If you’re thinking about selling your business, do you know why business exits fail?
Depending on how you speak to, anywhere from 70% to 90% of business exits fail.
The truth is you have once chance to get it right when selling your business, and you better make it count.
If most business exits fail, what can you do to ensure you’re on the winning side with your exit?
Success in both business and life is knowing both what to do, and as important, what not to do.
I’ll take it a step further and say the knowing what not to do is oftentimes more important.
Who am I, and how do I know?
I was that kid who started his eLearning company right out of school with no money, experience, or team.
I had no business being in business, and the results showed.
My saving grace was my grit and passion for keeping me in the game long enough to achieve success.
Success in my eLearning company brought with it two new challenges.
A sophisticated and experienced buyer approached me with an unsolicited offer. The buyer was like a wolf in sheep’s clothing.
I said “no” to the 7-figure unsolicited offer based on three times EBITDA.
At the same time, I said “yes” to mastering the art and science of selling a business.
Two years later, I said “yes” to a different buyer with a 9-figure offer based on 13-times EBITDA.
How did I increase my company value 10X with the same company, offering, and team?
Keep reading to find out.
Business Exits Fail From Exit Teams That Lack The Skills
The way a team plays as a whole determines its success – Babe Ruth
Business exits fail from exit teams that lack the skills.
Mergers and acquisitions (M&A) are challenging at best and unforgiving at worst.
Let’s get two things out of the way.
First, don’t even think for a moment that you don’t need an exit team when selling your business.
Second, the quality of your exit team either makes your exit a brilliant success or a bitter failure.
Read and prosper from “Assembling Your Exit Team? How To Crush It And Win.”
If you’re new to M&A, you may be wondering what an exit team is.
An exit team usually consists of:
- Investment bankers
- Accountants
- Tax advisors
- Your management team
- Customers
- M&A lawyers
One overlooked exit team member is a Chief Exit Advisor who answers to you and you alone.
Think of your Chief Exit Advisor as your advisor to the advisors. Unlike your exit team, your Chief Exit Advisor is an individual with a track record of success in M&A.
Most business owners believe that their exit team is loyal to them. Think again.
Often, the members of your exit team have their agenda.
You don’t know what you don’t know, but your Chief Exit Advisor does. Your Chief Exit Advisor can help you assemble your exit team and protect you from blind spots.
Don’t be another failed statistic when selling your business.
Assemble an exit team that has a proven track record of success to help you sail through the process.
Many business exits fail from one mistake sellers make.
Do you know what this mistake is and how to avoid it?
Keep reading.
Set Realistic Expectations Today So You Can Succeed Tomorrow
Are you really sure that a floor can’t also be a ceiling? – M. C. Escher
Business exits fail when sellers don’t have realistic expectations.
Business owners transform the “impossible” into “I’m possible.”
What can you do?
In mastering the art and science of selling a business, I spoke to the “winners” and “losers” of M&A.
When it comes to expectations, sellers who won big did one thing before they began the exit process.
What’s the one thing?
Create a short-list that’s easy to remember and no more than three to five requirements:
- How much money a seller needs to live a desired lifestyle
- Certain conditions that needed to be part of the deal
- Certain conditions that were not acceptable
Read and prosper from “Revealed: The Only Question To Ask Before Selling Your Business.”
As an example, one successful seller knew in advance four things:
- The least amount of money that was acceptable
- Would not accept an earnout
- The seller would not work in the company after the sale
- A guarantee that certain employees would keep their jobs
The seller committed to himself in advance that he would say “no” to any offer that did not meet any of the four terms.
The eventual buyer of the company gave push-back on some of the seller’s terms. The seller did not budge from his expectations, and the buyer ended up agreeing to the terms of the seller.
At the best of times, most business exits fail. Stack the odds in your favor when your expectations meet your needs and are in the realm of possibilities.
Ready to learn the one thing you can do to keep your future buyer in the game and you in the money?
Keep reading.
Business Exits Fail When Sellers Inflate Add-Back For Normalization
We risk all in being too greedy – Jean de La Fontaine
Business exits fail when sellers inflate their add-backs when normalizing expenses.
Many business owners create their businesses for lifestyle reasons.
Buyers know that when you’re no longer running your company, certain expenses disappear.
What kinds of expenses?
Typical add-backs include donations, travel expenses, and tickets to your favorite sports teams.
One business owner shared with me that he spends millions each year on new “toys” for his business. This business owner buys equipment his business doesn’t need today but may need in the future.
Business exits fail when sellers become greedy on their add-backs.
Examples include adding back your entire marketing budget or research and development budget.
How do you ensure that your future buyer accepts your add-backs at face value?
Take the time to explain each add-back to your future buyer during due diligence.
Read and prosper from “The Due Diligence Mindset You Need To Win.”
