How a Sales Price Went From 1X to 4X with the Stroke of a Pen
An offer was made on a client’s business by a strategic buyer and through the application of both skill and using the strategic buyers own financial metrics convinced the buyer and their advisors that it was to their benefit to pay not two or three, but four times more than their original offer to acquire his client’s business.
A race car driver took his skills from the racetrack into the board room and built a successful company that became well known in the aftermarket auto performance industry where the need for speed is important, and to make a bundle of money doing it. However, as with a lot of entrepreneurs that have a specific skill set, the managerial complexities often overtakes them when the rigor of managing a growing business is not in their wheelhouse. When this happens, burnout can set in.
An event planning business had a more than fair offer on the table but the entrepreneur hesitated and didn’t take the offer because he felt he could get more for his business. Shortly after turning down this offer, their revenue dropped over 95% because of unforeseen circumstances. Although the business survived, it is going to take years for the entrepreneur/founder to rebuild his business. A difficult task for someone in their sixties.
Also, on this episode I have invited Diana Murphy, a mindset business coach, to join me to help me do a deeper dive into how entrepreneur/founders can optimize their value of their business when positioning it to sell.
Be sure to listen to my post-mortem discussion with Diana at the end of the podcast.
This episode is being recorded shortly after the Covid – 19 worldwide shut down of businesses in the US and countries around the world.
Deals that couldn’t have been closed without a keen understanding of how to properly use owner financing in structuring the transaction that benefited both buyer and seller. Why businesses need to use this type of financing because of how businesses sometimes stumble before being positioned for sale.
How sellers need to be opened minded on how to structure deals that may have never happen if there is not a willingness to consider creative deal structuring which can reap sellers millions in the sale of their business.
A CEO that sold a business becomes a director of an investment bank and show how understanding both sides of an acquisition can teach you how to better position your business for a successful exit.
A cautionary tale of a self funded company that utilized Facebook as its main marketing platform and the risks involved in relying too heavily on a single entity for your business versus taking outside investments to diversify your marketing strategy.
A transaction involving a lighting equipment rental company that provides to the entertainment industry for companies involved in movie and TV production. However, when the bank’s appraiser valued the business 50% less than the sales prices the deal fell apart.
A primary care physician who was nearing retirement and wanted to sell his practice to an associate had to engage a tax specialist to restructure the transaction to make it feasible for the doctor to sell. All because he had a C corporation and the adverse tax consequences of selling a C corp such as double taxation.
A nutrition manufacturing company that was very marketable due to fast growth. The first buyer that surfaced was a Search Fund which can come with downsides.
An office specialty equipment manufacturer was able to structure a deal with a strategic acquirer. The seller was able to completely eliminate a large owner carry back. The acquirer was willing to do a cash deal after making an offer that included a 20% owner carry back.
How forty years of hard work all went down the drain when the business was sold with seller financing. After the business sale closed there was an equipment failure which allowed the buyer to stop making payments on the promissory note that seller had financed.
A lifestyle business that had been around for more than 30 years and was one of the most well known in the area disappears because the owner didn’t plan a head which destroyed his opportunity for survival.
A company that lost nearly half of its business because of a hasty decision by the owner. The owner was able to pivot and quickly recover from the loss of the sales revenue and turned it into the best thing that could have happened.
A business that has been around since Abraham Lincoln was president finally stumbled and had to be sold before it when out of business after six generations for reasons that were totally avoidable.
An immigrant from Eastern Europe came to the US with $200 to his name and eventually became an all-American success story.
Not thinking about how a sales model based on relationship-based referral of one of the partners caused a business to literally become unsellable.
A family-owned and managed logistics company had a family council to decide on what to do with the business since the son, although he worked in the business, didn’t want to take over the business from his father.
Three partners of a 60 year old large commercial landscaping company made the decision to exit their business early for a very surprising reason.
A multi-unit franchisee in a national retail chain acquires a large local franchise location. The day before the sale was set to close, an employee got into an altercation with a customer. The incident was captured on video and posted on social media. This cost the seller hundreds of thousands of dollars.
A buyer threatens to sue the seller one year after a sale because of alleged misrepresentation of revenue.
How selling a business to a key employee can be a win for both the employee and the business owner.
