WEBVTT 1 00:00:00.000 --> 00:00:04.800 You have to be willing to walk away from the table in order to get the best deal, 2 00:00:04.800 --> 00:00:08.560 which is why you win negotiations before you start them by having options. 3 00:00:10.080 --> 00:00:12.960 Welcome to the game where we talk about how to get more customers, how to make more 4 00:00:12.960 --> 00:00:16.880 customers, how to keep them longer in the many failures and lessons we have learned along the way. 5 00:00:16.880 --> 00:00:18.160 I hope you enjoy and subscribe. 6 00:00:19.920 --> 00:00:24.080 I'm going to talk to you about how to sell a business and if you're wondering who is this dude 7 00:00:24.080 --> 00:00:28.320 in his mama's basements closet wearing a wife beat or have anything to do with talking about 8 00:00:28.320 --> 00:00:32.880 how to sell business, how does he even have the right, the audacity to talk about these things? 9 00:00:32.880 --> 00:00:38.640 Let me first make a quick intro. I've sold eight businesses. My name's Alex from azion acquisition.com 10 00:00:38.640 --> 00:00:42.720 which is a portfolio of companies that does over $100 million a year. I make these videos because 11 00:00:42.720 --> 00:00:46.880 I was once broke and were these beaters out of necessity rather than out of choice and was in my 12 00:00:46.880 --> 00:00:50.720 mama's basement out of necessity rather than actually I'm not in her basement. This is a $5 million 13 00:00:50.720 --> 00:00:56.160 condo in Vegas, but that's not the point. I just like working in places that have no windows. 14 00:00:56.160 --> 00:01:01.280 So I have sold eight businesses over my career just to name a few of them. I sold Allen, 15 00:01:01.280 --> 00:01:06.240 which is a software company that did 12 million in trailing 12 month sales. I cannot disclose 16 00:01:06.240 --> 00:01:11.040 the price that I sold to, but that was the top line revenue. The NDA is actually fairly common 17 00:01:11.040 --> 00:01:16.080 in sales agreements, especially of an appreciable amount of money. And the reason for that is because 18 00:01:16.080 --> 00:01:20.720 they don't want a potential new acquirer in terms of if you were to roll in other companies after 19 00:01:20.720 --> 00:01:25.040 they buy your company to know what you got for yours because then it hurts their negotiating power. 20 00:01:25.040 --> 00:01:31.120 Now that being said, the next two companies that I sold in 2021, I sold $46.2 million and I was 21 00:01:31.120 --> 00:01:33.760 able to do that because I negotiated that in because I was tired of not being able to talk to the 22 00:01:33.760 --> 00:01:38.480 other one. And so there's the press release from that. And on top of that, you might be like, well, 23 00:01:38.480 --> 00:01:42.640 I don't have businesses that big. That's okay. Fear not. I also sold five brick and mortar 24 00:01:42.640 --> 00:01:47.360 locations prior to this. And so I've sold actually that seven. I don't know why I said eight. I shut 25 00:01:47.360 --> 00:01:51.680 down one. There you go. There's eight. I had five brick and mortar locations that I sold. And here's 26 00:01:51.680 --> 00:01:56.080 what's even cooler. I've actually sold those businesses to six different types of buyers. I sold 27 00:01:56.080 --> 00:02:01.040 to financial buyers for private equity. I sold to and family offices. That's what FOS for private 28 00:02:01.040 --> 00:02:05.360 equity or family offices, which is all forms of private equity, but institutional buyers or family 29 00:02:05.360 --> 00:02:10.400 offices. Second, I've sold to strategic buyers, which is the one who bought my software company. I 30 00:02:10.400 --> 00:02:14.160 sold to friends. I've sold to competitors. I've sold to customers and I've sold to partners. 31 00:02:14.160 --> 00:02:18.160 All right. So I've done a lot of these deals and interestingly enough, as it was going on, I never 32 00:02:18.160 --> 00:02:22.640 thought, wow, this is somebody going to come in handy. And then I can help other people go through 33 00:02:22.640 --> 00:02:26.160 this as well because I've gone through all these kind of weird scenarios. All right. And so I've 34 00:02:26.160 --> 00:02:30.640 learned a lot in the process. And I would like to make this because I get questions all the time 35 00:02:30.640 --> 00:02:36.640 about valuing companies and buying companies. And we have companies that reach out to us for acquisition.com. 36 00:02:36.640 --> 00:02:39.760 We work with specifically service-based companies, especially internet, 37 00:02:39.760 --> 00:02:43.600 service-based businesses, guru businesses, e-learning businesses, course business, etc. And we 38 00:02:43.600 --> 00:02:47.360 purchase minority stakes in those companies to help grow them, which is what the portfolio does now, 39 00:02:47.360 --> 00:02:50.000 which is why it does over a hundred million. That being said, we're very familiar with this 40 00:02:50.000 --> 00:02:53.280 process. And so I wanted to walk you through this because a lot of people have questions about it. 41 00:02:53.280 --> 00:02:56.720 All right. And so I'll walk you through the overarching process and then I'll dive into each of 42 00:02:56.720 --> 00:03:03.520 them in more detail. Sound good? Awesome. Say yes. Fantastic. So phase 00 is the prerequisites. These 43 00:03:03.520 --> 00:03:08.640 are the things that must be done or even even are required for you to be able to sell or have any 44 00:03:08.640 --> 00:03:12.160 kind of enterprise value to begin with, which I'm going to be really rude with you. Most companies, 45 00:03:12.160 --> 00:03:16.640 most businesses are not valuable at all. All right. Most of them are just assets. You might have 46 00:03:16.640 --> 00:03:19.920 equipment, you know, of your physical presence. And if you're in online business, you've very little 47 00:03:19.920 --> 00:03:23.600 value unless you have a lot of these things in place. All right. So most people want to try and go 48 00:03:23.600 --> 00:03:27.120 in business, sell their business, and find out that no one actually wants to buy it because people 49 00:03:27.120 --> 00:03:31.840 are not stupid. All right. So next is once you have these prerequisites, which I'll go over, 50 00:03:31.840 --> 00:03:34.800 you have to find a banker or broker. All right. And this is something that I've gone back and 51 00:03:34.800 --> 00:03:38.560 forth on. I sold some of them without. I sold something with. I'll go pros and cons. And I'll explain 52 00:03:38.560 --> 00:03:43.280 to you kind of how to negotiate that process and figure it out. After that, now we can actually start 53 00:03:43.280 --> 00:03:46.800 the selling process. We have a bank. We have somebody representing us to help us go sell our stuff. 54 00:03:46.800 --> 00:03:51.520 All right. And so this is the prep. This is phase one. All right. Phase two is now that we have 55 00:03:51.520 --> 00:03:55.040 a prepared all the stuff. Now we go market the thing so that we can sell the thing to somebody. 56 00:03:55.040 --> 00:03:58.400 All right. Phase three is now that we have people who want to buy the thing. Now we got to close the deal. 57 00:03:58.400 --> 00:04:02.080 All right. And so I'll walk you through each of the intricacies of these. And there are honestly a 58 00:04:02.080 --> 00:04:07.200 lot of steps in this process. If you want to have a big number money in the millions for a deal. 59 00:04:07.200 --> 00:04:11.520 All right. So let us start at the top. All right. prerequisites. So these are deal killers. These 60 00:04:11.520 --> 00:04:16.240 are things that make a deal not actually happen, which I'll be with you is the vast majority of the time. 61 00:04:16.240 --> 00:04:22.080 Okay. Most companies are not that big. And when I say this, mind you, I'm talking about institutional 62 00:04:22.080 --> 00:04:26.240 sized businesses. So like if you want to have a deal that's, you know, five million dollars plus, 63 00:04:26.240 --> 00:04:30.640 which is about the smallest deal that any like real institutional investor private equity family 64 00:04:30.640 --> 00:04:35.680 office will look at is there has to be, you know, a big enough size for it to make sense right now. 65 00:04:35.680 --> 00:04:40.960 You can have tons of people who do a lot of private investors and retail investors. People who 66 00:04:40.960 --> 00:04:44.320 just have a little bit of money saved up, they, you know, they might want to buy a dry cleaning business. 67 00:04:44.320 --> 00:04:47.680 They want to drop by by a GM or they might want to buy a whatever, right? Like there's, 68 00:04:47.680 --> 00:04:51.280 those are normal businesses, but those are, that's not what we're talking about here because those 69 00:04:51.280 --> 00:04:55.120 are all one off and they're not going to make you rich. All right. And so that's why I'm focused on 70 00:04:55.120 --> 00:05:00.320 the how to make you rich type sale because these are much more difficult to understand and the process 71 00:05:00.320 --> 00:05:03.120 a little bit more nuanced. All right. It took me a long time to learn this. And guess what? No one 72 00:05:03.120 --> 00:05:08.160 taught me this. I didn't see this anywhere. And it took me a long, long time took me a year to just 73 00:05:08.160 --> 00:05:11.280 kind of understand how the entire process worked ended. So that is what I'm trying to save you 74 00:05:11.280 --> 00:05:16.320 is a year of painstaking effort. And I have nothing to sell you. So like all the people were trying to 75 00:05:16.320 --> 00:05:20.240 tell me had a vested interest in trying to take something from me. And I don't know who you are. So 76 00:05:20.240 --> 00:05:26.400 I'm making this so that there you go. All right. So the biggest one though is that people are too small. 