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Hi, I’m Armand Roman, host of the Founders Guidepost. You’ve built your business over decades and now it’s time to think about that once-in-a-lifetime exit. You’ve come to the right place.
Here you will hear business exit professionals talk about what you should know before exit. Besides hosting the Founders Guidepost, I’m CEO and founder of Axiom Founders Family Office, working with founders to help preserve their American success story. And it all begins with founders stress test.
We also host the Scottsdale Founders Forum for the founder considering exiting in the next 36 months. Here’s to your hard work and to your American success story. Enjoy.
Hi, Armand Roman. I’m going to share with you the information that we learned from our Scottsdale Founders Forum events. Let me tell you a little bit about those events.
We’re going to have a three-part series. This is the first of those three parts, and I’ll describe to you what the Scottsdale Founders Forum events were. We had four live events over the last couple of years.
At those events, we had 150 founders come to the event. The event was all about the exit. These were designed for the founder who had never sold the business before.
The founders were all considering selling within the next five years. None had sold a business before. Founders attended who represented a broad spectrum across Arizona’s economy.
Each business had employees between 20 and 500 employees and had $2 million to $450 million in revenues. Total enterprise value of these companies estimated at $2.5 billion. This was a lot of enterprise value in these rooms as we had these events.
The summary of the events, again, in three parts. This first part is focused on the founders’ questions. Let me tell you what those questions were that the founders had who came to our events.
Question number one, and you’re not going to be surprised by this, what is my business worth? That might seem like a simple question, but we’ve never sold a company before. You don’t know really how to get the right answer.
You might get a range of value from a broker. You might get that from an investment banker, but the reality is your business is worth what someone is willing to pay for it. And that’s why when you go through that question of what is my company worth, it means doing some homework, getting the right people on board who can help answer that question for you.
Question number two, what changes can I make now to increase the value of my company? And that is an excellent question. And depending on the business that you’re in, it might be a different answer for you than it would be for the next company who is across the street.
But for you, what drives value in your business? Do you have product lines that are unprofitable? Would it be better for you to get rid of those altogether and focus on those that provide more profit, more margin for the business?
Are you in a very small region and you need to expand that footprint to increase the value, the way your company is valued? And there’s what’s called a multiple. And that multiple might be three X, four X.
But when you get to a certain size, that multiple also increases. So again understanding what drives value in your business and then how can you increase that value. It might mean you need to bring in a business consultant who understands your business and who can help make those changes to increase that value in your company. Question number three how do I sell my business another excellent question if you’ve never sold before. It’s not like a house where you hire a realtor and list it and somebody makes an offer and you accept it’s a much more involved process than months. If not a year or more to actually sell the
Business.
But how do you sell the business often? You engage a business broker or an investment bank or an intermediary and they will go through their process to then make your company available to those who might buy it in the investment banking space. Often they’ll go through what’s called an auction process and the auction is taking your company making sure that it’s nice and neat clean and organized with clean financials and processes. And
all that that stuff packaging it up and then taking that to Market and getting an auction to happen so they then take you to different potential buyers out there and have them begin a bidding war to get the best offer for you. And the best offer is not always the highest dollar value. It’s the terms that come along with that potential sale to that perspective buyer.
Question number four, how do I keep people from finding out that I’m selling confidentiality how do you keep that confidentiality. Are you wondering if you’ve missed anything in your planning? We hear that a lot from very smart very successful people and that’s why you may want to know more about our founder stress test if so go to axiomcorp.com.
So it may be very important because if you look at what drives value in your business, often it’s the people you have on board. It’s the customers that you have, the clients that you have.
And if you don’t keep those intact, that could certainly decrease the value. So confidentiality, of course, is very, very important up until it’s a done deal and you are prepared to make that announcement in a way that sounds good to the ears of those who hear that announcement. So how do you maintain confidentiality?
You want to make sure you’ve got the right people on board. Maybe you have a separate phone number that you’re using, but making sure that the secretary doesn’t receive a fax or email because she wasn’t intended to that talks about you selling the business because that has happened before, believe it or not. Question number five, why hire an investment banker when you already have a buyer?
Excellent question. If you go direct to the buyer, it seems like you would get the best price, right? Because you’ve cut out the middleman.
Well, not necessarily, because an investment banker’s job is to look at multiple buyers for you and also to take that auction process. If you go to one buyer and if you talk with somebody who’s in that space, the business broker, investment banker, intermediary, they say often, if you have one buyer, you don’t have a buyer because you’ve got one. And how do you know you’re really getting the best value, the best price for your business if you don’t take it to market and have people come back to you with their price?
There are what’s called strategic buyers who will pay more than the perceived value of a company because to them, your company is worth more because to them in their business, adding you to their company really adds more value and so they pay you more. Question number six, how do I know when it’s the right time to sell? Well, that is a lot of soul searching that you have to do so that you personally, you emotionally can step away from that company and feel good about it.
So again, soul searching. When I sold my CPA firm years ago, I did a lot of soul searching. Was I ready to do that or not?
And you will have to do the same thing. Are you emotionally ready to step away from this business that you’ve nurtured and built and grown that has its own culture that has you written all over it or are you not ready? That’s a question that you have to answer.
Question number seven, will net sale proceeds be enough for my family, our lifestyle and our charitable goals? Well, that gets to the net sale proceeds means net taxes what’s left because you’re taking one chunk of money in exchange for the annual income that you have been receiving. So this one chunk of money has to be safeguarded, protected, and it has to last.
Thinking about all those things that matter as you take yourself from your current age to say age 100, will this provide the money that you are thinking of that you will need for your family with contingencies, et cetera? And is this going to support your lifestyle? You have a certain lifestyle right now today.
Is that the same lifestyle you want when you retire? If not, what will that lifestyle be? And will that be an increased monthly cashflow cost for you or will it cost you less?
So understanding your lifestyle and the cost of the current lifestyle and what that future lifestyle will look like is extremely important to understand if the net sale proceeds will be enough or not. And what about your charitable goals, your charitable intent? Does it make sense to fund that now when you sell or do you want to fund it over time or after you pass, people read the will and some charity gets a big chunk of money?
So understanding the net sale proceeds and what it really means for you, for your lifestyle, for your family, for your charitable goals, very, very important. And that was the seventh question that our founders had who came to our Scottsdale Founders Forum. Stay tuned for the following in the series.
There’ll be a second and a third part talking about the experts’ advice and the experts’ tips. So you’ll want to hear those as well. Hope this information is helpful.
Hope you enjoyed this episode of the Founders Guidepost. Whether exit is on your immediate horizon or maybe 10 years down the road, there’s something here for you. Wondering if you’ve missed anything in your planning?
Schedule your 30-minute Founders Strategy Call at axiomcorp.com. And congratulations on your business success. You are the American success story.
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