A father can sell a business to his son but if this isn’t done right, can result in major pitfalls.
A challenging transaction involving a Disadvantaged Business Enterprise. How this designation can impact a buyer pool.
A large-scale appliance retailer made more money by financing the sales of appliances than it did from selling them.
A business with a lot of inventory decides to liquidate their business vs. sell it and netted more money than if the business was sold in a traditional manner to a third party for the industry wide standard multiple on earnings.
An entrepreneur did everything right but failed to take into account one key aspect of his planned exit and nearly caused their business to fail.
A buyer’s attorney began giving business advice to his client and as he continued to do so ran up legal fees by redlining the Asset Purchase Agreement repeatedly until the deal was falling apart from deal fatigue. Listen carefully to what happened to keep the deal on track.
A seller’s classic and hot rod restoration car hobby, that was paid for by his business, had some unintended consequences that eventually caused of the all of the lenders to back away from financing the sale, even though the business was a cashflow generator.
A business that nearly went bankrupt during the Great Recession but by sheer grit turned into a 400% ROI at the time of exit.
How Your Past Can Crater a Deal – What to Understand About What a Lender Will Do Before They Fund a Business Acquisition Loan
A transaction where a deal was set to close, until the buyer was notified by the SBA and bank funding the acquisition loan that it was not going to be funded. The only reason given was that there was an issue that turned up in the background check. What was it?
A sale nearly fell apart because the amount of company debt exceeded the purchase price. Could it be possible that this deal closed on a positive note for all parties involved?
Businesses that require a state mandated license to operate and how they work.
Why private equity is incredibly interested in the heating and air space.
A seller ended up staying with a small town business after it was sold and benefitted from it.
A seller had to consider if it was ethical to sell their motorcycle dealership business to a buyer that was well qualified financially, but had some personality issues that raised concerns about the buyer’s ability to successfully run the business over the long term.
Transactions where the sellers, who were independently wealthy, weren’t all that concerned with the eventual sales price and priced their businesses aggressively to sell. One sold, with a deep discount and the other didn’t.
Finally, a seller sold at the right time and didn’t try to milk the strong reoccurring revenue and cash flow from the business. This turned out to be a good decision, because shortly after the business was sold, the market changed.
The sale of a multi-million-dollar maintenance business was run by two brothers who were old school and dominated their niche. Learn why the brothers were only able to get 50% of true value of their business but the buyer turned around and resold it for double what he paid only three years later.
An attorney managed to crater a $27M cash deal from a public traded company because of his lack of business transactional experience.
A business owner inadvertently let it out that the business was being sold, which caused key people that were critical to the business to begin to look for other jobs. Only when the seller flew in to share with these key employees that they would be getting promotions and raises did they agree to stay on after the sale.
How a business sold for 40% over market by being creative on financing the business through some off the balance sheet financing.
A cabinet maker that had old world woodworking craftsman skills is encouraged to sell his business by his wife when none of his children wanted to take over. However, he just couldn’t bring himself to sell the business. The reason he didn’t want to sell is not what you might think.
A business that needed a special purpose building facility and was paid for quickly because the business was profitable enough to pay off the mortgage. The owners didn’t need the money and so they didn’t charge the business rent. Learn how by not paying market value rent eventually leads to the business closing.
How leaving a business to the kids turned out to be a really bad idea and a junk yard business that made good decisions on EPA issues allowed the business to be sold for millions.
How Contingent Liabilities, Which Are Normally Sticking Points in Sales Transactions, Can Be Turned into a Positive
A business owner designates the responsibility of a contractor’s license to the wrong person which threatened the business value, but the owner managed to negate this issue. A business owner loses hundreds of thousands of dollars by continuing to work with a potential buyer who refused to deposit earnest money in escrow, only to find out too late that the buyer was denied their SBA loan due to non disclosure of their criminal history and felony conviction. A transaction where a seller properly manages the impact of continent liability exposure as they prepare their business for sale.
A e-commerce business a week away from closing had a key vendor terminate their long standing relationship leading to an unpredictable outcome. How a business utilizing accrual accounting vs. cash accounting, can increase business valuations up to two times the enterprise value. The perception of risk is in the eye of the buyer. A religious dating website business owner had an asking price nearly double the market value and through properly creating value manages to get very close to his ambitious request.
