https://www.youtube.com/watch?v=pWbSl7d0tEc

1 00:00:00.000 --\> 00:01:00.000 in this video i'm going to talk to you
about how to sell a business and if you're wondering who is this dude in
his mama's basement's closet wearing a wife beater have anything to do
with talking about how to sell business how does he even have the right
the audacity to talk about these things let me first make a quick intro
i've sold eight businesses my name's alex ramsey i own acquisition.com
which is a portfolio of companies that does over 100 million dollars a
year and i have nothing to sell you and i make these videos because i
was once broke and wore these beaters out of necessity rather than out
of choice and was in my mama's basement out of necessity rather actually
i'm not in her basement this is a 5 million condo in vegas but that's
not the point i just like working in places that have no windows so i
have sold eight businesses over my career just to name a few of them i
sold allen which is a software company that did 12 million in trailing
12 month sales i cannot disclose the price that i sold to but that was
the top line revenue the nda is actually fairly common in uh in sales
agreements especially of an appreciable amount of money and the reason
for that is because they don't want a potential new acquirer in terms of
if you were to roll in other companies after they buy your company to

2 00:01:00.000 --\> 00:02:00.000 know what you got for yours because
then it hurts their negotiating power now that being said the next two
companies that i sold in 2021 i sold for 46.2 million dollars and i was
able to do that because i negotiated that in because i was tired of not
being able to talk to the other one and so there's the press release
from that on top of that you might be like well i don't have businesses
that big that's okay fear not i also sold five brick and mortar
locations prior to this um and so i've sold actually that's seven i
don't know why i said eight i shut down one there's the there's the
other one there you go there's eight i had five brick motor locations
that i sold and here's what's even cooler i've actually sold those
businesses to six different types of buyers i sold to financial buyers
so private equity i sold two and family offices that's what fo is so
private equity or family offices which is all forms of private equity
but institutional buyers or family offices second i bought i sold to
strategic buyers uh which is the one who bought my software company i
sold to friends i've sold to competitors i've sold to customers and i've
sold to partners all right so i've done a lot of these deals and
interestingly enough as it was going on i never thought wow this is
someday going to come in handy in that i can help other people go
through this as

3 00:02:00.000 --\> 00:03:00.000 well because i've gone through all
these kind of weird scenarios all right and so i've learned a lot in the
process and i would like to make this because i get questions all the
time about valuing companies and buying companies and we have companies
that reach out to us so for acquisition.com we work with specifically
service-based companies especially internet service-based businesses
guru businesses e-learning businesses course business etc we purchase
minority stakes in those companies to help grow them which is what the
portfolio does now which is why it does over 100 million that being said
we're very familiar with this process and so i wanted to walk you
through this because a lot of people have questions about it and so i'll
walk you through the overarching process and then i'll dive into each of
them in more detail sound good awesome so phase zero zero is the
pre-requisites these are the things that must be done or even even are
required for you to be able to sell or have any kind of enterprise value
to begin with which i'm gonna be really real with you most companies
most businesses are not valuable at all all right most of them are just
assets you might have equipment uh you know if you're a physical
presence and if you're an online business you have very little value
unless you have a lot of these things in place all right so most people
want to try and go in business sell their business and find out that no
one

4 00:03:00.000 --\> 00:04:00.000 actually wants to buy it because people
are not stupid all right so next is once you have these prerequisites
which i'll go over you have to find a bank or a broker all right and
this is something that i've gone back and forth on i've sold some of
them without i've sold something with i'll go pros and cons and i'll
explain to you kind of how to negotiate that process and figure it out
after that now we can actually start the selling process we have a bank
we have somebody representing us to help us go sell our stuff all right
and so this is the prep this is phase one all right phase two is now
that we have prepared all the stuff now we go market the thing so that
we can sell the thing to somebody all right phase three is now that we
have people who want to buy the thing now we got to close the deal all
right and so i'll walk you through each of the intricacies of these and
there are honestly a lot of steps in this process if you want to have a
big number money in the millions uh for a deal all right so let's start
at the top all right prerequisite so these are deal killers these are
things that make a deal not actually happen which i'll be wrote with you
is the vast majority of time most companies are just not that big and
when i say this mind you i'm talking about institutional sized uh
businesses so like if you want to have a deal that's you know five
million dollars plus which is about the smallest

5 00:04:00.000 --\> 00:05:00.000 deal that any like real institutional
investor private equity family office will will look at uh is there has
to be you know a big enough size for it to make sense right now you you
can have tons of people who do you know a lot of private investors and
retail investors people who just have a little bit of money saved up
they you know they might want to buy a dry cleaning business they want
to drive by by a gym or they might want to buy whatever right like those
are normal businesses but those aren't that's not what we're talking
about here because those are all one-off and they're not going to make
you rich all right and so that's why i'm focused on the how to make you
rich type sale because these are much more difficult to understand and
the process is a little bit more nuanced all right it took me a long
time to learn this and guess what no one taught me this like i didn't
see this anywhere and it took me a long long time it took me a year to
just kind of understand how the entire process worked ended so that is
what i'm trying to save you is a year of painstaking effort and i have
nothing to to sell you so like all the people were trying to tell me had
a vested interest in trying to take something from me and i don't know
who you are so i'm making this so that there you go all right so the
biggest one though is that people are too small the

