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I'm gonna talk to you about how to sell a business.

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And if you're wondering who is this dude

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in his mama's basements closet,

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wearing a wife-beater, have anything to do

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with talking about how to sell a business?

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How does he even have the right, the audacity

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to talk about these things?

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Let me first make a quick intro.

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I've sold eight businesses.

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My name's Alex Ramazzi, I own acquisition.com,

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which is a portfolio of companies

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that does over $100 million a year

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and I have nothing to sell you.

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And I make these videos because I was once broke

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and were these beaters out of necessity

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rather than out of choice.

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And was in my mama's basement out of necessity

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rather than actually I'm not in her basement.

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This is a $5 million condo in Vegas, but that's not the point.

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I just like working in places that have no windows.

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So I have sold eight businesses over my career

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just to name a few of them.

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I sold Allen, which is a software company

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that did 12 million in trailing 12 month sales.

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I cannot disclose the price that I sold to,

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but that was the top line revenue.

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The NDA is actually fairly common in sales agreements,

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especially of an appreciable amount of money.

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And the reason for that is because

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they don't want a potential new acquirer

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in terms of if you were to roll in other companies

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after they buy your company to know what you got for yours

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because then it hurts their negotiating power.

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Now, that being said, the next two companies

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that I sold in 2021, I sold $46.2 million

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and I was able to do that because I negotiated that in

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because I was tired of not being able to talk to the other one.

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And so there's the press release from that.

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And on top of that, you might be like,

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well, I don't have businesses that big.

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That's okay, fear not.

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I also sold five brick and mortar locations prior to this.

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And so I've sold actually that seven,

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I don't know why I said eight, I shut down one.

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There you go, there's eight.

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I had five brick and mortar locations that I sold

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and here's what's even cooler.

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I've actually sold those businesses

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to six different types of buyers.

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I sold to financial buyers for private equity.

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I sold to and family offices.

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That's what FOS for private equity or family offices,

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which is all forms of private equity,

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but institutional buyers or family offices.

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Second, I sold to strategic buyers,

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which is the one who bought my software company.

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I sold to friends, I sold to competitors,

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I sold to customers and I sold to partners.

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All right, so I've done a lot of these deals

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and interestingly enough, as it was going on,

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I never thought, wow, this is someday going to come in handy

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and then I can help other people go through this as well

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because I've gone through all these kind of weird scenarios.

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All right, and so I've learned a lot in the process

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and I would like to make this

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because I get questions all the time

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about valuing companies and buying companies

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and we have companies that reach out to us

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so for acquisition.com.

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We work with specifically service-based companies,

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especially internet, survey space businesses,

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e-learning businesses, course business, et cetera.

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And we purchase minority stakes in this company's

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to help grow them, which is what the portfolio does now,

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which is why it does over 100 million.

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That being said, we're very familiar with this process

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and so I wanted to walk you through this

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because a lot of people have questions about it.

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All right, and so I'll walk you through the overarching process

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and then I'll dive into each of them in more detail.

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Sound good?

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Awesome.

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Say yes, fantastic.

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So phase 00 is the prerequisites.

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These are the things that must be done

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or even are required for you to be able to sell

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or have any kind of enterprise value to begin with,

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which I'm gonna be really rude with you.

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Most companies, most businesses are not valuable at all.

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All right, most of them are just assets.

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You might have equipment, if you're a physical presence

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and if you're an online business,

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you've varied little value unless you have

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a lot of these things in place.

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All right, so most people want to try and go

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and sell their business and find out

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that no one actually wants to buy it

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because people are not stupid.

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All right, so next is once you have these prerequisites,

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which I'll go over, you have to find a banker or broker.

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All right, and this is something that I've gone back

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and forth on, assault some of them without,

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assault some of them with, and I'll go pros and cons

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and I'll explain to you kind of how to negotiate

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that process and figure it out.

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After that, now we can actually start the selling process.

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We have a banker, we have somebody representing us

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to help us go sell our stuff.

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All right, and so this is the prep, this is phase one.

