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Monday, 05.21.2012 |
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| How to Build a Business and Sell it for Millions |
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Product Details
Notes
good overview book
each section is brief and doesn't go into enough detail
but it gives me a starting point with lots of areas to think about
plan to sell while you're running the business
now is a great time, as the economy improves there will be acquisitions
business plan is the blueprint
business model is the house
figure out your competitive edge
it has to be sustainable by the buyer
scale your company so it can run and grow without you
avoid the founder's dilemma - do not be a one-person show
recruit and hire a strong executive team
deals always take longer, don't neglect your business in the meantime
be ready for any future problems, make sure you have enough cash flow
have a clear vision and establish a strong corporate culture
don't sabotage your own business because of personal issues
incorporate properly and form the right partnership agreements early on
the buyer wants you to transfer stock ownership
maintain good records for your entity and keep it in good standing
keep up with financial reports, balance sheet, quick ratio, debt ratio
prepare an operating statement, track all inventory and costs
don't give employees a percentage of the company
you can give them stock options that vest
give executives a big payday if you sell
watch out for control and voting rights
look into SAR - stock appreciation rights
and UAR - unit appreciation rights
be clear about any risk in your business and prepare for it
buy insurance if necessary to protect you and the buyer's future
comply with all laws and keep up with any changes
learn about a good contract
things like the hometown roast, most favored nation clause
extension and expansion, termination for convenience, exclusivity
build a strong brand and do the marketing
work on government relations so you're not hit with a surprise
use noncompete agreements to keep employees from leaving and competing
also use confidentiality agreements and computer restrictions
make sure you're personally at ease with letting go of your company
but don't count on selling, have alternatives, and don't be too eager
learn the right terms:
"bad boy" provisions
breakup fee
capitalization
discounted cash flow
due diligence
EBITDA
GAAP
investment banker
MAC - material adverse change
anti-dilution
clawback
covenants
drag-along
mezzanine debt
piggyback
ratchet up
you need to make a deal before the deal with the investment banker
negotiate fees, term, and protection period
compare financial buyers vs. strategic buyers
you may sell part of your company too
angel investors, venture capitalists, or private equity/investment companies
mom-and-pop buyers pay $3-5M for $1M income
regional players pay $5-10M per $1M income
national and publicly traded companies pay $10M or more per $1M income
valuation is complicated
replacement cost, comparable value, or income method
EBITDA = annual earnings before interest, taxes, depreciation, and amortization
you need to write the Book
company history, executive team, business model, financials, forecasts
don't forecast high, the deal will take longer
the buyer will come back and say you didn't hit your forecast
so now they want to lower the price
forecast 1-5% less than what you really expect
research the buyer in case they want to steal your business model
create an auction by approaching multiple buyers simultaneously
continue running your business as normal
don't try to save money on expenses thinking the deal will close
it'll take longer and the buyer will see your revenues drop
LOI - Letter of Intent is their plan to get everything they want
negotiate carefully on this first step
cash is good
promissory note is bad, they might run out of money
earn-out is tricky, they might ruin your business
employment is also tricky, figure out your personal preference
stock can go either way, you're guessing if their company will go up or down
taxes are a zero sum game
if you pay more, they pay less
they will try to negotiate this stuff
you want a stock sale for capital gains tax
asset sale could be ordinary income rates
look at timing, phantom income, allocations, and tax law changes
the deal after the deal can be problems that come up post-closing
the contract will be hundreds of pages
no one will look at it if there are no problems
but once there are issues, everyone looks at every detail of the contract
to try to find loopholes and things they can use in court
due diligence is very common now
it's a huge process
manage it, organize it, and schedule things
keep a record of everything you send so they don't keep asking for it twice
watch out for the retrade
they set you up to come back and renegotiate later
you lose the other potential buyers at that point
research the buyer and watch out for exclusive negotiations
when a deal dies, just get back to running your business
the closing will be at the buyer's office
you need to give gifts to your deal team
figure out what you will do after the deal is done
how will you manage your money
what will you do with all your free time |
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