6 00:05:00.000 --\> 00:06:00.000 next one is that there's a customer
concentration meaning you have too few customers that equate to the
business right if you have like 10 big customers if two of them leave or
three of them leave all of a sudden you lose like a third of your
business that is very risky all right people don't like that and so they
will give you a massive discount on the value of business or not even be
interested because it's too risky and especially if that's like those
relationships are there because of you and they you know they like you
and you're the kind of relationship manager which happens really
commonly in small businesses next one is no defined sales process a lot
of times people don't really have an acquisition process for getting new
customers they don't know how they get customers they just kind of come
their way and so if you don't have a repeatable or reliable way of
acquiring customers ideally through multiple channels which i'll cover
in a second you will probably not get a very good multiple or even want
to get any kind of deal at all next is that when you when people do
start this process a lot of the mistakes they make is they don't go
through enough potential requires they're not trying to target of people
they're like i talked to 10 people and no one wanted to buy well no you
talked to people got to talk to 500. right and that's how you can get
somebody's going to give you uh the right kind of uh multiple on your
business if you want to sell to an institutional investor um next one's
getting timing wrong so everybody always thinks that like man if i said
another

7 00:06:00.000 --\> 00:07:00.000 18 months i cannot tell you the amount
of times like it's almost like the the standard response of
entrepreneurs is i'll be ready in 18 months because a year they know
they're not ready but 18 months for some reason feels like it's far
enough out that they'll like somehow magically have weight they're one
and all their problems will be done which is not true all right so uh
getting the timing wrong is a huge issue and a lot of people sell too
late very few people sell too early most people sell too late in my
opinion uh and in so doing they can't sell it all and so the thing is is
i heard this quote from the uh the managing partner of apg frasier
preston really really bright guy he said this on one of our calls he
said well business is always going to go up in value over time except
when it doesn't and in case it becomes unsellable and so it was very
very interesting to hear that because that is kind of the truth it's
like either people see this thing as like oh wow this is a growing asset
that's increasing in value and even if you stay the same for a period of
time just more years under your belt makes it actually more reliable so
it's less risky so literally the older a business gets even if it stays
the same it becomes more valuable right that being said if you get the
timing wrong as in it starts going down no one wants to catch a

8 00:07:00.000 --\> 00:08:00.000 falling knife all right especially in
private deals like this stocks and whatnot people are trying to time it
it's a big enough company it's been around long enough et cetera that's
different than small businesses which is what vast majority of people
who are watching this video have small business being defined as less
than 100 i think employees next one you think it's worth more than it is
and this is a big one right a lot of people are like man i heard that
you know so and so got 20 times top line it's like yeah and that's
because that's why it's newsworthy because it's weird right it's not
common if there's a completed sale i think i just can't remember where i
pulled this stat from the median uh number for uh m a deals for for this
was uh for five million dollar plus deals i'm sorry i can't remember
what the median was shoot i think the median was five million dollars i
can't i screw that the point is that the multiple was 6.7 times trailing
12 months and that is for institutional buyers right now you might not
have an institutional buyer which is why the vast majority of businesses
that get sold get sold in private deals for like 1x 2x 3x and it's
because they're not really reliable businesses for the most part they're
just kind of asset sales like i'm handing you know a handful of
employees over with some kind of working model and i'm just moving on

9 00:08:00.000 --\> 00:09:00.000 to do other things which is honestly
the vast majority of businesses that get sold it sold for almost nothing
all right so we hear about the big wins but that's not the majority all
right and so i want to be clear in that most businesses either don't get
sold or get sold for very very little money and so the point of this
presentation is how to sell it for lots of money all right which you
have to meet these requirements to even be considered okay the next next
little doodad that we have on our list listicle here uh is not growing
big enough tam or growth stores there's three different things i put in
one book i needed to fit in one place all right so if the business isn't
growing you're gonna get a big discount on it now i said earlier that
the longer business is in place uh the more valuables which is true but
if you're not growing or you don't have like ways of growing it or it
means that like the strategy you're doing is no longer working people
will see that as a risk so if you have even a tiny amount of decline
people see that as a big red flag because then they'll extrapolate that
into infinity on the flip side if you have a tiny amount of growth
people do extrapolate that out further so like flip it around and
sustain that growth for 12 months 18 months prior to the deal to get a
much better number big enough tam so people might think oh this is uh
this this business

10 00:09:00.000 --\> 00:10:00.000 is cool it's a niche but it can't
expand beyond this niche so you need to have a good growth story as in
how are we going to really 10x this thing because people are buying not
to buy your business they're buying your business for what they think
the business will become all right that's what kind of private equity is
all about no one's really trying to buy the thing they want to try to
buy what things would it become all right and so that's when you make
great deals right that's on their side so you have to tell them or
explain to them the story of how it's going to work right and the the
more they can believe that story that it's likely to occur then the more
valuable your business will become next one and there's a huge one for
small business is key man risk as in like are you the one who's the
rainmaker you're the one who's bringing in you know all the deals are
you the one who's you know the special man who does all the fulfillment
all that kind of stuff like are people coming for you if they're coming
for you then they're not gonna come for your business which means that
when you leave the business is worthless right and so you're a big risk
and a lot of times uh this is i'll be frank with you in acquisition.com
we work with companies that have key man and we work them over the next
three or five years to help them not have keyman risk which is how we
were able to exit gym launch which was started as kind of a more uh
guru-esque business and then transformed