77 00:05:26.400 --> 00:05:30.800 The next one is that there's a customer concentration, meaning you have two few customers that equate 78 00:05:30.800 --> 00:05:34.960 to the business, right? If you have like 10 big customers, if two of them leave or three of them leave, 79 00:05:34.960 --> 00:05:38.640 all of a sudden you lose like a 30 or business, that is very risky. All right. People don't like that. 80 00:05:38.640 --> 00:05:41.600 And so they will give you a massive discount on the value of the business or not even be interested 81 00:05:41.600 --> 00:05:44.960 because it's too risky. All right. And especially if that's like those relationships are there because 82 00:05:44.960 --> 00:05:48.400 of you and they, you know, they like you and you're the kind of like relation manager, which happens 83 00:05:48.400 --> 00:05:52.640 really commonly in small businesses. Next one is no defined sales process. A lot of times people don't 84 00:05:52.640 --> 00:05:55.680 really have an acquisition process for getting new customers. They don't know how they get customers. 85 00:05:55.680 --> 00:05:59.200 They just kind of come their way. And so if you don't have a repeatable or reliable way of acquiring 86 00:05:59.200 --> 00:06:03.040 customers, ideally through multiple channels, which are covered in a second, you will probably not get 87 00:06:03.040 --> 00:06:07.920 a very good multiple or even want to get any kind of deal at all. Next is that when people do start 88 00:06:07.920 --> 00:06:10.480 this process, a lot of the mistakes that they make is they don't go through enough potential 89 00:06:10.480 --> 00:06:13.040 acquires. They're not trying to target enough people. They're like, I talked to 10 people and 90 00:06:13.040 --> 00:06:16.080 no one wanted to buy. Well, no shit. You talked to 10 people. You got to talk to 500. Right. 91 00:06:16.080 --> 00:06:20.800 And that's how you can get somebody is going to give you the right kind of multiple on your business 92 00:06:20.800 --> 00:06:24.880 if you want to sell to an institutional investor. Okay. Next one's getting timing wrong. So everybody 93 00:06:24.880 --> 00:06:28.320 always thinks that's like, man, if I said another 18 months, I cannot tell you the amount of times. 94 00:06:28.320 --> 00:06:32.640 Like it's almost like the standard response of entrepreneurs is I'll be ready in 18 months because 95 00:06:32.640 --> 00:06:35.840 a year they know they're not ready. But 18 months for some reason feels like it's far enough out 96 00:06:35.840 --> 00:06:38.800 that they'll like somehow magically have we have their one and all their problems will be done, 97 00:06:38.800 --> 00:06:44.160 which is not true. All right. So getting the timing wrong is a huge issue and a lot of people sell 98 00:06:44.160 --> 00:06:49.440 too late. Very few people sell too early. Most people sell too late in my opinion. And in so doing, 99 00:06:49.440 --> 00:06:53.840 they can't sell it all. And so the thing is is I heard this quote from the the managing partner of 100 00:06:53.840 --> 00:06:58.480 APG Frazier Preston, really, really bright guy. He said this on one of our calls. He said, well, 101 00:06:58.480 --> 00:07:02.880 business is always going to go up in value over time except when it doesn't. And in case it becomes 102 00:07:02.880 --> 00:07:06.960 unsalable. And so it was very, very interesting to hear that because that is kind of the truth. It's 103 00:07:06.960 --> 00:07:10.560 like either people see this thing as like, oh, wow, this is a growing asset that's increasing in value. 104 00:07:10.560 --> 00:07:14.720 And even if you stay the same for a period of time, just more years under your belt makes it 105 00:07:14.720 --> 00:07:18.800 actually more reliable. So it's less risky. So literally the older a business gets, even if it stays 106 00:07:18.800 --> 00:07:23.760 the same, it becomes more valuable, right? That being said, if you get the timing wrong, 107 00:07:23.760 --> 00:07:27.920 as it starts going down, no one wants to catch a falling knife, all right, especially in private 108 00:07:27.920 --> 00:07:30.720 deals like this, stocks and whatnot, people are trying to time it. It's a big enough company. It's 109 00:07:30.720 --> 00:07:34.880 been around long enough, et cetera. It's different than small businesses, which is what that's 110 00:07:34.880 --> 00:07:38.240 majority of people who are watching this video have. Small business being defined as less than 100, 111 00:07:38.240 --> 00:07:44.080 I think, employees. Okay. So next one, you think it's worth more than it is. And this is a big one, 112 00:07:44.080 --> 00:07:48.960 right? A lot of people are like, man, I heard that, you know, so and so got 20 times top line. 113 00:07:48.960 --> 00:07:52.880 It's like, yeah. And that's because that's why it's newsworthy because it's weird, right? It's not 114 00:07:52.880 --> 00:07:58.240 common. If there's a completed sale, I think I just can't remember I pulled this step from. So 115 00:07:58.240 --> 00:08:04.480 the median number for M&A deals for for this was, I think the median was $5 million. I can 116 00:08:04.480 --> 00:08:09.440 screw that. The point is that the multiple was 6.7 times trailing 12 months. And that is for 117 00:08:09.440 --> 00:08:12.640 institutional buyers, right? Now, you might not have an institutional buyer, which is why the 118 00:08:12.640 --> 00:08:17.920 vast majority of businesses that get sold get sold in private deals for like 1x, 2x, 3x. And it's 119 00:08:17.920 --> 00:08:20.880 because they're not really reliable businesses. For the most part, they're just kind of asset sales. 120 00:08:20.880 --> 00:08:25.200 Like I'm handing, you know, a handful of employees over with some kind of working model and I'm 121 00:08:25.200 --> 00:08:28.880 just moving on to do other things, which is honestly the vast majority of businesses that get sold 122 00:08:28.880 --> 00:08:33.520 get sold for almost nothing. All right. So we hear about the big wins, but that's not the majority. 123 00:08:33.520 --> 00:08:37.760 All right. So I want to be clear in that most businesses either don't get sold or get sold for 124 00:08:37.760 --> 00:08:42.240 very, very little money. And so the point of this presentation is how to sell it for lots of money. 125 00:08:42.240 --> 00:08:46.560 All right. Which you have to meet these requirements to even be considered. Okay. Now the next, 126 00:08:46.560 --> 00:08:51.680 next little doodad that we have on our listicle here is not growing big enough tam or growth 127 00:08:51.680 --> 00:08:54.720 stores. There's three different things I put in one books. I needed to fit in one place. All right. 128 00:08:54.720 --> 00:08:58.000 So if the business isn't growing, you're going to get a big discount on it. Now I said earlier that 129 00:08:58.000 --> 00:09:01.840 the longer business is in place, the more valuable is which is true. But if you're not growing 130 00:09:01.840 --> 00:09:04.880 you don't have like a waste of growing it or it means that like the strategy you're doing is no 131 00:09:04.880 --> 00:09:09.600 longer working, people will see that as a risk. So if you have even a tiny amount of decline, 132 00:09:09.600 --> 00:09:12.480 people will see that as a big red flag because then they'll extrapolate that into infinity. 133 00:09:12.480 --> 00:09:15.520 On the flip side, if you have a tiny amount of growth, people do extrapolate that out further. 134 00:09:15.520 --> 00:09:20.400 So like flip it around and sustain that growth for 12 months, 18 months prior to the deal 135 00:09:20.400 --> 00:09:24.640 to get a much better number. Big enough tam. So people might think, oh, this is this business is 136 00:09:24.640 --> 00:09:28.880 cool. It's a niche, but it can't expand beyond this niche. So you need to have a good growth story 137 00:09:28.880 --> 00:09:33.360 as in how are we going to really 10x this thing? Because people are buying not to buy your business. 138 00:09:33.360 --> 00:09:36.720 They're buying your business for what they think the business will become. All right. That's what 139 00:09:36.720 --> 00:09:39.280 kind of private equity is all about. No one's really trying to buy the thing. They want to try 140 00:09:39.280 --> 00:09:42.720 to buy with things what it become. All right. And so that's when you make great deals, right? That's 141 00:09:42.720 --> 00:09:46.480 on their side. So you have to tell them or explain to them the story of how it's going to work, right? 142 00:09:46.480 --> 00:09:50.560 And the more they can believe that story that it's likely to occur, then the more valuable your 143 00:09:50.560 --> 00:09:54.160 business will become. Next one, and this is a huge one for small businesses is a key man risk. 144 00:09:54.160 --> 00:09:58.080 As in like, are you the one who's the rainmaker? Are you the one who's bringing in, you know, 145 00:09:58.080 --> 00:10:01.760 all the deals? Are you the one who's, you know, the special man who does all the fulfillment? 