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All right, phase two is now that we have

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a prepared all the stuff, now we go market the thing

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so that we can sell the thing to somebody.

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All right, phase three is now that we have people

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who want to buy the thing, now we've got to close the deal.

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All right, and so I'll walk you through each

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of the intricacies of these and there are,

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honestly, a lot of steps in this process

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if you want to have a big number money

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in the millions for a deal.

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All right, so let's start at the top.

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All right, prerequisite, so these are deal killers.

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These are things that make a deal not actually happen,

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which I'll be row with you is the vast majority of the time.

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Okay, most companies are just not that big.

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And when I say this, mind you,

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I'm talking about institutional sized businesses.

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So like if you want to have a deal that's, you know,

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$5 million plus, which is about the smallest deal

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that any like real institutional investor,

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private equity family office will look at,

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is there has to be, you know, a big enough size

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for it to make sense, right?

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You know, you can have tons of people who do

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a lot of private investors and retail investors,

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people who just have a little bit of money saved up,

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they, you know, they might want to buy a dry cleaning business.

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They might want to draw it by a GM, right?

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They might want to buy whatever, right?

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Like those are normal businesses,

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but those are, that's not what we're talking about here,

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because those are all one off

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and they're not going to make you rich, all right?

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And so that's why I'm focused on the,

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how to make you rich type sale,

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because these are much more difficult to understand

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and the process is a little bit more nuanced, all right?

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It took me a long time to learn this and guess what?

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No one taught me this, like I didn't see this anywhere

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and it took me a long, long time, it took me a year

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to just kind of understand

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how the entire process worked and then.

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So that is what I'm trying to save you

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is a year of painstaking effort.

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And I have nothing to sell you.

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So like all the people were trying to tell me

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how to vested interest and try and take something from me,

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and I don't know who you are.

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So I'm making this so that there you go, all right?

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So the biggest one though is that people are too small.

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The next one is that there's a customer concentration,

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meaning you have two few customers

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that equate to the business, right?

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If you have like 10 big customers,

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if two of them leave or three of them leave,

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all of a sudden you lose like a 30-year business,

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that is very risky, all right?

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People don't like that.

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And so they will give you a massive discount

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on the value of the business

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or not even be interested because it's too risky, all right?

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And especially if that's like those relationships

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are there because of you and they like you

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and you're the kind of like relation manager

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which happens really commonly in small businesses.

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Next one is no defined sales process.

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A lot of times people don't really have an acquisition process

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for getting new customers.

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They don't know how they get customers,

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they just kind of come their way.

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And so if you don't have a repeatable or reliable way

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of acquiring customers, ideally through multiple channels,

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which are covered in a second,

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you will probably not get a very good multiple

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or even want to get any kind of deal at all.

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Next is that when people do start this process,

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a lot of the mistakes they make

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is they don't go through enough potential acquires.

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They're not trying to target a people.

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They're like, I talked to 10 people and no one wanted to buy.

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Well, no shit, you talked to 10 people,

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you got to talk to 500, right?

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And that's how you can get somebody's gonna give you

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the right kind of multiple on your business

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if you want to sell to an institutional investor, okay?

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Next one's getting timing wrong.

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So everybody always thinks that like,

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man, if I said another 18 months,

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I cannot tell you the amount of times.

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Like it's almost like the standard response of entrepreneurs

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I'll be ready in 18 months because a year,

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they know they're not ready,

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but 18 months for some reason feels like it's far enough

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out that they'll somehow magically have a way of their one

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and all their problems will be done, which is not true.

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All right.

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So getting the timing wrong is a huge issue

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and a lot of people sell too late,

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very few people sell too early.

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Most people sell too late in my opinion.

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And in so doing, they can't sell it all.

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And so the thing is is I heard this quote

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from the Managing Partner of APG, Frazier Preston,

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really, really right guy.

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He said this on one of our calls, he said,

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well, business is always going to go up in value over time

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except when it doesn't.

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And in case it becomes unsalable.

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And so it was very, very interesting to hear that

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because that is kind of the truth.

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It's like either people see this thing as like,

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oh, wow, this is a growing asset

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that's increasing in value.