11 00:10:00.000 --\> 00:11:00.000 into just a true uh business licensing
business at an enterprise level and so there is a process of getting
through that and you have to take the time to do it if you don't your
business will not be valuable okay and then finally a single and there's
more risks these are just some of the big ones uh single channel
dependence meaning you only have one way of getting customers you have
no other way and if tomorrow that shut off you'd be screwed people just
imagine well if it shut off then i would lose my money and good
investors don't take risks like that they don't want to go to zero and
so that will massively impact the value of your business all right so
these are deal killers these are things that get you to not sell or sell
for very very little money and so you must check off these boxes before
you can get big institutional money all right so this is the big bottom
line of that section which is enterprise value is a discount applied to
future sales to future sales which means you have to take the total
amount of sales that a business takes between now and the end of time
and then you apply a discount to it which basically means risk what's
the likelihood that that occurs all right and so if you can show that
you have a lot of future sales are going to happen and it's very very
likely that they that they're going to occur then you have a very very
valuable

12 00:11:00.000 --\> 00:12:00.000 business if you have a small amount of
future sales or a declining amount of sales then the likely that it
happens is low and the amount is also low all right so that gives you
low enterprise value so that's the bottom line that's what we want to
show is we want to show that we're going to make lots of sales and
continue to grow and the likelihood of occurring is very very high they
should be asking you why are you selling this business and you need to
have a good reason for it so checked off that box let's go to phase two
let's say you check all those boxes and you're like okay i think i have
all those things i now want to find it banker or broker right and quick
difference here bankers are what you're going to need to sell to an
institutional for the most part brokers are usually when you're selling
for less than 5 million you get a broker and they have different fee
structures because the amounts are lower and they have to do more deals
all that kind of stuff all right and to be fair i think sometimes bro
being a broker is even harder because you're selling let's be real okay
so uh the way that i did this and so i'm just being real like the way
that i did this is that i network for interest it's very hard i think
you can try it uh go you know google investment banks google top
whatever investment banks and esp specifically you'd want them in your
market and your

13 00:12:00.000 --\> 00:13:00.000 size so there's two components it's
you know do they have they sold supplement businesses have they sold
e-commerce businesses have they sold software businesses have they sold
elearning businesses have they sold whatever type of business you have
number one and number two how they sold them of your size right if
someone you know has sold lots of e-commerce but they've only done deals
that are like 500 million and up and you're doing like 10 million top
line you're not going to be fit for them because the buyers that they
already know are not going to want to buy your thing because the check
is too small all right and so these guys write a proportion like checks
proportional to the fund size that they have of the capital right like
if you have a billion dollars you're not going to make a thousand dollar
investment it just doesn't make sense at the time investment makes no
sense all right so i use my network which means i just called everybody
i possibly knew and said hey do you know anybody who knows anything
about this and so you can start with entrepreneurs you can start with
people you can start with your actual bank where you go like actually to
do banking and you just pull threads and this is what took me a long
time which is why i make this video to hopefully save you guys some time
is that like networking to try and find these introductions was a pain i
didn't i don't know anybody you

14 00:13:00.000 --\> 00:14:00.000 know i mean like i wasn't born into an
investment bank so i have no clue and so you network for introductions
to these banks okay once you have that that uh some introductions right
you you then give them a one-page summary document you send them because
they'll be like okay well send me send me a a a teaser right it's like a
sizzle sizzle page of like all the sexy things about your business the
assets your lists how you you know it's just literally a one-page
summary that should look really sexy that someone can look at and be
like i would like to take another call with these people that's it
that's the objectives just to get them to say yes i'll take a call with
you once they say yes i'd like to take a call with you you then
basically sell them on selling your business all right so you sell them
on selling your business and then if they do like that they will usually
fly out to you and meet with you in person with a team and then they
will sell you on why they should sell your business and so the process
here goes like you network for as many introductions you can to bankers
who are relevant to your size and your space you send them the one page
teaser so that you can get them uh interested they then a certain
percentage of those

15 00:14:00.000 --\> 00:15:00.000 will take a phone call of the phone
call you sell those people and why it's a good deal they will then
follow up with you and say yes i think it's a good deal let's talk uh
let's talk in person you'll then probably meet with you know four to six
bankers um to tell you why they think they would be the best ones to
represent you and get you the highest enterprise value and that's where
you're going to negotiate their fee structure and you're going to be
asking them questions around what other deals like yours they have sold
and what their network looks like now they're all going to say they know
all the people and all the decision makers and all the things right but
the real thing you want is people who have sold businesses similar to
yours in terms of market and size in recent history all right because
that means that they are it's recent they're in the know it's not like
they sold something three years ago that was similar because they're way
out of way out of touch all right you want people who do this type of
deal all the time now the typical fee structures what else what to watch
out for so the their fees and agreements they usually have an upfront
amount sometimes that's all these things are negotiable you can
negotiate that out you can go shoot it in they usually ask for upfront
if they if the number is lower so if they don't think that it's likely
that they're going to sell they'll ask for an upfront which you can use
at a