146 00:10:01.760 --> 00:10:04.320 All that kind of stuff like are people coming for you? If they're coming for you, then they're not 147 00:10:04.320 --> 00:10:08.320 going to come for your business, which means that when you leave, business is worthless, right? And so 148 00:10:08.320 --> 00:10:12.320 you're a big risk. And a lot of times, I'll be frank with you, in acquisition.com, we work with 149 00:10:12.320 --> 00:10:16.160 companies that have key man, and we work them over the next three to five years to help them not 150 00:10:16.160 --> 00:10:20.400 have key man risk, which is how we were able to exit gym launch, which was started as kind of a more 151 00:10:20.400 --> 00:10:25.360 guru-esque business and then transformed into just a true licensing business at an enterprise 152 00:10:25.360 --> 00:10:28.960 level. And so there is a process of getting through that, and you have to take the time to do it. If 153 00:10:29.120 --> 00:10:34.560 you don't, your business will not be valuable, okay? And then finally, single, and there's more risks, 154 00:10:34.560 --> 00:10:38.000 these are just some of the big ones. Single channel dependence, meaning you only have one way of 155 00:10:38.000 --> 00:10:42.000 getting customers, you have no other way, and if tomorrow that shut off, you be screwed, right? 156 00:10:42.000 --> 00:10:45.200 People will just imagine, well, if it shut off, then I would lose my money, and good investors 157 00:10:45.200 --> 00:10:50.080 don't take risks like that. They don't want to go to zero. And so that will massively impact 158 00:10:50.080 --> 00:10:52.480 the value of your business, all right? So these are deal killers. These are things that get you 159 00:10:52.480 --> 00:10:56.800 not sell yourself for very, very little money. And so you must check off these boxes before you 160 00:10:56.800 --> 00:11:01.040 can get big institutional money. All right? So this is the big bottom line of that section, which is 161 00:11:01.040 --> 00:11:06.640 enterprise value is a discount applied to future sales, which means you have to take the total 162 00:11:06.640 --> 00:11:10.000 amount of sales that a business takes between now and the end of time, and then you apply a 163 00:11:10.000 --> 00:11:14.080 discount to it, which basically means risk. What's the likelihood that occurs? All right? And so 164 00:11:14.080 --> 00:11:17.840 if you can show that you have a lot of future sales are going to happen, and it's very, very likely 165 00:11:17.840 --> 00:11:22.320 that they are going to occur, then you have a very, very valuable business. If you have a small 166 00:11:22.320 --> 00:11:26.240 amount of future sales or a declining amount of sales, then the likelihood that it happens is low 167 00:11:26.240 --> 00:11:29.840 and the amount is also low. All right? So that gives you low enterprise value. So that's the 168 00:11:29.840 --> 00:11:32.400 bottom line. That's what we want to show is we want to show that we're going to make lots of 169 00:11:32.400 --> 00:11:35.680 sales and continue to grow. And the likelihood of occurring is very, very high. They should be 170 00:11:35.680 --> 00:11:39.760 asking you why are you selling this business and you need to have a good reason for it. Okay? So 171 00:11:39.760 --> 00:11:43.360 checked off that box. Let's go to face to you. Let's say you check all those boxes and you're like, 172 00:11:43.360 --> 00:11:47.440 okay, I think I have all those things. I now want you to find a banker or broker, right? And 173 00:11:47.440 --> 00:11:51.600 quick difference here. Bankers are what you're going to need to sell to an institutional for the most 174 00:11:51.600 --> 00:11:56.160 part. Brokers are usually when you're selling for less than five million. You get a broker and 175 00:11:56.160 --> 00:12:00.080 they have different fee structures because the amounts are lower and they have to do more deals, 176 00:12:00.080 --> 00:12:03.920 all that kind of stuff. All right? And to be fair, I think sometimes broke being a broker is 177 00:12:03.920 --> 00:12:08.880 even harder because you're selling shit. Let's be real. Okay. So the way that I did this and so I'm 178 00:12:08.880 --> 00:12:12.560 just being real like the way that I did this is that I network for interest. It's very hard. I think 179 00:12:12.560 --> 00:12:16.560 you can try it. Go, you know, Google investment banks, Google top, whatever investment banks, 180 00:12:16.560 --> 00:12:22.000 and specifically, you'd want them in your market and your size. So there's two components. It's, 181 00:12:22.000 --> 00:12:26.240 you know, do they have to have they sold some businesses? Have they sold e-commerce businesses? 182 00:12:26.240 --> 00:12:29.360 Have they sold software businesses? Have they sold e-learning businesses? Have they sold whatever 183 00:12:29.360 --> 00:12:32.960 type of business you have? Number one, and in particular, have they sold them of your size, right? 184 00:12:32.960 --> 00:12:36.400 If someone, you know, has sold lots of e-commerce, but they've only done deals that are like 500 185 00:12:36.400 --> 00:12:40.000 million and up and you're doing like 10 million top line, you're not going to be a fifth of them 186 00:12:40.000 --> 00:12:45.120 because the buyers that they already know are not going to want to buy your thing because the 187 00:12:45.120 --> 00:12:49.440 check is too small. All right. And so these guys write a proportion, like checks proportional to 188 00:12:49.440 --> 00:12:53.120 the fun size that they have of the capital, right? Like if you have a billion dollars, you're not 189 00:12:53.120 --> 00:12:56.080 going to make a thousand dollar investment. It just doesn't make sense. The time investment makes no 190 00:12:56.080 --> 00:13:01.120 sense. All right. So I use my network, which means I just called everybody I possibly knew and said, 191 00:13:01.120 --> 00:13:05.600 hey, do you know anybody who knows anything about this? And so you can start with entrepreneurs, 192 00:13:05.600 --> 00:13:10.240 you can start with people, you can start with your actual bank where you go, like actually to do banking, 193 00:13:10.960 --> 00:13:15.040 and you just pull threads. And this is what took me a long time. Is it like now working to try 194 00:13:15.040 --> 00:13:18.320 and find these introductions was a pain? I didn't, I don't know anybody. You know what I mean? Like I 195 00:13:18.320 --> 00:13:22.160 was born into an investment bank. So I have no clue. And so you network for introductions to these 196 00:13:22.160 --> 00:13:29.040 banks. Okay. Once you have some introductions, right? You then give them a one page summary document. 197 00:13:29.040 --> 00:13:33.680 You send them because they'll be like, okay, well, send me a teaser, right? It's like a sizzle, 198 00:13:33.680 --> 00:13:38.080 sizzle page of like all the sexy things about your business. The assets, your lists, how you, 199 00:13:38.080 --> 00:13:41.440 you know, it's just literally a one page summary that should look really sexy as someone can look at and 200 00:13:41.440 --> 00:13:44.880 be like, I would like to take another call with these people. That's it. That's the objectives. 201 00:13:44.880 --> 00:13:48.880 Just to get them to say yes, I'll take a call with you. Once they say yes, I'd like to take call with 202 00:13:48.880 --> 00:13:56.400 you, you then basically sell them on selling your business, right? So you sell them on selling your 203 00:13:56.400 --> 00:14:01.600 business. And then if they do like that, they will usually fly out to you and meet with you in 204 00:14:01.600 --> 00:14:05.600 person with the team. And then they will sell you on why they should sell your business. And so 205 00:14:05.600 --> 00:14:09.360 the process here goes like you network for as many introductions you can to bankers who are relevant 206 00:14:09.360 --> 00:14:13.760 to your size and your space. You send them the one page teaser so that you can get them 207 00:14:13.760 --> 00:14:17.760 interested. They then, a certain percentage of those will take a phone call. Of the phone call, 208 00:14:17.760 --> 00:14:20.640 you sell those people on why it's a good deal. They will then fall out with you and say yes, 209 00:14:20.640 --> 00:14:25.200 I think it's a good deal. Let's talk. Let's talk in person. You'll then probably meet with, you know, 210 00:14:25.200 --> 00:14:30.000 four to six bankers to tell you why they think they would be the best ones to represent you and get 211 00:14:30.000 --> 00:14:34.240 you the highest enterprise value. And that's where you're going to negotiate their fee structure. 