A language training business with multiple locations loses 25% in value when they don’t account for revenue and expense, including cost of sales, separately. A plumbing business fails to report operating income accurately which results in a post-sale legal battle with the buyer. A custom wood furniture business owner raises his asking price with two buyers already at the table, and continues to increase his sales to meet the value for that price. Custom upholstery business owner has an overwhelming level of data which results in a smooth sale and few challenges.
A business for sale had profits drop by 50% during the same year and managed to increase the sale price by $500k by retaining a forensic CPA. Two partners lose millions by refusing to provide information to their M&A specialist. Assessing the level of risk and it’s importance to any business sales transaction.
A woman selling her kitchen and bath remodeling business had to pay 30% of the proceeds to her landlord and it was a blessing in disguise. Site excavating business goes from $1M in annual cash flow ends up being worth pennies on the dollar, but still manages to turn it into a success. National postal services franchisee manages to get removed from a personal guarantee with a landlord by utilizing a high net worth buyer.
An owner missing a simple assignment form from an independent contractor cost a company millions in a sale. A buyer spends a fortune in legal fees attempting to acquire a business that the owner didn’t actually want to sell. How a large company’s law firm shifts the burden of risk to a smaller company during an acquisition.
A $65 million a year business that went to zero and ended up closing even thought there was a $15M cash offer on the table – all because of a personal dispute. What happened when a CPA took too long to complete the accounting review on a high-tech remodeling company. A 2% owner of a business nearly cratered the sale by withholding his vote to sell.
How an accountant that randomly adjusted Cost of Goods cost the seller $1 million. How a business went from not being able to be sold to getting 6.5x EBITA. Why financial buyers focus on the math while strategic buyers focus on the value.
How value can be created out of thin air and then disappear just as fast. How to treat employees when exiting the business and keep them loyal at the time of exit. How the best laid plans don’t always work out but how this planning can save the day. Why it is important to figure out financing in a controlled auction environment.
How a Seller Who Financed 50% of the Purchase Price Still Got Paid In Full When the Business Closed After Eight Months
How a franchise brand’s relationship and role should be positioned. A stock sale triggered the cancellation of insurance for the new buyer. Anticipate rookie mistakes for first-time buyers that can result in deal fatigue. What provision should all seller financing include as a deal term to help ensure that if the business closes, the seller is paid.
Timing Of The Sale. How a Business Lost Over 50% Value By The Owners Not Being Aware Of Market Changes
How management structure and business philosophies can change with different types of owners. A business that doesn’t install a management team can depress the value of the business significantly. From mom and pop operation to national company positioned for a sale.
Why a minority and operating partner wouldn’t accept the terms of a sale that the majority partner proposed. How four companies that operating as one were sold separately and the challenges of doing so. The importance of a great management team.
Why a company with $4.7M in sales sold for more than a company with $12M in sales and in less than 1/5 of the time. How a seller’s dishonesty caused a failure in the buyer. How by not listing the selling price of the business netted a sales price 2.5x greater than the anticipated sales price.
An owner fails to recognize the leverage his CEO held and incentivize him to sell the business, which costs the owner $500k. Another owner lets corporation status lapse and almost caused the deal to fall apart. What to do when a corporate stock certificate is misplaced which represents 45% ownership of a $39 million sale.
Why the seller not working in the business can hurt a sale. How control over the real estate in a deal can be the most important thing. The difference between being ready to sell on an emotional level as well as having your business ready.
A buyer discovers during due diligence that a seller gave preferential treatment to a key employee and allowed him to keep customer data on his personal computer. A key employee was discovered not to have a deep loyalty to a company in an industry notorious for job-hopping. A seller who never thought two of his own employees with no money would be able to buy the business, but with smart
The importance of lease issues being resolved early in a restaurant sale.
A successful wholesale distributor of brushes that didn’t sell before an owner’s injury, which cost him greatly. Also, the story of a flower shop that was a staple in the community. The owner stopped showing up once listing the business and cost herself the deal. Followed by a success story of a woman-owned executive staffing firm that strategically planned for an exit by establishing others to run the business successfully without her, in order to transition it to a buyer with continuity which led to a very successful sale.