16 00:15:00.000 --\> 00:16:00.000 negotiating point which is like do you
don't think you can sell it because then it gives you a point to argue
back to somebody else right they'll give you targets uh for what they
think they could sell for and then they will give you ratchets which is
like and if we sell for over x we get x percent we sell for over y we
get z percent what bankers will actually do is once they will help you
package the business and they will go out to market and they will pound
the pavement and they will talk to hundreds of buyers and they will walk
you through this process but it's good to have an understanding of this
process by and large so that you cannot sound like an income poop when
you're talking to them all right there's usually also a breakup fee
which you can negotiate out of the deal or at least decrease it and you
can also on the flip side have minimums which is like if you guys don't
sell me if you don't get an offer above x then you don't get paid at all
right and so we had minims in our deals so that they wouldn't actually
get paid so they're super incentivized so the things that like you
really want to uh be cognizant of uh is is the minimums and especially
how they're going to get paid like what number they're getting paid off
are they getting paid off the total enterprise value or they're going to
get paid off the cash you receive right you want to negotiate off the
pass you

17 00:16:00.000 --\> 00:17:00.000 receive not the enterprise value
because let's say you sell 10 of the company for a billion dollars i'm
saying for you know silly math so you'd get 100 million bucks if let's
say they got four percent of enterprise value right they would get 40
million of the 100 million all right so there's little things like this
that they will use to you all right so like be cognizant of these things
and the targets and the ratchets that they put in place it sounds like
it's um you want them to be really excited to push it but the things
that i really would want you to pay attention to are going to be the
minimums and what they're getting paid off of and breakup fees and
upfronts all right because at the end of the day you know the ratchets
and targets hopefully you're happy with this on the front end because
what happens sometimes is the reverse which is people all of a sudden
start hearing the lois and whatnot and start getting greedy um and i
don't think that's why it's like decide write down a number before you
start the process and talking to all these guys because they'll blow
your mind up and they'll tell you that you're gonna sell for a billion
dollars and then you sell for not a billion dollars okay for much less
less than that so write down the number write it to a letter to yourself
and say i would accept this for this reasons all right because this is
one of the most emotional processes you can possibly go through it's
selling a part of yourself selling part of your identity and so you

18 00:17:00.000 --\> 00:18:00.000 can get tied up in it okay now you
will sell your company better than almost any banker right so they are
going to be experts in the process you will be the one who's going to be
an expert at selling your company especially if you're a promotional
entrepreneur you know how to sell right and so you want to be very
instrumental in giving them the selling store because they're going to
be the ones who are doing the selling but you're also going to be doing
selling as well so you need to be giving them the salient points you
think that they're going to say that they're experts at this they're not
that like even though they've sold a handful of companies they've only
sold a handful right they just sold five like yours that's still a ton
just like yours but you want to have the really selling points that only
you will know because they don't know your business right you got to
give them the really sexy stuff all right and as a reminder these people
are like real estate agents they're trying to sell both sides they're
trying to get a deal done more than the best deal even though they have
ratchets even though they have these things the big thing they're trying
not to do is not close a deal and so they will do everything they can to
get both sides to just meet in the middle and sell but that's not
necessarily in your best interest okay so just remind you here it's not
necessarily your best interest all right

19 00:18:00.000 --\> 00:19:00.000 now this was the false belief that i
had which is they will know what they're doing and we'll get you the
best deal which is not true which i just explained this and so this is
the negotiating point this is a writer downer for you they only
responded and i had to learn this the hard way to if i don't get this
point the deal is off otherwise they basically just steamroll you and
you might say like well maybe you had bad banking experience who knows
but i'll just tell you this is my experience is that you have to be
willing to walk away from the table in order to get the best deal all
right which is why you win negotiations before you start them by having
options all right you want to have an amazing business you want to have
a business you don't want to sell that's the best way to sell a business
is to not want to sell it right and you have to get there if you're like
i would just get rid of this thing for nothing then prepare be prepared
to get rid of this thing for nothing because it's because it's going to
get there because they're going to drill you because these are
professional negotiators on the other side table that's what they do all
day long you might have sold your business one time they buy businesses
every day all right so they know exactly how you feel they know exactly
how to manipulate your emotions to get you to say yes to

20 00:19:00.000 --\> 00:20:00.000 lowest price okay so what you want to
say here is that if i don't get this the deal is off and it took me a
really long time to learn this and then all of a sudden when i started
speaking in this language the banker started responding to me like oh no
this is really a big deal for them like if they don't get this then all
of a sudden they start negotiating for me because what will happen in
this world of institutionals they just say no to everything unless you
say you're going to walk then they're like okay fine we'll give you that
one right so they will just say this is our deal structure unless you
take it or leave it unless you say i'm willing to walk on these points
all right and then they will start moving just my observation now i'm
telling you i'm sharing this stuff because don't share this with me all
right so uh we covered finding the banker uh how to negotiate the fees
uh what to look at in terms of how to interface with them to negotiate
on your behalf now let's start the actual process all right so there's
the prep and this is a big big picture of what the what this whole
process looks like once you've got audited financials once you've got a
sim which is a shoot i don't even know it's something model i think but
basically it's like this hundred page plus thing of really in depth of
the financials and the story and the

21 00:20:00.000 --\> 00:21:00.000 competitive analysis and the
marketplace and the growth trajectory and all the stuff that's what they
should be doing for you all right they should make that thing and they
will send the the the teaser out to all the you know 500 people of those
people a certain percentage will sign ndas which is non-disclosure
agreements because then because it's anonymous they won't they won't
when you're sending out the teaser it doesn't disclose what the company
is that way you know employees and things like that don't get scared by
you just shopping the company all right so this is how i recommend doing
so you have 500 buyers contacted and you'd want to ask these questions
how many buyers are we contacting how big is your list what are what are
your potential requires right 98 uh ndas from there you'll usually get
like 14 or so iois 15 right uh from there about half of those uh you'll
do kind of like management presentations from there you'll get two to
four lois and ios indication of interest which is non-binding and loi is
also typically non-binding um but it's a letter of uh of interest which
is like this is what we're prepared to pay for the business from there
you negotiate them against each other and then you get one deal