212 00:14:34.240 --> 00:14:38.080 And you're going to be asking them questions around what other deals like yours they have sold and 213 00:14:38.080 --> 00:14:40.560 what their network looks like. Now they're all going to say they know all the people and all the 214 00:14:40.560 --> 00:14:44.640 decision makers and all the things, right. But the real thing you want is people who have sold 215 00:14:44.640 --> 00:14:49.680 businesses similar to yours in terms of market and size in recent history. All right, because that 216 00:14:49.680 --> 00:14:53.280 means that they are they it's recent. They're in the know. It's not like they sold something three 217 00:14:53.280 --> 00:14:56.400 years ago. That was similar because they're way out of way out of touch. All right, you want people 218 00:14:56.400 --> 00:15:01.520 who do this type of deal all the time. Now, the typical fee structures, what else what to watch out for? 219 00:15:01.520 --> 00:15:05.760 So the their fees and agreements, they usually have an upfront amount. Sometimes that's all 220 00:15:05.760 --> 00:15:08.880 these things are negotiable. You can negotiate that out. You can negotiate it in. They usually 221 00:15:08.880 --> 00:15:12.960 ask for upfront if they if the number is lower. So if they don't think that it's likely that they're 222 00:15:12.960 --> 00:15:16.960 going to sell the last for an upfront, which you can use a negotiating point, which is like, 223 00:15:16.960 --> 00:15:20.240 do you don't think you can sell it because then it gives you a point to argue back to somebody 224 00:15:20.240 --> 00:15:24.400 else, right. They'll give you targets for what they think they get sell for and then they will 225 00:15:24.400 --> 00:15:28.480 give you ratchets, which is like, and if we sell for over X, we get X percent and we sell for over Y, 226 00:15:28.480 --> 00:15:33.040 we get Z percent, right. What bankers will actually do is once they will help you package the 227 00:15:33.040 --> 00:15:36.480 business and they will go out to market and they will pound the pavement and they will talk 228 00:15:36.480 --> 00:15:40.080 to hundreds of buyers and they will walk you through this process. But it's good to have an 229 00:15:40.080 --> 00:15:44.320 understanding of this process by and large so that you can not sound like an income poop when 230 00:15:44.320 --> 00:15:47.840 you're talking to them. All right. There's usually also a breakup fee, which you can negotiate 231 00:15:47.840 --> 00:15:52.080 out of the deal or at least decrease it. And you can also on the flip side have minimums, which 232 00:15:52.080 --> 00:15:57.200 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 233 00:15:57.200 --> 00:16:00.960 all, right. And so we had minimums in our deals so that they wouldn't actually get paid. So there 234 00:16:00.960 --> 00:16:06.560 are super incentivized. So the things that like you really want to be cognizant of is the minimums 235 00:16:06.560 --> 00:16:09.440 and especially how they're going to get paid like what number they're getting paid off. Are they 236 00:16:09.440 --> 00:16:12.960 getting paid off the total enterprise value? Are they going to get paid off the cash you receive? 237 00:16:12.960 --> 00:16:15.760 Right. And you want to negotiate off the cash you receive not the enterprise value because let's 238 00:16:15.760 --> 00:16:20.320 say you sell 10% of the company for a billion dollars. All right. I'm just saying for, you know, 239 00:16:20.320 --> 00:16:24.080 silly math. So you get a hundred million bucks. If let's say they got four percent of enterprise 240 00:16:24.080 --> 00:16:28.320 value, right, they would get 40 million of the hundred million. All right. So there's little things 241 00:16:28.320 --> 00:16:32.400 like this that they will use to fuck you. All right. So like be cognizant of these things. 242 00:16:32.400 --> 00:16:38.160 And the targets and the ratchets that they put in place, it sounds like it's like you want, 243 00:16:38.160 --> 00:16:42.320 you want them to be really excited to push it. But the things that I really would want you to pay 244 00:16:42.320 --> 00:16:45.920 attention to are going to be the minimums and what they're getting paid off of and break up fees 245 00:16:45.920 --> 00:16:49.360 and up fronts. All right. Because at the end of the day, you know, the ratchets and targets, hopefully 246 00:16:49.360 --> 00:16:52.480 you're happy with this on the front end because what happens sometimes is the reverse, which is 247 00:16:52.480 --> 00:16:56.720 people as all of a sudden start hearing the LOIs and whatnot start getting greedy. And I don't think 248 00:16:56.720 --> 00:17:00.320 that's why it's like decide write down a number before you start the process and talking to all 249 00:17:00.320 --> 00:17:03.360 these guys because they'll blow your mind out and they'll tell you that they're going to sell for a 250 00:17:03.360 --> 00:17:06.640 billion dollars and then you sell for not a billion dollars. Okay. For much less less than that. 251 00:17:06.640 --> 00:17:10.400 So write down the number, write it to a letter to yourself and say, I would accept this for this 252 00:17:10.400 --> 00:17:14.240 reason. All right. Because this is one of the most emotional processes you can possibly go through 253 00:17:14.240 --> 00:17:18.480 selling a part of yourself, selling part of your identity. And so you can get tied up in it. Okay. 254 00:17:18.480 --> 00:17:23.520 Now you will sell your company better than almost any banker. All right. So they are going to be 255 00:17:23.520 --> 00:17:27.280 experts in the process. You will be the one who's going to be an expert at selling your company, 256 00:17:27.280 --> 00:17:32.320 especially if you're a promotional entrepreneur. You know how to sell, right? And so you want to be 257 00:17:32.320 --> 00:17:35.920 very instrumental in giving them the selling store because they're going to be the ones who are 258 00:17:35.920 --> 00:17:40.400 doing the selling, but you're also going to be doing selling as well. So you need to be giving 259 00:17:40.400 --> 00:17:43.920 them the salient points. You think that they're going to say that their experts at this, they're not 260 00:17:43.920 --> 00:17:46.960 that like even though they've sold a handful of companies, they've only sold a handful, right? 261 00:17:46.960 --> 00:17:50.320 They just sold five like yours. That's still a time just like yours, but you want to have the 262 00:17:50.320 --> 00:17:53.120 really selling points that only you will know because they don't know your business. You got to 263 00:17:53.120 --> 00:17:57.360 give them the really sexy stuff. All right. And as a reminder, these people are like real estate 264 00:17:57.360 --> 00:18:01.440 agents. They're trying to sell both sides. They're trying to get a deal done more than the best deal, 265 00:18:01.440 --> 00:18:04.800 even though they have ratchets, even though they have these things, the big thing they're trying not 266 00:18:04.800 --> 00:18:09.120 to do is not close a deal. And so they will do everything they can to get both sides to just meet 267 00:18:09.120 --> 00:18:12.480 in the middle and sell, but that's not necessarily in your best interest. Okay. So I just 268 00:18:12.480 --> 00:18:17.280 remind you here, it's not necessarily your best interest. All right. Now this was the false belief 269 00:18:17.280 --> 00:18:20.960 that I had, which is they will know what they're doing and we'll get you the best deal, which is 270 00:18:20.960 --> 00:18:25.040 not true, which I just explain this. And so this is the negotiating point. This is a writer downer 271 00:18:25.040 --> 00:18:31.600 for you. They only responded. And I had to learn this the hard way to if I don't get this point, 272 00:18:31.600 --> 00:18:36.480 the deal is off. Otherwise, they basically just steamroll you. And you might say like, well, 273 00:18:36.480 --> 00:18:40.000 maybe you had bad banking experts, who knows? But I'll just tell you, this is my experience, 274 00:18:40.000 --> 00:18:45.840 is that you have to be willing to walk away from the table in order to get the best deal. All right, 275 00:18:45.840 --> 00:18:50.320 which is why you win negotiations before you start them by having options. All right. You want to 276 00:18:50.320 --> 00:18:53.600 have an amazing business. You want to have a business you don't want to sell. That's the best way 277 00:18:53.600 --> 00:18:57.120 to sell a business is to not want to sell it. Right. And you have to get there. If you're like, I 278 00:18:57.120 --> 00:19:00.320 would just get rid of this thing for nothing, then prepare, be prepared to get rid of this thing 279 00:19:00.320 --> 00:19:02.720 for nothing because it's because it's going to get there because they're going to drill you because 280 00:19:02.720 --> 00:19:06.000 these are professional negotiators on the other side table. This is what they do all day long. 281 00:19:06.000 --> 00:19:10.000 You might have sold your business one time. They buy businesses every fucking day. All right. So they 282 00:19:10.000 --> 00:19:13.520 know exactly how you feel. They know exactly how to manipulate your emotions to get you to say yes 283 00:19:13.520 --> 00:19:19.040 to the lowest price. Okay. So what you want to say here is that if I don't get this, the deal is off 284 00:19:19.040 --> 00:19:22.320 and it took me a really long time to learn this and then all of a sudden, I want to start speaking 285 00:19:22.320 --> 00:19:25.520 in this language, the beggars started responding to me like, oh, no, this is really a big deal for 286 00:19:25.520 --> 00:19:28.560 them. Like if they don't get this and then all of a sudden, they start negotiating for me because 287 00:19:28.560 --> 00:19:33.280 what will happen in this world of institutional is they just saying no to everything. Unless you say 288 00:19:33.280 --> 00:19:36.720 you're going to walk, then they're like, okay, fine. We'll give you that one. Right. So they will 289 00:19:36.720 --> 00:19:40.480 just say this is our deal structure and unless you take it or leave it, unless you say I'm willing 290 00:19:40.480 --> 00:19:44.640 to walk on these points. All right. And then they will start moving just my observation. Now, 291 00:19:44.640 --> 00:19:48.400 I'm telling you, I'm sharing this stuff because no one shared this with me. All right. So we covered 292 00:19:48.400 --> 00:19:52.400 fighting the banker, how to negotiate the fees, what to look at in terms of how to interface with 293 00:19:52.400 --> 00:19:55.840 them to negotiate on your behalf. Now let's start the actual process. All right. 294 00:19:58.240 --> 00:20:02.000 Amos and Asian quick break just to let you know that we've been starting to post on linked in 295 00:20:02.000 --> 00:20:05.760 and want to connect with you. All right. So send me a connection request and note letting me know that 296 00:20:05.760 --> 00:20:09.600 you listen to the show and I will accept it. There's anyone you think that we should be connected 297 00:20:09.600 --> 00:20:14.560 with tag them in one of my or Laila's posts and I will give you all the love in the world. All right. 