The easy thing is providing a normalized profit-and-loss.
The right thing is providing a normalized profit-and-loss with an explanation.
Have a dialogue with your future buyer on why you added back certain items.
When it comes to add-backs, ignorance on your buyer’s part is not bliss. Instead, it can cost you the deal.
When your buyer understands why you add back certain items, you prevent tension.
Instead of walking away from the deal, your future buyer can have a discussion with you on add-backs.
In the process, you’ll create both goodwill and trust. You also increase the likelihood of winning on your exit.
Business exits fail when sellers do one thing that they must avoid at all costs.
Do you know what this one thing is?
Keep reading.
Business Exits Fail When Your Exit Team Doesn’t Follow Your Vision
When your exit team works, your dream works – Jeffrey Feldberg
Business exits fail when your exit team doesn’t follow your vision.
Read and prosper from “5 Unbelievably Stupid Exit Team Mistakes That Buyers Want You To Make.”
Successful sellers are successful because they don’t stop at building an exit team. What’s critical is that you align every exit team member’s vision with your vision.
Most sellers believe that the fees and commissions paid to advisors is the vision.
Right?
Wrong. Dead wrong.
Below are the most common issues you need to solve with your exit team:
- An attitude of getting the deal done no matter what
- Loyalty to the buyer because you’re a one-time transaction
- Exit team members believing they are better and smarter than you
- Exit team members worrying about their future after the deal
- Looking at the buyer as the enemy instead of a customer
Too many business exit fail because sellers don’t take the time and effort to align the exit team.
How do you do this?
Understand that your exit team members view you as a soon-to-be rich person.
Perception is reality.
Level the playing field on a case-by-case basis for each exit team member.
Offer the key employees on your exit team an exit bonus.
If your deal exceeds the expected value, top-up your investment banker’s commissions.
Educate the entire exit team on your vision for the deal.
Your Chief Exit Advisor plays an instrumental role in helping you align the needs of your exit team.
Do you know that one action that you can take that motivates buyers to pay more money for your company?
Keep reading.
Business Exits Fail When An Auction Process Is Not Used
A horse never runs so fast as when he has other horses to catch up and outpace – Ovid
Don’t be like most sellers who fall into the trap of believing buyers who say an auction isn’t needed.
Do you know how you keep buyers on their best behavior and motivate them to pay you more money for your business?
Run an auction process when selling your business.
Read and prosper from “Do You Know How To Increase The Value Of Your Business?”
Why is an auction the only way to go when selling your business?
An auction process gives you a choice and prevents a buyer from holding you hostage.
At the same time, competition brings out the best in people, including buyers.
Like yourself, your future buyer is competitive and likes to win.
The thought of losing the deal to another buyer keeps your buyer at the table and with a better offer.
Have you ever wondered why unsolicited offers are so popular?
Buyers will do everything and anything to avoid an auction.
Does an auction take more time and cost more money to run?
Yes, but the time and money spent is a rounding error compared to the increased value you’ll receive.
When it comes to selling your business, use the auction process.
Conclusion
When it comes to selling your business, you have one chance to get it right, and you better make it count.
Depending on the source, anywhere from 70% to 90% of business exits fail.
In both life and business, success comes from knowing both what to do and not do.
Congratulations! You now know five things to avoid when it comes to your business exit.
Who am I, and how do I know?
I was that kid who started his eLearning business right out of school with no money, experience, or team.
I had no business being in business, and the results showed. My grit and passion kept me in the game long enough to achieve success.
With success came an unsolicited offer from an experienced and sophisticated buyer.
I said “no” to a 7-figure offer based on three times EBITDA. I said “yes” to mastering the art and science of selling a business
Two years later, I said “yes” to a different buyer with a 9-figure offer based on 13-times EBITDA.
I had the same company, people, and service and increased my value by 10X.
Today I help business owners do two things. First, protect business owners from getting ripped off. Second, helping business owners increase the value of their businesses before they exit.
The five strategies I’ve revealed are the same ones I leveraged for my 9-figure exit.
If I can do it, so can you.
Start with the first strategy and stay with it until mastered. Move on to the next strategy and master it. Before you know it, you’ll have mastered all five strategies.
Here’s to you and your success.
Thanks.
Your Biggest Raving Fan,
Jeffrey Feldberg
Today, Feldberg's passion is helping you extract your deep wealth. The 90-day Deep Wealth Mastery program helps create a solid foundation for three areas: increasing profits to enterprise value and optimizing post-exit life. Deep Wealth Mastery offers strategies and insights drawn from Feldberg's rich experience. The strategies from the trenches get results. Jeffrey's vision is to increase the social fabric of society one entrepreneur at a time.
Learn more through https://iapdw.com/prosper
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