22 00:21:00.000 --\> 00:22:00.000 right and then you you sign the loi
and then you go through the diligence process and then you close okay
that is how these sales numbers break down if you've talked to 10 people
then lo and behold you probably are not going to get a good number right
and so that's how this process works the thing is a lot of these guys
are lazy so you have to push them on these numbers to send out more like
repeat follow up with these people and i'll be honest with you on the
deal that we ended up doing it wasn't uh the first set of buyers that we
got to the table it was actually somebody that my cfo pushed our bankers
to follow back up with again that ended up being the the final acquirers
all right so like you want to push them because at the end of the day
they're going to try and do as little as possible to get paid i'm just
being real with you that's the real world all right so let's do it so
now that we have to understand the sales process works this is now
you're working with the bankers you got to get this prep stuff done so
you got to get your due diligence in you got to get organized a lot of
people don't have this stuff draft of the sim there it is confidential
information memorandum all right so you got to complete that get a
review that's a huge amount of work all right and these weeks are just
rough all right these are rough amount of weeks all right i'm going to
show you 20 weeks in

23 00:22:00.000 --\> 00:23:00.000 this presentation but like that whole
pre-process of getting the bankers took another like three months so i
would say roughly from the time you start this process the time you get
a check in your bank account is usually 12 to 18 months all right i'll
say 12 is a nice like if you're like if today you decided you wanted to
buy it would take a year before that actually you'd have a check in your
bank account all right so then they're going to put together the list of
potential buyers or investors then they're gonna have the summary fact
sheet and the confidentially the nda is agreed upon and then that's it
that's the prep phase all right that's it simple simple all right now we
start marketing because we got all the materials done now we market them
okay so now we contact those perspective buyers we go neat uh teaser
then nda then you get which is the one to three page blind description
of the business then the data room which is basically like they have to
put the stuff like in the cloud so that people can always have access to
it so all these potential buyers will be sifting through all your your
resources to come up with questions that they're going to ask you or say
that's not a good deal for them right

24 00:23:00.000 --\> 00:24:00.000 this is when you have your kind of
your pitch deck right of what you're going to present to them right
you're going to dry run practice it etc potential investors will then
submit their ios all right that's the indication of interest that
they're like we might be interested in buying this business and they'd
give a rough range right and then you have potential people who are i'm
trying to go through this part faster because it sounds boring but this
is the stuff this is how it works right so potential investors visit
company they provide you provide access to the data room of all the
diligent stuff that they're going to need so they have a cursory idea of
what they need and you do the data room so you have to do all this
interaction just put all the up there and they can all have access to it
and then when you start on the the actual uh offers which is here week
18 final offers received and evaluated strategy is determined for moving
forward with final parties right so this is where you bid them back
against each other and then you get final offers which is lois okay
letters of intent okay now once you have the letters of intent and
you've bid them back together you're gonna have different deal
structures are gonna be presented to you which i think is covered here
okay so you start negotiating those you go back and forth

25 00:24:00.000 --\> 00:25:00.000 et cetera now here's the thing there's
the price and then how it's paid it's price and terms and i can't tell
you like getting good terms is worth discounts right now it depends on
what you're selling if you just want to sell to have a story and that's
one thing but if you're starting to get rich then the terms matter a lot
all right so people share a big number like for example if i wanted to
say i sold you know gym launch prestige ops for a hundred million
dollars i could have got 100 million dollars in paper all right so hear
me out so if i said hey pay me 25 million earn out if we do a billion
dollars this year in sales sure they'll sign it and then i could say
that added 25 million to my enterprise value on the sale i will be
transparent with you i had no seller financing i had no earn out i had
no i did do i did real equity because i sold 66 and i had no transition
services and no consulting all right and that was because that was the
that was the agreed upon way that i wanted to sell this business and i
said that up front to everybody i said this is a full uh leadership exit
i will not be involved i will not have transition because the thing is
if they're like

26 00:25:00.000 --\> 00:26:00.000 sure if you just keep working for the
business for two years yeah we're fine selling to you it's like well i
might as well just own the different thing right and i'll just grow it
myself right and so this is where uh this is important now mind you
acquisition.com for example for our business we only do minority
investments because we want the leadership team there so we actually
want to just participate in the growth and help grow the companies from
3 million to 10 million to 20 million to 50 million and beyond right we
want to participate in the growth and we're happy taking a smaller life
of what we consider to be a bigger pie rather than ripping out the
management right so we're we work with people who are like not not
really ready for institutional yet but want to get that 20 million
dollar 50 million 100 million plus exit i'm gonna get them ready just
for context all right so these are the things that will discount you so
if you had 100 million dollars for example for an exit they might say
okay well we're going to put 25 million in earn out 25 million is going
to be seller financed you're going to roll 20 which is 20 million so
there's 30 million left uh and so we'll give you 30 million in cash uh
and you say oh i sold my company 100 million right and then of the 30
you've got the bonuses and you've got other