298 00:20:14.560 --> 00:20:21.360 So let's get back to the show. So there's the prep and this is a big, big picture of what the 299 00:20:21.360 --> 00:20:26.400 what this whole process looks like. Once you've got audit of financials, once you've got a sim, 300 00:20:26.400 --> 00:20:31.680 which is a shoot, I don't even know if it's something model, I think. But basically it's like this 301 00:20:31.680 --> 00:20:36.160 100 page plus thing of really in depth of the financials and the story and the competitive 302 00:20:36.160 --> 00:20:39.200 analysis and the marketplace and the growth trajectory and all the stuff. That's what they 303 00:20:39.200 --> 00:20:44.240 should be doing for you. All right. They should make that thing and they will send the teaser out to 304 00:20:44.240 --> 00:20:49.120 all the 500 people of those people. A certain percentage will sign NDAs, which is not 305 00:20:49.120 --> 00:20:52.560 disclosure agreements because then because it's anonymous. They won't they won't when you're 306 00:20:52.560 --> 00:20:56.480 sending out the teaser. It doesn't disclose what the company is that way, you know, employees and 307 00:20:56.480 --> 00:21:01.040 things like that don't get scared by you just shopping the company. All right. So this is how I 308 00:21:01.040 --> 00:21:04.880 recommend doing it. So you have 500 buyers contacted and you'd want to ask these questions. How many 309 00:21:04.960 --> 00:21:08.400 buyers will be contacting? How big is your list? What are what are your potential acquires, right? 310 00:21:08.400 --> 00:21:16.000 98 NDAs from there. You'll usually get like 14 or so I OIs 15% right from there about half of those 311 00:21:16.000 --> 00:21:20.880 you'll do kind of like management presentations from there. You'll get two to four L OIs and I OIs 312 00:21:20.880 --> 00:21:25.440 the indication of interest, which is non binding and L OIs is also typically non binding. But it's a 313 00:21:25.440 --> 00:21:30.080 letter of interest, which is like this is what we're prepared to pay for the business from there. 314 00:21:30.080 --> 00:21:34.800 You negotiate them against each other and then you get one deal, right? And then you you sign the L OI 315 00:21:34.800 --> 00:21:38.080 and then you go through the deal just process and then you close. Okay. That is how these sales 316 00:21:38.080 --> 00:21:42.240 numbers break down. If you've talked to 10 people, then lo and behold, you probably are not going to 317 00:21:42.240 --> 00:21:45.760 get a good number, right? And so that's how this process works. And thing is a lot of these guys are 318 00:21:45.760 --> 00:21:50.560 lazy. So you have to push them on these numbers to send out more like repeat follow up with these 319 00:21:50.560 --> 00:21:55.040 people. And I'll be honest with you on the deal that we ended up doing. It wasn't the first set of 320 00:21:55.040 --> 00:21:59.600 buyers that we got to the table. It was actually somebody that my CFO pushed our bankers to follow 321 00:21:59.600 --> 00:22:04.720 back up with again, that ended up being the final acquires. All right. So like you want to push 322 00:22:04.720 --> 00:22:07.280 them because at the end of the day, they're going to try and do as little as possible to get paid. 323 00:22:07.280 --> 00:22:09.760 All right. I'm just being real with you. That's the real world. All right. So let's do it. 324 00:22:10.720 --> 00:22:14.880 So now that we have no understanding how the sales process works, this is now you're working with 325 00:22:14.880 --> 00:22:18.240 the bankers. You got to get this prep stuff done. So you got to get your due diligence in, 326 00:22:18.240 --> 00:22:21.440 you got to get organized. A lot of people don't have this stuff drafted the sim there. It is 327 00:22:21.440 --> 00:22:25.280 confidential information memorandum. All right. So you got to complete that. Get a review. That's 328 00:22:25.280 --> 00:22:30.000 a huge amount of work. All right. And these weeks are just rough. All right. These are rough 329 00:22:30.000 --> 00:22:33.920 amount of weeks. All right. I'm going to show you 20 weeks in this presentation. But like that whole 330 00:22:33.920 --> 00:22:38.480 pre-process of getting the bankers took another like three months. So I would say roughly from the time 331 00:22:38.480 --> 00:22:42.960 you want to, from the time you start this process, the time you get a check in your bank account is 332 00:22:42.960 --> 00:22:49.040 usually 12 to 18 months. All right. I'll say 12 is a nice like, if you're like, if today you decided 333 00:22:49.040 --> 00:22:53.200 you wanted to buy, it would take a year before that actually you'd have a check in your bank 334 00:22:53.360 --> 00:22:57.200 account. All right. So then they're going to put together the list of potential buyers or investors. 335 00:22:57.840 --> 00:23:02.480 Then they're going to have the summary fact sheet and the NDA is agreed upon. And then that's it. 336 00:23:02.480 --> 00:23:06.640 That's the prep phase. All right. That's it. Simple, simple. All right. Now we start marketing because 337 00:23:06.640 --> 00:23:12.560 we got all the materials done. Now we market them. Okay. So now we contact this perfective virus. We 338 00:23:12.560 --> 00:23:18.080 go need a teaser, then NDA, then which is the one to three page blind description of the business, 339 00:23:18.080 --> 00:23:22.080 then the data room, which is basically like they have to put the stuff like in the cloud so that 340 00:23:22.080 --> 00:23:26.080 people can always have access to it. So all these potential buyers and we sifting through all your 341 00:23:26.080 --> 00:23:30.000 your resources to come up with questions that they're going to ask you or say that's not a good deal 342 00:23:30.000 --> 00:23:35.040 for them, right? This is when you have your kind of your pitch deck, right? Of what you were going 343 00:23:35.040 --> 00:23:40.160 to present to them, right? You're going to dry run, practice it, et cetera. Potential investors will 344 00:23:40.160 --> 00:23:44.320 then submit their IOIs. All right. That's the indication of interest that they're like, we might 345 00:23:44.320 --> 00:23:49.680 be interested in buying this business and they'd give a rough range, right? And then you have 346 00:23:50.160 --> 00:23:53.280 people who are I'm trying to go through this part faster because it sounds boring, but this is 347 00:23:53.280 --> 00:23:57.360 the stuff. This is how it works, right? So potential investors visit company. They provide you 348 00:23:57.360 --> 00:24:00.480 provide access to the data room of all the the diligence stuff that they're going to need. So they 349 00:24:00.480 --> 00:24:03.840 have a cursory idea of what they need. And you do the data room so you don't have to do all this 350 00:24:03.840 --> 00:24:07.440 interaction. Just put all the shit up there and they can all have access to it. And then when you start 351 00:24:07.440 --> 00:24:13.280 in the the actual offers, which is here week 18, final offers received and evaluated strategies 352 00:24:13.280 --> 00:24:17.840 determined for moving forward with final parties, right? So this is where you bid them back against 353 00:24:17.840 --> 00:24:23.360 each other and then you get final offers, which is LOIs, okay? Letters of intent, okay? Now, 354 00:24:23.360 --> 00:24:26.480 once you have the letters of intent and you've bid them back together, you're going to have different 355 00:24:26.480 --> 00:24:29.840 deal structures again, and we're presented to you, which I think is covered here, okay? So you start 356 00:24:29.840 --> 00:24:35.600 to go shading those, you go back and forth, et cetera. Now, here's the thing. There's the price 357 00:24:35.600 --> 00:24:41.280 and then how it's paid. It's price and terms. And I can't tell you like getting good terms is 358 00:24:41.280 --> 00:24:44.400 worth discounts, right? Now it depends on why you're selling. You just want to sell to have a story 359 00:24:44.400 --> 00:24:48.000 than that's one thing, but if you're starting to get rich, then the terms matter a lot, all right? 360 00:24:48.000 --> 00:24:53.200 So people share a big number. Like, for example, if I wanted to say I sold, you know, 361 00:24:53.200 --> 00:24:58.000 Jim Launcher received us for $100 million, I could have gotten $100 million in paper, all right? 