A business specializing in cable manufacturing that could have sold for up to $3 Million, but instead was shut down due to poor timing and recession. A successful internet dropshipping business that acquired exclusive licensing of major brands that never sold due to the owner losing interest due to lifestyle changes. A multi-generational family-owned machine shop that was successfully sold by maintaining a family member
An e-commerce business that profited through platforms like eBay and Amazon that wasn’t prepared to hand the business over to a new owner and had to settle for a 50% loss. The triumph of a former Hollywood set designer successfully selling his custom fabrication business by planning a potential transition to a buyer down the road.
A trucking business that presented falsified tax returns to inflate the value of their business, but despite this resulted in a successful sale once the legitimate returns were acquired. A Private Investigation Firm that requires a special license to operate and needed a strategic buyer to make the deal go through.
A dentist who had gotten ill and wasn’t prepared for a successful exit of his business. A success story of a fashion company that optimized the value of the business through collaboration and openness to out of the box ideas.
A wrecking yard that was well prepared for a profitable exit. An American success story that turned into a nightmare. The importance of keeping great records and planning your exit. Even before you even have thoughts of selling your business.
Marvin Storm, the host of Business Exit Stories, shares his personal journey that led to starting his podcast. In this episode, Marv discusses his experience in the franchising world. This ultimately led to his developing interest in business exit strategies.
Marvin Storm, the host of Business Exit Stories, shares his personal journey that led to starting his podcast. In this episode, Marv speaks on his earliest business ideas which led him down the path of becoming an entrepreneur.
Marvin Storm, the host of Business Exit Stories, shares his personal journey that led to starting his podcast. In this episode, Marv recounts
Marvin L. Storm Host
Marvin L. Storm is a nationally renowned business, entrepreneurial, franchise, and exit planning expert. He specializes in helping entrepreneurs to create a monetization event of their business by focusing on improving competitive and market position, financial and operational metrics, and to ensure continuity of management in order to position businesses for successful exists prior to the actual sale of the business.
The Story Behind The Podcast
Listen to Marvin’s personal story that led him to become an entrepreneur, create multiple businesses, and eventually start this podcast to help business owners exit their business by learning from other’s stories.
Why Is A Business Exit Strategy Important?
Here are some frequently asked questions.
HOW CAN BUSINESS VALUATION BE INCREASED PRIOR TO SELLING A BUSINESS?
Increasing the value of a business is not magic. Value creation is simply focusing on what a buyer is expecting to see when investigation a business they may wish to buy. If the proper steps have been taken and the business has been structure to satisfy the key value drivers a buyer is wants in a business, the valuation formula is a relatively easy calculation. However, if the key drivers are not present when a buyer begins their due diligence the buyer may not proceed to the offer stage or if an offer is made, it will be a much lower price than the seller is expecting.
WHAT ARE THE KEY VALUE DRIVERS IN VALUE CREATION?
The value drivers are:
- Financial metrics that are easily verifiable.
- Customer base that is not concentrated with a relatively few customers.
- Supplier and product diversification.
- Monopoly pricing control.
- Personnel depth.
- Organizational structure.
- Red or Blue Ocean strategy
- Types of revenue
WHAT IS A RED OCEAN / BLUE OCEAN?
A red ocean is a very competitive market where products and services are commoditized. A blue ocean is a market environment where margins are high because there is little direct competition. A red ocean can be migrated to a blue ocean by finding niche markets.
WHY ARE THE TYPES OF REVENUES IMPORTANT IN BUSINESS VALUE CREATION?
Not all revenue is valued the same. Revenue that is dependent on a single large customer is valued less than revenue from a thousand smaller customers. Review that is reoccurring is valued more than revenue that is dependent ongoing advertising and marketing expenditures. High margin long-term contract revenue is valued higher than almost any other type of revenue.
WHAT IS THE VALUE BUILDER SCORE?
The value builder score is the weighted score from an in depth 35 question assessment that delves into the details of how a business owner has built his business and what his attitudes are on organizational, personnel, and financial structures in the business.
The score is a numerical rating of how much improvement there is to be made to maximize the value of the business. For example, a score of 50 will have an exit value of X. A score of 85 will have an exit value of X + .7X, or a project increased exit value of 170% of X.
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