27 00:26:00.000 --\> 00:27:00.000 equity you know partners if you have
those and then you've got the tax man so all of a sudden let's say
you've got 20 that's given to your team so now you're at 24 million and
then taxman takes his 30 right uh and you've got closing fees and things
like that and escrow fees uh and so now you're at uh whatever 18 17
million so you sold your business for 100 million dollars we only got 17
million bucks right that's why this stuff matters okay so you want to
make sure that you know why you are selling and what the most important
things are for you and you need to ruthlessly ruthlessly communicate
that to the bankers okay very important point because they will
negotiate on those points for you now the things that they're also
looking for for them is is it's a fit within their their portfolio like
a family office for example is just going to buy something that they
think is a good cash flow investment and price is going to be very
important to them a strategic buyer would be somebody who's going to be
let's say let's say you own a car wash you know chain or whatever if
there's a bigger car wash chain that just wants to buy yours they'll
give you a better multiple because

28 00:27:00.000 --\> 00:28:00.000 they already have all these systems in
place so they're going to make more money from your business than just a
generic buyer will so the ideal way to exit is to strategic because
you'll get the best multiples but to be fair there are more financial
buyers than there are strategic so that's kind of the trade-off okay and
you want to make sure that that your business is in good hands so that
you want people who have relevant experience we were very fortunate that
the people that we felt were most equipped to buy the company were also
the ones who ended up giving us the best offer and so that's that
doesn't happen we were very fortunate end up working out that way for us
um but this this it doesn't always happen that way and then this is a
really simple one do i like these people will my team like these people
because ultimately the team's gonna be working with them right so you
wanna ask those questions as you're going throughout all right so like
you can have who pay you a little bit more and then really nice guys who
pay a little bit less life's short man so like i would go with people
who a lot of people regret just taking the highest offer rather than 10
less and having a much better life okay at this point you would sign
your loi all right most of the times it's gonna be exclusive saying like
if you have a tremendous amount of interest you might be able to sign
lois and have them not be exclusive and they

29 00:28:00.000 --\> 00:29:00.000 still bid all the way up to the
purchase agreement most times that's not the case they don't want to
they don't want to expend the money so like the so apg when they bought
us spend probably about a million bucks in diligence just in diligence
right to figure out whether our company is worth buying right and again
you're not going to attract guys who are going to write 100 million you
know do a million dollars in diligence for a 5 million deal it makes no
sense right so like if you want big money numbers you have to you got to
follow the big money process all right so at this point you signed an
exclusive loy meaning you can't shop the business to anybody else during
the period of the of the due diligence now i'm gonna say at the end but
i'm gonna say it again all right and i've got a special treat for you
which i'm now remembering uh at the end of this video i'll actually i
videotaped us actually having the escrow hit and the final signing and
you can actually see it go down for real all right it's very
anticlimactic but you can see it for real and now see what a 50 million
dollar cell looks like okay so the due diligence will begin they're
going to try and negotiate time saying like oh we can get a faster close
if blah blah blah if you accept the slower price they're going to

30 00:29:00.000 --\> 00:30:00.000 take as long as they want literally
ignore it they seriously they will try and use speed i had every single
person try to use speed as a selling point i thought it was legit the
first time they said 30 day close and it took sorry they said four i
said 30-day close and it took 112 days and i i accepted worse this is on
one of the other companies we sold i expected worse terms on that right
so the next time i came around this is why i'm giving you this stuff
next time i came around they were like oh we could do a fast because i
was like whatever take your time my company's grown do whatever you want
right and when you do it that way you're in the position of power okay
so they're gonna audit your quality of earnings which is something you
have to get the bankers will explain how to do that which is to make
sure that your numbers are legit that they are what you say they are
right anybody can put numbers in exactly but are they for real right
then they'll do legal diligence so they're gonna make sure you actually
own the company do you have any lawsuits against you are you in are you
go are you breaking any laws which actually is fairly common when it
comes to claims and things like that uh for like ftc things like like
it's it's actually fairly common so you want to make sure that stuff and
that stuff can blow deals up i had a an acquaintance of mine that had uh
two different deals

31 00:30:00.000 --\> 00:31:00.000 blow up that were like nine figure
deals multiple years apart because they were not compliant all right so
like and they thought that the lack of compliance was one of the reasons
that they were so successful and so they didn't want it as too risky all
right what they'll then do is they'll start interviewing your customers
all right this may sound freaky but that's what they're going to do
they're going to talk to your customers they're going to talk to your
employees they're going to interview them the firm that purchases spent
like 250 000 i'm pulling that number out of air but it's a lot on
research uh to to see what the what your customers think about you so if
you're terrified to think about what your customers who who are past
customers who no longer pay you think about you be prepared right
they're gonna talk to them be like should i buy this company is this a
good company right what has your experience been like right and same
thing uh with your employees now they're not gonna ask them but the that
stuff they're gonna only talk to people already know about the deal but
they're gonna interview them really uh heavily to see what's your
involvement is he really is he really passively involved like what do
you do on a daily basis what do they do on the daily because they want
to know that if you leave it's still going to keep going and growing all
right then you've got background checks of you and your management team
to make sure no one's you know a convicted criminal or something sketchy