362 00:24:58.000 --> 00:25:03.360 So hear me out. So if I said, hey, pay me $25 million earn out. If we do a billion dollars this year 363 00:25:03.360 --> 00:25:08.320 in sales, sure, they'll sign it. And then I could say that added $25 million to my enterprise value 364 00:25:08.320 --> 00:25:13.600 on the sale. I will be transparent with you. I had no seller financing. I had no earn out. I had no, 365 00:25:13.600 --> 00:25:20.000 I did, I've did all equity because I sold 66% and I had no transition services and no consulting, 366 00:25:20.000 --> 00:25:23.680 all right? And that was because that was the, that was the agreed upon way that I wanted to sell 367 00:25:23.680 --> 00:25:28.880 this business. And I said that up front to everybody. I said, this is a full leadership exit. I will 368 00:25:28.880 --> 00:25:32.800 not be involved. I will not have transition because the thing is if they're like, sure, if you just 369 00:25:32.800 --> 00:25:35.920 keep working for the business for two years, yeah, we're fine selling to you. It's like, well, 370 00:25:35.920 --> 00:25:40.080 that might as well as own the different thing, right? And I'll just grow up myself. And so this is 371 00:25:40.080 --> 00:25:44.560 where this is important. Now mind you, acquisition.com, for example, for our business, we only do 372 00:25:44.560 --> 00:25:49.440 minority investments because we want the leadership team there. So we actually want to just participate 373 00:25:49.440 --> 00:25:53.120 in the growth and help grow the companies from three million to 10 million to 20 million to 50 million 374 00:25:53.120 --> 00:25:57.120 and beyond, right? We want to participate in the growth and we're happy taking a smaller life of 375 00:25:57.120 --> 00:26:00.720 what we consider to be a bigger pie, rather than ripping out the management, right? So we're, 376 00:26:00.720 --> 00:26:05.600 we work with people who are like not not really ready for institutional yet, but want to get that 377 00:26:05.600 --> 00:26:10.960 $20 million, $50 million, $100 million plus exits. I'm going to get them ready just for context, all right? 378 00:26:10.960 --> 00:26:16.720 So these are the things that will discount you. So if you had $100 million, for example, for an exit, 379 00:26:16.720 --> 00:26:21.040 they might say, okay, well, we're going to put 25 million in and earn out. 25 million is going to be 380 00:26:21.040 --> 00:26:26.640 seller financed. You're going to roll 20%, which is 20 million. So there's $30 million left. And so 381 00:26:26.640 --> 00:26:30.640 we'll give you $30 million in cash. And you say, oh, I saw my company for $100 million, right? And 382 00:26:30.720 --> 00:26:35.760 then of the 30, you've got the bonuses and you've got other equity partners if you have those. 383 00:26:35.760 --> 00:26:39.200 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 384 00:26:39.200 --> 00:26:45.360 team. So now you're at 24 million and then tax man takes his 30, right? And you've got closing 385 00:26:45.360 --> 00:26:50.080 fees and things like that and escrow fees. And so now you're at $18, 17 million. So you sold your 386 00:26:50.080 --> 00:26:55.680 business for $100 million, but you only got $17 million, right? That's why this stuff matters, okay? 387 00:26:55.680 --> 00:27:00.160 So you want to make sure that you know why you are selling and what the most important things 388 00:27:00.160 --> 00:27:06.400 are for you. And you need to ruthlessly, ruthlessly communicate that to the bankers, okay? Very 389 00:27:06.400 --> 00:27:10.480 important point because they will negotiate on those points for you. Now, the things that they're 390 00:27:10.480 --> 00:27:14.960 also looking for for them is it's a fit within their portfolio. Like a family office, for example, 391 00:27:14.960 --> 00:27:18.560 it's just going to buy something that they think is a good cash flow investment. And the price is 392 00:27:18.560 --> 00:27:22.560 going to be very important to them. A strategic buyer would be somebody who's going to be, let's say, 393 00:27:22.560 --> 00:27:27.840 let's say you own a car wash, you know, chain or whatever. If there's a bigger car wash chain that 394 00:27:27.840 --> 00:27:31.840 just wants to buy yours, they'll give you a better multiple because they already have all these 395 00:27:31.840 --> 00:27:35.040 systems in place. So they're going to make more money from your business than just a generic buyer 396 00:27:35.040 --> 00:27:39.440 will. So the ideal way to exit is to a strategic is you get the best multiples. But to be fair, 397 00:27:39.440 --> 00:27:43.040 there are more financial buyers than there are strategic. So that's kind of the tradeoff. And you 398 00:27:43.040 --> 00:27:46.720 want to make sure that your business is in good hand so that you want people who have relevant 399 00:27:46.720 --> 00:27:50.880 experience. We were very fortunate that the people that we felt were most equipped to buy the company 400 00:27:50.880 --> 00:27:55.360 were also the ones who ended up giving us the best offer. And so that doesn't happen. We were 401 00:27:55.360 --> 00:27:59.440 very fortunate and it worked out that way for us. But it doesn't always happen that way. And then 402 00:27:59.440 --> 00:28:02.080 this is a really simple one. Do I like these people? Well, my team like these people because 403 00:28:02.080 --> 00:28:04.880 ultimately the team's going to be working with them, right? So you want to ask those questions as 404 00:28:04.880 --> 00:28:08.240 you're going throughout. All right. So like you can have assholes who pay you a little bit more and 405 00:28:08.240 --> 00:28:13.280 then really nice guys who pay you a little bit less life shortman. So like I would go with people who 406 00:28:13.920 --> 00:28:18.560 a lot of people were grit just taking the highest offer rather than 10% less and having a much better 407 00:28:18.560 --> 00:28:24.960 life. Okay. Now at this point you would sign your L.O.I. All right. Most of the time it's going to be 408 00:28:24.960 --> 00:28:29.040 exclusive saying like if you have a tremendous amount of interest, you might be able to sign 409 00:28:29.040 --> 00:28:32.480 L.O.I.'s and have them not be exclusive and they still bid all the way up to the purchase 410 00:28:32.480 --> 00:28:36.720 agreement. Most times that's not the case. They don't want to they don't want to expend the money. 411 00:28:36.720 --> 00:28:41.280 So like the so APG when they bought us spent probably about a million bucks in diligence. Just 412 00:28:41.280 --> 00:28:45.680 in diligence, right? To figure out whether our company was worth buying, right? And again, you're 413 00:28:45.680 --> 00:28:48.720 not going to track guys who are going to write a hundred million, you know, do a million dollars 414 00:28:48.720 --> 00:28:52.160 of diligence for a five million dollar deal. It makes no sense, right? So like if you want big money 415 00:28:52.160 --> 00:28:57.200 numbers, you have to, you know, got to follow the big money process. All right. So at this point, 416 00:28:57.200 --> 00:29:00.960 you sign an exclusive L.O.I. meaning you can't shop the business to anybody else during the period 417 00:29:00.960 --> 00:29:05.360 of the of the due diligence. Now I'm going to say it at the end, but I'm going to say it again. 418 00:29:05.360 --> 00:29:09.440 All right. And I've got a special tree free which I'm now remembering. At the end of this video, 419 00:29:09.440 --> 00:29:15.360 I'll actually I videotaped us actually having the the escrow hit and the final signing and you can 420 00:29:15.360 --> 00:29:20.320 actually see it go down for real. All right. It's very anticlimactic. But you can see it for real. 421 00:29:20.320 --> 00:29:24.640 And now see what a 50 million dollar shell looks like. Okay. So the due diligence will begin. 422 00:29:24.640 --> 00:29:28.080 They're going to try and negotiate time saying like, oh, we can get a faster close if blah, blah, 423 00:29:28.080 --> 00:29:31.120 blah. If you accept this lower pride bullshit, they're going to take as long as they want. 424 00:29:31.120 --> 00:29:35.200 Literally ignore it. They seriously, they will try and you speed. I had every single person try to 425 00:29:35.200 --> 00:29:40.640 you speed as a selling point. I thought it was legit the first time they said 30 day clothes and 426 00:29:40.640 --> 00:29:46.160 it took 112 days. And I I accepted worth. This is on one of the other companies we sold. I 427 00:29:46.160 --> 00:29:49.440 stated worst terms on them. Right. So the next time I came around, this is why I'm giving you 428 00:29:49.440 --> 00:29:52.480 this stuff. Next time I came around, they were like, oh, we could do a fast because I was like, 429 00:29:52.480 --> 00:29:56.880 whatever, take your time. My company's grown. Do it everyone. Right. And when you do it that way, 430 00:29:56.880 --> 00:30:01.120 you're in the position of power. Okay. So they're going to audit your quality of earnings, 431 00:30:01.120 --> 00:30:04.400 which is something you have to get the bankers. So explain how to do that, which is to make sure that 432 00:30:04.400 --> 00:30:07.360 your numbers are legit that they are what you say they are. Right. Anybody can put numbers in 433 00:30:07.360 --> 00:30:11.200 an accessory, but are they for real? Right. Then they'll do legal diligence. So they're going to 434 00:30:11.200 --> 00:30:14.240 make sure you actually own the company. Do you have any lawsuits against you? Are you breaking 435 00:30:14.240 --> 00:30:18.720 any laws? Which actually is fairly common when it comes to claims and things like that for like 436 00:30:18.720 --> 00:30:22.560 FTC, things like like it's it's actually fairly common. So you want to make sure that stuff's 437 00:30:22.560 --> 00:30:26.480 all right. And that stuff can blow deals up. I had an acquaintance of mine that had two different 438 00:30:26.480 --> 00:30:31.680 deals blow up that were like nine figure deals multiple years apart because they were not compliant. 