closing - Will I receive 100% of the sale price in cash at closing? Unlike selling real estate where comparable properties are common place and basically 100% of the property can be inspected, tested and validated, a business has many variables that are fluid and cannot be validated, and comparable deals are very hard to come by.
Realistically for small to mid-size private companies, buyers will pay you 50% to 80% in cash at closing, occasionally ask you to hold 10% in stock to keep you fully vested and committed to the business, and the balance in the form of an Earn Out requiring you to meet milestones and your forecasted revenue and profits prior to paying out the balance of the sale price in cash two to four years after the closing. An all cash deal is possible, but you need to be realistic when selling your business.
Continued Service - Will I need to stay on with the buyer after the sale? Every situation is different, but 99%+ percent of the time, the buyer is fully expecting you to not only stay on, but help them to further grow the business. Taking your cash and heading for the beach is not realistic and this is one more reason to devise an exit strategy while you are still willing and able to work for at least 2 years after you close the sale of your business.
Alternatives to Outright Sale - What are the alternatives to an outright sale of my business? I speak with many CEOs and business owners and many feel that they can simply sell their business to the employees. Others want to find a person to run their business for them so the owner can move on and do other things, while pulling cash out of the business each month. These alternatives are rarely feasible in realistic terms.
The best alternative to outright selling your company is to team up with a Private Equity firm by selling a minority or majority equity stake and taking money off the table, while still having substantial upside in the ultimate sale of the balance of the business. The Private Equity firm will provide capital for you, growth capital for the business, highly experienced management help and an opportunity to ultimately sell the business at an optimal sale price. Contact Mark Hartsell, MBA, President to see if this is a fit for you and your business as I have many relationships with Private Equity firms focused on small and mid-size companies.
Talent Fueling Innovation; Innovation Fueling Growth
Nick Newsom founded Ytel in 2012 to help businesses better interact with customers through self-service software. Newsom also recruited top employee talent to help propel Ytel to the next level. "We really believed in the idea that complex software didn't have to be a burden or take months to be implemented," explains Newsom.
Newsom's vision and his company's pathbreaking work has paid off: Ytel has received congressional recognition for innovation in cloud communications as it has reached the milestone of 10 billion interactions on the Ytel network in a single year.
The company, meanwhile, has been selected by Entrepreneur magazine as one of America's fastest growing companies. In only four years, Ytel has grown from just a half a dozen employees to more than 100, necessitating a new 30,000+ square foot, state-of-the-art headquarters, supported by several other offices across the country to service customers.
Still leading from the cutting edge, Newsom is now focused on changing how companies use CPaaS (Communication Platform as a Service). "2018 has been a pivotal year for our company and Ytel is looking forward to continued growth and releasing exciting new innovations in 2019."
About Ytel, Inc.Ytel is a leading edge software company that helps businesses engage more customers using voice, SMS, social, email, mail, and messaging from a single platform. Product and Marketing teams can quickly add new communications channels to existing software, increase qualified leads, and extend the customer lifetime value by giving prospects and customers the ability to compliantly engage when and how they choose. Founded in 2012, Ytel delivers more than 1 billion monthly messages to help businesses grow revenue and brand equity. For more information on Ytel, visit http://www.ytel.com.
About CEO Advisor, Inc.CEO Advisor provides business consulting, funding and mergers and acquistions advisory services to CEOs and business owners of small to mid-market companies.