32 00:31:00.000 --\> 00:32:00.000 which more realistically is like
financial fraud employment contracts to make sure that if you leave they
don't all leave with you or they're like only there for you etc and
you're like okay i feel like i'm done nope there's more okay so once
you've gone through this whole diligence process which takes 60 to 90
days now if you're tracking with me there was like three months you know
of looking for bankers and figuring that part out and making sure that
your business is ready may take much longer than that but like assuming
your business is ready right and you have met the prerequisites it might
take you 12 weeks to find the right bankers from there it's 20ish weeks
to get to this point and then you might have another 60 to 90 for
intelligence now bankers will say that it's going to take less time
they're incentivized to tell you that it takes less time so i was
talking to a good friend of mine who was like hey man i got they said
they're 30 day diligence uh and they quit close and i was like dude it's
not gonna happen and it was for a nine figure number right and lo and
behold 90 days later he was like yeah fast they said wrong they were
right he's like why didn't you tell me this was gonna be so much fun
right and he's now i think like five months into his process of post
post agreement signed right so like i'm

33 00:32:00.000 --\> 00:33:00.000 not saying that that's typical but i'm
saying like you need to be prepared for a year like and it's going to be
a year slog and a lot of your focus is going to go to this process so
like you really need a strong management team a place who can continue
to grow the business without you all right other and that'll prove the
point and this is a note the longer the process takes it is in the
buyer's advantage that take a long time all right so you want a fast
close they want a slow close and being real the only way to speed up the
clothes is to keep growing like crazy because they then they're going to
realize that all of a sudden the valuation from the beginning to the end
will have changed and then you will have much more negotiation power and
you can break the agreement and get other offers right so important
point there now so once you've gotten that point you'll get a purchase
agreement inside of the purchase agreement you'll have these different
pieces you have to watch out for indemnities are the things that you're
reliable for these are the things that will keep you up at night you
need to negotiate hard on these things now give the things that are
reasonable like yes like fundamental you know indonesia uh warranties i
think is the name of the clause whatever it's

34 00:33:00.000 --\> 00:34:00.000 like you actually own the company you
actually own the trademarks like yes you have to like yes otherwise the
whole purchase is off right and you could be liable for the total
purchase amount for that stuff right now that's the indemnities but the
other indemnities are things that like are completely out of your
control so you want to make sure you negotiate those things out and
again with all these negotiations you have to be willing to walk away
and say like i don't like if this bullet's in there the deal is off like
and if you can't say that you're gonna get raked over the calls okay now
non-competes depends on why you're selling and what you want to do next
but you want to be very specific and this is one of the hardest things
that that you're going to get into negotiating especially if you have a
skill if you're really good at you know trash compacting they're going
to not want you to touch anything trash related for a long period of
time all right and what's really tricky about this is that if you roll
equity into the new company that they're going to be buying your your
company in or whatever they will write in the articles of incorporation
that none of the people who have that can compete and so even if you
have a purchase non-compete you may have a non-compete as long as you
are an equity holder in that other company which means that if you want
to breach or not compete you would have to give up

35 00:34:00.000 --\> 00:35:00.000 the equity that you rolled in addition
to uh the the the that's once the other noun could be expired so you
have to be very very careful about how these non-competes are written
and the definitions that you have around this is so important like i
can't tell like so for example if you were selling let's say a skincare
line they might say they they the wri the first one you get might just
say like you can't be in beauty anymore well that'd be freaking
ridiculous right because you know the space and you're not competing
with your company if instead of skincare you start getting into makeup
right and you have to make that argument right it depends on the size of
the deal and what you're willing like if this is the one deal that's
going to seal all deals for you then maybe you'll be willing to give
more right and be like all right i'm not going to touch the space for a
long time right on the flip side if you're like i already know what my
next thing's going to be and this is the best thing to do with the
non-competes is know what you're going to do next because if you know
what you're going to do next then you can be very specific with the
language and you can make sure that you're 100 covered and just tell
them that's what i plan on doing next i just want that to be affected
and if you say that and i'm telling you guys the best way to negotiate
these things is to be honest just tell them what you want and a lot of
times it's much easier than

36 00:35:00.000 --\> 00:36:00.000 trying to guess and ascribe blame and
all that kind of stuff all right schedules is all the stuff that you
provide it's basically another word of like proof right we're doing all
this based on these assumptions and the assumptions have to be true for
some reason the schedules are not there like we did this based on this
you know customer segmentation analysis if you mentioned it in the
selling process of getting them to say yes and negotiating but then you
don't include it in the agreement as a schedule it's as though it didn't
happen and then they can come back and screw you now this all sounds
scary most of the times these agreements don't get repealed all right
but you want to make sure that you include all the stuff and that stuff
sucks but you got to do it you got to have a good lawyer for it all
right definitions this is kind of interesting as a total philosophical
point the agreement itself is is almost as long as the pages of
definitions for the terms that are used in the agreement and i think
socrates said wisdom begins with the definition of terms and so like
fundamentally the agreement is like party a as defined by x agrees to
pay y according to these terms two parties z according to these terms
according to you know uh for this amount according to

37 00:36:00.000 --\> 00:37:00.000 you know whatever so it's like all
these things are just terms that have to get defined and so i'll give
you an example um term that we were able to redefine i think it was um
actually i think we redefined a term within the non-compete that
dramatically changed the the meaning of the document and made it much
better for us to do whatever we wanted to do next and so like just
changing the definition of a single word can run through an entire
agreement and sometimes rather than fighting on clauses it's better to
really narrow down the definition of what you're trying to define so the
scope might be geography for non-computer it might be like there's a
million things they define in these documents but making sure that you
read the definitions for what these words mean is really important all
right now the few points and this is just the points that you'll want to
negotiate there's a zillion other things these are the main the big
hitters networking capital since the very end you've already agreed on
everything already agreed on the terms you already get in the price
right now you have to on networking capital which is how much money
you're going to leave in the business right and this is we're going to
try it they're going to try and get you there too right it's like hey
let's say you've got a million bucks of working capital in the