439 00:30:31.680 --> 00:30:34.880 All right. So like and they thought that the lack of compliance was one of the reasons that they 440 00:30:34.880 --> 00:30:39.280 were so successful. And so they didn't want it too risky. All right. What they'll then do is they'll 441 00:30:39.280 --> 00:30:42.320 start interviewing your customers. All right. This may sound freaky, but that's what they're going to do. 442 00:30:42.320 --> 00:30:44.320 They're going to talk to your customers. They're going to talk to your employees. They're going to 443 00:30:44.320 --> 00:30:48.160 interview them. The firm that they purchased has been like $250,000. I'm pulling that number out 444 00:30:48.160 --> 00:30:53.200 of air, but it's a lot on research to see what the what your customers think about you. So if 445 00:30:53.200 --> 00:30:56.720 you're terrified to think about what your customers who who are past customers who no longer pay you 446 00:30:56.720 --> 00:30:59.680 think about you, you prepare it. Right. They're going to talk to them be like, should I buy this 447 00:30:59.680 --> 00:31:04.320 company? Is this a good company? Right. What's your experience been like? Right. And same thing with 448 00:31:04.320 --> 00:31:07.120 your employees. Now they're not going to ask them, but the that stuff they're going to only talk to 449 00:31:07.120 --> 00:31:11.040 people already know about the deal, but they're going to interview them really heavily to see what's 450 00:31:11.040 --> 00:31:15.280 your involvement. Is he really? Is he really passively involved? Like, what do you do on our daily basis? 451 00:31:15.280 --> 00:31:17.520 What do they do on the day of it? Because they want to know that if you leave, it's still going to 452 00:31:17.520 --> 00:31:21.440 keep going and growing. Then you've got background checks of you and your management team to make sure 453 00:31:21.440 --> 00:31:26.400 knowns, you know, convicted criminal or something sketchy, which more realistically is like financial 454 00:31:26.400 --> 00:31:30.480 fraud, employment contracts to make sure that if you leave, they don't all leave with you or they're 455 00:31:30.480 --> 00:31:34.800 like only there for you, et cetera. And you're like, okay, I feel like I'm done. Not there's more. 456 00:31:34.800 --> 00:31:38.720 Okay. So once you've gone through this whole diligence process, which takes 16 to 90 days. Now if 457 00:31:38.720 --> 00:31:42.880 you're tracking with me, there was like three months, you know, of looking for bankers and figuring 458 00:31:42.880 --> 00:31:46.560 that part out and making sure that your business is ready, you may take much longer than that. But 459 00:31:46.560 --> 00:31:50.720 like assuming your business is ready, right. And you have met the prerequisites. It might take you 12 460 00:31:50.720 --> 00:31:54.880 weeks to find the right bankers from there. It's 20-ish weeks to get to this point. And then you might 461 00:31:54.880 --> 00:31:59.200 have another 60 to 90 for diligence. Now, bankers will say that it's going to take less time. They're 462 00:31:59.200 --> 00:32:03.120 incentivized to tell you that it takes less time. So I was talking to a good friend of mine who was 463 00:32:03.120 --> 00:32:07.120 like, hey, man, I got, they said there are 30 day diligence and then it quit closed and I was like, 464 00:32:07.120 --> 00:32:13.360 dude, it's not going to happen. And it was for a nine figure number, right. And lo and behold, 90 days 465 00:32:13.360 --> 00:32:19.040 later, he was like, yeah, fast. They said wrong. They were, right. He's like, why didn't you tell me? 466 00:32:19.040 --> 00:32:24.000 This was going to be so much fun, right. And he's now, I think like five months into his process 467 00:32:24.000 --> 00:32:28.960 of post, post agreement sign, right. So like, I'm not saying that that's typical. But I'm saying 468 00:32:28.960 --> 00:32:33.120 like, you need to prepare it for a year. Like, it's going to be a year slog. And a lot of your 469 00:32:33.120 --> 00:32:37.440 focus is going to go to this process. So like, you really need a strong management team in place 470 00:32:37.440 --> 00:32:41.280 who can continue to grow the business without you. All right. And that'll prove the point. And 471 00:32:41.280 --> 00:32:47.360 this is a note. The longer the process takes, it is in the buyers advantage that it take a long time. 472 00:32:47.360 --> 00:32:53.600 All right. So you want a fast close. They want a slow close. And being real, the only way to speed up 473 00:32:53.600 --> 00:32:58.080 the close is to keep growing like crazy because they then they're going to realize that all of a sudden 474 00:32:58.080 --> 00:33:02.880 the valuation from the beginning to the end will have changed. And then you will have much more 475 00:33:02.880 --> 00:33:06.880 negotiating power and you can break the agreement and get other offers, right. So important point 476 00:33:06.880 --> 00:33:11.120 there. So once you've gotten to that point, you'll get a purchase agreement. Inside of the purchase 477 00:33:11.120 --> 00:33:14.560 agreement, you will have these different pieces that you have to watch out for indemnities are the 478 00:33:14.560 --> 00:33:17.600 things that you were liable for. These are the things that will keep you up at night. You need to 479 00:33:17.600 --> 00:33:22.560 go shade hard on these things. Now, give the things that are reasonable. Like, yes, like fundamental, 480 00:33:22.560 --> 00:33:26.400 you know, in order to get warranties, I think is the name of the clause, whatever. It's like, 481 00:33:26.480 --> 00:33:29.680 you actually own the company. You actually own the trademarks. Like, yes, you have to, 482 00:33:29.680 --> 00:33:33.120 like, yes, otherwise the whole purchase is off, right. And you can be liable for the total 483 00:33:33.120 --> 00:33:37.600 total purchase amount for that stuff, right. Now, that's the indemnities. But the other indemnities are 484 00:33:37.600 --> 00:33:40.720 things that like are completely out of your control. So you want to make sure you negotiate those 485 00:33:40.720 --> 00:33:44.480 things out. And again, with all these negotiations, you have to be willing to walk away and say, like, 486 00:33:45.120 --> 00:33:48.960 I don't like, if this bullet's in there, the deal's off. Like, and if you can't say that, 487 00:33:48.960 --> 00:33:54.080 you're going to get raked over the calls, okay. Now, non-compete, depends on why you're selling and 488 00:33:54.080 --> 00:33:57.760 what you want to do next. But you want to be very specific. And this is one of the hardest things 489 00:33:57.760 --> 00:34:00.800 that that you're going to get into negotiating, especially if you have a skill. If you're really 490 00:34:00.800 --> 00:34:04.720 good at, you know, trash compacting, then they're going to not want you to touch anything 491 00:34:04.720 --> 00:34:09.920 trash-related for a long period of time, all right. And what's really tricky about this is that 492 00:34:09.920 --> 00:34:14.000 if you roll equity into the new company that they're going to be buying your your company in or 493 00:34:14.000 --> 00:34:17.920 whatever, they will write in the articles of incorporation that none of the people who have that 494 00:34:17.920 --> 00:34:23.280 can compete. And so even if you have a purchase non-compete, you may have a non-compete as long as 495 00:34:23.280 --> 00:34:26.800 you are an equity holder in that other company, which means that if you want to breach your 496 00:34:26.800 --> 00:34:30.800 non-compete, you would have to give up the equity that you rolled, all right. That's once the 497 00:34:30.800 --> 00:34:35.600 other non-compete expired. So you have to be very, very careful about how these non-compete are 498 00:34:35.600 --> 00:34:39.760 written. And the definitions that you have around this is so important. Like, I can't tell, like, 499 00:34:39.760 --> 00:34:45.920 so for example, if you were selling, let's say a skincare line, they might say, the first 500 00:34:45.920 --> 00:34:49.200 one you get might just say, like, you can't be in beauty anymore. Well, that'd be freaking 501 00:34:49.200 --> 00:34:52.320 ridiculous, right? Because you know the space and you're not competing with your company if instead 502 00:34:52.320 --> 00:34:56.320 of skincare, you start getting into makeup, right? And you have to make that argument, right? 503 00:34:56.320 --> 00:34:59.040 And it depends on the size of the deal and what you're willing, like, if this is the one deal that's 504 00:34:59.040 --> 00:35:02.480 going to seal all deals for you, then maybe it will be willing to give more, right? And be like, 505 00:35:02.480 --> 00:35:05.920 all right, I'm not going to touch the space for a long time, right? On the flip side, if you're like, 506 00:35:05.920 --> 00:35:09.760 I already know what my next thing's going to be and this is the best thing to do with the non-compete 507 00:35:09.760 --> 00:35:12.480 is know what you're going to do next. Because if you know what you're going to do next, then you can 508 00:35:12.480 --> 00:35:15.840 be very specific with the language and you can make sure that you're 100% covered and just tell them, 509 00:35:15.840 --> 00:35:19.200 this is what I plan on doing next. I just don't want that to be affected. And if you say that, 510 00:35:19.200 --> 00:35:23.200 and I'm telling you guys, the best way to negotiate these things is to be honest. Just tell them what 511 00:35:23.200 --> 00:35:27.120 you want. And a lot of times it's much easier than trying to guess and ascribe blame and all that kind 512 00:35:27.120 --> 00:35:31.200 of stuff. Schedules is all the stuff that you provide. It's basically another word of like proof, 513 00:35:31.200 --> 00:35:34.800 right? We're doing all this based on these assumptions. And the assumptions have to be true. 514 00:35:34.800 --> 00:35:38.800 For some reason, the schedules are not there. Like we did this based on this, you know, 515 00:35:38.800 --> 00:35:42.400 culture segmentation analysis. If you mentioned it in the selling process of getting them to say yes 516 00:35:42.400 --> 00:35:46.320 and negotiating, but then you don't include it in the agreement as a schedule, it's as though it 517 00:35:46.320 --> 00:35:50.400 didn't happen. And then they can come back and screw you. Now, this all sounds scary. Most of 518 00:35:50.400 --> 00:35:53.680 times these agreements don't get repealed. All right. But you want to make sure that you include 519 00:35:53.680 --> 00:35:56.560 all the stuff and that stuff sucks. But you got to do it. You got to have a good lawyer for it. 520 00:35:56.560 --> 00:36:03.040 All right. Definitions. This is kind of interesting as a total philosophical point. The agreement itself 521 00:36:03.040 --> 00:36:07.440 is almost as long as the pages of definitions for the terms that are used in the agreement. And 522 00:36:07.440 --> 00:36:12.160 I think Socrates said wisdom begins with the definition of terms. And so like fundamentally, 523 00:36:12.160 --> 00:36:20.240 the agreement is like party A as defined by X agrees to pay Y according to these terms to party 524 00:36:20.240 --> 00:36:25.520 Z according to these terms. So it's like all these things are just terms that have to get defined. 