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And even if you stay the same for a period of time,

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just more years under your belt makes it actually more reliable.

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So it's less risky.

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So literally the older a business gets,

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even if it stays the same, it becomes more valuable, right?

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That being said, if you get the timing wrong,

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as it starts going down,

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no one wants to catch a fall like knife.

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All right, especially in private deals like the stocks

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and whatnot people are trying to time it.

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It's a big enough company.

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It's been around long enough, et cetera.

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It's different than small businesses,

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which is what that's the majority of people

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who are watching this video have.

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Small business being defined as less than 100,

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I think, employees.

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Okay, so next one, you think it's worth more than it is.

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And this is a big one, right?

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A lot of people are like, man, I heard that, you know,

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so and so got 20 times top line.

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It's like, yeah.

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And that's because that's why it's newsworthy

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because it's weird, right?

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It's not common.

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If there's a completed sale,

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I think I just can't remember I pulled this step from.

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So the median number for M&A deals for for this

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was, I think the median was $5 million.

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I can screw that.

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The point is that the multiple was 6.7 times

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trailing 12 months.

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And that is for institutional buyers, right?

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Now, you might not have an institutional buyer,

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which is why the vast majority of businesses

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that get sold get sold in private deals

259
00:07:56.600 --> 00:07:59.200
for like one X, two X, three X.

260
00:07:59.200 --> 00:08:00.760
And it's because they're not really reliable businesses.

261
00:08:00.760 --> 00:08:02.320
For the most part, they're just kind of asset sales.

262
00:08:02.320 --> 00:08:03.760
Like I'm handing, you know,

263
00:08:03.760 --> 00:08:06.440
a handful of employees over with some kind of working model.

264
00:08:06.480 --> 00:08:07.680
And I'm just moving on to do other things,

265
00:08:07.680 --> 00:08:09.920
which is honestly the vast majority of businesses

266
00:08:09.920 --> 00:08:11.400
that get sold get sold for almost nothing.

267
00:08:11.400 --> 00:08:13.280
All right, so we hear about the big wins,

268
00:08:13.280 --> 00:08:14.920
but that's not the majority.

269
00:08:14.920 --> 00:08:18.080
All right, and so I want to be clear in that most businesses

270
00:08:18.080 --> 00:08:19.160
either don't get sold or get sold

271
00:08:19.160 --> 00:08:20.640
for very, very little money.

272
00:08:20.640 --> 00:08:22.160
And so the point of this presentation

273
00:08:22.160 --> 00:08:23.680
is how to sell it for lots of money.

274
00:08:23.680 --> 00:08:25.240
All right, which you have to meet these requirements

275
00:08:25.240 --> 00:08:26.920
to even be considered, okay?

276
00:08:26.920 --> 00:08:29.000
Now, the next little due debt

277
00:08:29.000 --> 00:08:32.440
that we have on our listicle here is not growing big enough

278
00:08:32.440 --> 00:08:33.360
tam or growth stress.

279
00:08:33.360 --> 00:08:34.640
There's three different things I put in one bullocks

280
00:08:34.640 --> 00:08:35.760
I needed to fit in one place.

281
00:08:35.760 --> 00:08:37.640
All right, so if the business isn't growing,

282
00:08:37.640 --> 00:08:38.640
you're gonna get a big discount on it.

283
00:08:38.640 --> 00:08:41.280
Now, I said earlier that the longer business is in place,

284
00:08:41.280 --> 00:08:42.520
the more valuable is which is true.

285
00:08:42.520 --> 00:08:43.360
But if you're not growing,

286
00:08:43.360 --> 00:08:44.560
you don't have like a ways of growing it

287
00:08:44.560 --> 00:08:45.960
or it means that like the strategy

288
00:08:45.960 --> 00:08:46.920
you're doing is no longer working,

289
00:08:46.920 --> 00:08:47.880
people will see that as a risk.

290
00:08:47.880 --> 00:08:51.080
So if you have even a tiny amount of decline,

291
00:08:51.080 --> 00:08:52.240
people will see that as a big red flag

292
00:08:52.240 --> 00:08:53.880
because then they'll extrapolate that into infinity.