38 00:37:00.000 --\> 00:38:00.000 bank account they're going to be like
well you've had a million dollars sitting there for a whole year so that
comes with the business you're like well i've just had it there because
i didn't take dividends out of it which why by by the way is a good
reason to dividend out stuff and keep you know little in the bank
account if you're a smaller business now if you're reinvesting and
buying and doing mma and stuff then that's a different question which
most of you guys aren't doing that right now so that being said
networking capital is what how much money is required to run this
business so that when we have this transition it can continue to work as
normal right and you want that to be as little as possible so that is so
that you can take as much of that cash to the bank account in addition
to what they're going to pay you all right and then finally is the
escrow amount so let's say you've got that 100 million deal like i said
earlier and they might say we want to keep 20 in escrow all of a sudden
you've got 20 million in escrow and again we still have the escrow we've
got the seller financing we've got the urn out we've got the splits that
you have we've got taxes we've got we've got all these other things that
are going to come out of it all right is you gotta make sure it makes
sense and so escrow amounts like if you can keep it under 10 you're
rocking all right now they're going to probably keep some of it there
and that's because they keep that as insurance like if something else
comes up or there's some

39 00:38:00.000 --\> 00:39:00.000 bill or blah blah that's your fault
some back taxes whatever they take it out of the escrow amount all right
that's how they do and then usually they will release that and again
when they release it they can release it in phases so i think we had i
think there was like a 90 day and then a one year for ours but like it
can change some people have escrow that holds for two years some people
don't have any escrow but it's a negotiating point all right and i'm
repeating this don't let speed be a negotiating tool used against you
all right it doesn't matter they're gonna take as long as they want so
don't let them use that against you all right finally you've done all
this stuff you've negotiated all the the hard points you've gotten here
and it's now payday all right so first off it's very anticlimactic
because it takes all this time and then all you do see is just like a
big deposit in your bank account you're like oh well i guess i am the
same so i'm just telling you that's what's gonna happen all right that
being said you actually don't even sign papers there's so many papers
that you actually have to pay someone to sign up because it takes so
darn long so we actually paid our attorneys and i think it took like six
hours just to sign on our behalf for all the documents and and do that
for us all right now once all the documents are

40 00:39:00.000 --\> 00:40:00.000 received by the escrow company both
parties have signed everything at that point they initiate the deposits
to the parties that have already been predefined so if you have payouts
that go to let's say your bankers or brokers that comes off the top if
you have payments that go to the escrow company comes off the top if you
have distribution that come to your employees or other equity holders or
investors that then all comes and then you get your piece all right and
so uh to uh to and just hold on because i'll show you the actual video
it's only like i think 30 or 40 seconds of the actual signing moment uh
for us and you can see what it really looks like to close a 50 million
deal but just a few closing thoughts on this is that they're gonna treat
you like you don't know anything all right and so you gotta get smart
you gotta read stuff watch this video re-watch it and understand the
pieces that someone's going to try and do to screw you over all right
and you know a trust is going to be a big component of this right so
like you have to trust the people that you're going to do business with
and if you don't it's going to be really difficult now that being said
you can trust them but you still want to verify right you still want to
make sure that the words say what they say they say and a lot of

41 00:40:00.000 --\> 00:41:00.000 times that's not the case all right
and so big picture if you do get to this point congratulations it's very
very hard to to to grow a business do all this stuff and sell to an
institutional buyer who will pay you know tens of millions or hundreds
of millions of dollars for a company um these are just some of the
lessons that i learned and this is the process it took me a long time to
even just figure out how it worked um and for mozy nation i make these
videos because i no one told me this stuff and so i'm hoping that for
you guys this helps you out and uh and hey if you're doing over three
million you can hit us up and we'll see what we can do to help you out
and help walk you through the process just so you know this is the
actual video of us giving the final word and seeing a 50 million deal go
down in the real world um between us and the lawyers and the private new
firm so it's all there uh enjoy it and so uh if you could confirm that
uh you release your signature pages uh contemporaneously with the
release of the stellar signature pages we will be done on our side

42 00:41:00.000 --\> 00:42:00.000 okay confirmed great elizabeth yep we
are we're good confirmed okay great and and alex can you can you confirm
your release of signature pages um contemporaneously with the buyer's
signature pages such that we can close confirmed great well
congratulations everybody um just in time for uh for a nice weekend
hopefully i'll you know turn it over to fragile or alex if they want to
say any words but um congratulations yeah alex is layla on oh yeah yeah
right here she's right excellent great okay good well guys
congratulations it's a big milestone um we're happy to be here with you
and um you know i know this has been like a long road and we're happy to
be at the at the starting line here

43 00:42:00.000 --\> 00:43:00.000 so are we we're excited for uh for the
future and uh we have so many it's gonna be fun to announce it to the
team on i think monday and tuesday so we're stoked it's gonna be a good
it's gonna be a good next phase it's gonna be a good kickoff year for
everyone yep anyways lots of love everybody see you in the next video
keep being awesome