525 00:36:25.520 --> 00:36:30.400 And so I'll give you an example, a term that we were able to redefine. I think it was actually, 526 00:36:30.400 --> 00:36:35.040 I think we redefined a term within the non-copy that dramatically changed the the meaning of the 527 00:36:35.040 --> 00:36:39.920 document and made it much better for us to do whatever we wanted to do next. And so like just 528 00:36:39.920 --> 00:36:43.840 changing the definition of a single word can run through an entire agreement. And sometimes 529 00:36:43.840 --> 00:36:48.880 it, rather than fighting on clauses, it's better to really narrow down the definition of what you're 530 00:36:48.880 --> 00:36:54.160 trying to define. So the scope might be geography for a non-copy or it might be like there's a 531 00:36:54.160 --> 00:36:58.000 million things they define in these documents, but making sure that you read the definitions 532 00:36:58.000 --> 00:37:02.400 for what these words mean is really important. Now, the few points, and this is just the points 533 00:37:02.400 --> 00:37:05.200 that you want to negotiate. There's a zillion other things. These are the main the big headers. 534 00:37:05.840 --> 00:37:08.640 Networking capital says the very end. You've already agreed on everything. You already agreed on 535 00:37:08.640 --> 00:37:12.000 the terms. You already agreed on the price. Now you have to agree on networking capital, 536 00:37:12.000 --> 00:37:14.960 which is how much money you're going to leave in the business. And this is we're going to try 537 00:37:14.960 --> 00:37:18.320 it. You're going to try and get you there too. It's like, hey, let's see. You've got a million 538 00:37:18.320 --> 00:37:20.880 bucks of working capital in the bank account. They're going to be like, well, you've had a million 539 00:37:20.880 --> 00:37:23.840 dollars sitting there for a whole year. So that comes with the business. You're like, well, I've just 540 00:37:23.840 --> 00:37:28.720 had it there because I didn't take dividends out of it. Which why, by the way, is a good reason to 541 00:37:28.720 --> 00:37:31.920 dividend out stuff and keep little in the bank account if you're a smaller business. Now, 542 00:37:31.920 --> 00:37:34.720 if you're reinvesting and buying and doing M&A and stuff, then that's a different question, 543 00:37:34.720 --> 00:37:38.720 which most of you guys are not doing that right now. So that being said, networking capital is 544 00:37:38.720 --> 00:37:42.080 what, how much money is required to run this business so that when we have this transition, 545 00:37:42.080 --> 00:37:45.440 it can continue to work as normal, right? And you want that to be as little as possible so that 546 00:37:45.440 --> 00:37:48.800 as so that you can take as much of that cash to the bank account in addition to what they're going to pay 547 00:37:48.800 --> 00:37:53.520 you, all right? And then finally is the escrow amount. So let's say you've got that $100 million 548 00:37:53.520 --> 00:37:57.200 deal, like I said earlier, and they might say we want to keep 20% in escrow. All of a sudden, 549 00:37:57.200 --> 00:38:01.840 you've got $20 million escrow. And again, we still have the escrow. We've got the seller 550 00:38:01.840 --> 00:38:05.360 financing. We've got the earn out. We've got the splits that you have. We've got taxes. We've got 551 00:38:05.360 --> 00:38:08.640 all these other things that are going to come out of it, all right? As you got to make sure it makes 552 00:38:08.640 --> 00:38:13.200 sense. And so escrow amounts, like if you can keep it under 10%, you're rocking, all right? Now, 553 00:38:13.200 --> 00:38:17.360 they're going to probably keep some of it there. And that's because they keep that as insurance. 554 00:38:17.360 --> 00:38:20.880 Like if something else comes up or there's some bill or blah, blah, that's your fault. Some back 555 00:38:20.880 --> 00:38:24.560 taxes, whatever they take it out of the escrow. All right. That's how they do it. And then usually 556 00:38:24.560 --> 00:38:28.880 they will release that. And again, when they release it, they can release it in phases. I think 557 00:38:28.880 --> 00:38:32.720 there was like a 90 day and then a one year for ours. But like it can change. Some people 558 00:38:32.720 --> 00:38:36.400 have escrow that holds for two years. Some people don't have any escrow, but it's a negotiating point. 559 00:38:36.400 --> 00:38:40.800 All right. And I'm repeating this. Don't let speed be negotiating tool used against you. All right. 560 00:38:40.800 --> 00:38:43.680 It doesn't matter. They're going to take as long as they want. So don't let them use that against you. 561 00:38:43.680 --> 00:38:49.200 All right. Finally, you've done all this stuff. You've negotiated all the hard points. You've 562 00:38:49.200 --> 00:38:55.200 gotten here. And it's now payday. All right. So first off, it's very ethical. I'm acting because it 563 00:38:55.200 --> 00:38:59.440 takes all this time. And then all you do see is just like a big deposit in your bank account. 564 00:38:59.440 --> 00:39:03.040 You're like, oh, well, I guess I am the same. So I'm just telling you that's what's going to happen. 565 00:39:03.040 --> 00:39:07.440 All right. That being said, you actually don't even sign papers. There's so many papers that you 566 00:39:07.440 --> 00:39:10.480 actually have to pay someone to sign it because it takes so darn long. So we actually paid our 567 00:39:10.480 --> 00:39:14.560 attorneys. And I think it took them like six hours just to sign on our behalf for all the documents 568 00:39:14.560 --> 00:39:19.120 and do that for us. All right. Now, once all the documents have received by the escrow company, 569 00:39:19.120 --> 00:39:24.240 both parties have signed everything at that point. They initiate the deposits to the parties that 570 00:39:24.240 --> 00:39:28.000 have already been predefined. So if you have payouts that go to, let's say, your bankers or brokers 571 00:39:28.000 --> 00:39:31.600 that comes off the top. If you have payments that go to the escrow company, comes off the top. 572 00:39:31.600 --> 00:39:35.600 If you have distribution that come to your employees or other equity holders or investors, 573 00:39:35.600 --> 00:39:40.640 that then all comes and then you get your piece. And just hold on because I'll show you the actual 574 00:39:40.640 --> 00:39:45.440 video. It's only like I think 30 or 40 seconds of the actual signing moment for us. And you can see 575 00:39:45.440 --> 00:39:49.520 what it really looks like to close a $50 million deal. But just a few closing thoughts on this is 576 00:39:49.520 --> 00:39:53.920 that they're going to treat you like you don't know anything. All right. And so you got to get smart. 577 00:39:53.920 --> 00:39:58.720 You got to read stuff, watch this video, rewatch it, and understand the pieces that someone's 578 00:39:58.720 --> 00:40:03.120 going to try and do to screw you over. All right. And, you know, a trust is going to be a big 579 00:40:03.120 --> 00:40:06.800 component of this. Right. So like you have to trust the people that you're going to do business with. 580 00:40:06.800 --> 00:40:10.560 And if you don't, it's going to be really difficult. Now, that being said, you can trust them, but 581 00:40:10.560 --> 00:40:14.000 you still want to verify. Right. You still want to make sure that the words say what they say they say. 582 00:40:14.000 --> 00:40:19.600 And a lot of times that's not the case. All right. And so big picture. If you do get to this point, 583 00:40:19.600 --> 00:40:23.440 congratulations. It's very, very hard to grow a business, do all this stuff and sell to an 584 00:40:23.440 --> 00:40:27.760 institutional buyer who will pay, you know, tens of millions or hundreds of millions of dollars 585 00:40:27.760 --> 00:40:31.280 for a company. These are just some of the lessons that I learned. And this is the process that took 586 00:40:31.280 --> 00:40:35.840 me a long time to even just figure out how it worked. And for most of the nation, I make these videos 587 00:40:35.840 --> 00:40:40.720 because I know and told me this stuff. And so I'm hoping that for you guys this helps you out. And 588 00:40:40.720 --> 00:40:44.400 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 589 00:40:44.400 --> 00:40:48.320 help walk you through the process. So it's lots of love, everybody. Keep being awesome.