293
00:08:53.880 --> 00:08:55.600
On the flip side, if you have a tiny amount of growth,

294
00:08:55.600 --> 00:08:56.920
people do extrapolate that out further.

295
00:08:56.920 --> 00:08:59.120
So like flip it around and sustain that growth

296
00:08:59.120 --> 00:09:01.840
for 12 months, 18 months prior to the deal

297
00:09:01.840 --> 00:09:03.240
to get a much better number.

298
00:09:03.240 --> 00:09:04.080
Big enough tam.

299
00:09:04.080 --> 00:09:06.360
People might think, oh, this business is cool.

300
00:09:06.360 --> 00:09:08.640
It's a niche, but it can't expand beyond this niche.

301
00:09:08.640 --> 00:09:10.360
So you need to have a good growth story

302
00:09:10.360 --> 00:09:12.600
as in how are we gonna really 10x this thing?

303
00:09:12.600 --> 00:09:14.840
Because people are buying, not to buy your business.

304
00:09:14.840 --> 00:09:15.800
They're buying your business

305
00:09:15.800 --> 00:09:17.360
for what they think the business will become.

306
00:09:17.360 --> 00:09:19.160
All right, that's what kind of private activities all about.

307
00:09:19.160 --> 00:09:20.440
And it's really trying to buy the thing

308
00:09:20.440 --> 00:09:21.880
they wanna try to buy with things where they become.

309
00:09:21.880 --> 00:09:24.080
All right, and so that's when you make great deals, right?

310
00:09:24.080 --> 00:09:24.920
That's on their side.

311
00:09:24.920 --> 00:09:26.760
So you have to tell them or explain to them

312
00:09:26.760 --> 00:09:27.920
the story of how it's gonna work, right?

313
00:09:27.920 --> 00:09:29.680
And the more they can believe that story

314
00:09:29.680 --> 00:09:31.200
that it's likely to occur

315
00:09:31.200 --> 00:09:33.200
then the more valuable your business will become.

316
00:09:33.200 --> 00:09:34.240
The next one, and this is a huge one

317
00:09:34.240 --> 00:09:35.600
for small businesses is key man risk.

318
00:09:35.600 --> 00:09:37.920
As in like, are you the one who's the rainmaker,

319
00:09:37.920 --> 00:09:40.120
are you the one who's bringing in all the deals,

320
00:09:40.120 --> 00:09:42.160
are you the one who's the special man

321
00:09:42.160 --> 00:09:43.880
who does all the fulfillment, all that kind of stuff?

322
00:09:43.880 --> 00:09:44.760
Like are people coming for you?

323
00:09:44.760 --> 00:09:45.600
If they're coming for you,

324
00:09:45.600 --> 00:09:46.560
then they're not gonna come for your business,

325
00:09:46.560 --> 00:09:48.880
which means that when you leave, business is worthless, right?

326
00:09:48.880 --> 00:09:50.440
And so you're a big risk.

327
00:09:50.440 --> 00:09:52.400
And a lot of times, I'll be frank with you,

328
00:09:52.400 --> 00:09:55.600
in acquisition.com we work with companies that have key man

329
00:09:55.600 --> 00:09:57.040
and we work them over the next three to five years

330
00:09:57.040 --> 00:09:58.360
to help them not have key man risk,

331
00:09:58.360 --> 00:09:59.840
which is how we were able to exit gym launch,

332
00:09:59.840 --> 00:10:03.160
which was started as kind of a more guru-esque business

333
00:10:03.200 --> 00:10:06.080
and then transformed into just a true licensing business

334
00:10:06.080 --> 00:10:07.680
at an enterprise level.

335
00:10:07.680 --> 00:10:09.280
And so there is a process of getting through that

336
00:10:09.280 --> 00:10:10.320
and you have to take the time to do it.

337
00:10:10.320 --> 00:10:13.960
If you don't, your business will not be valuable, okay?

338
00:10:13.960 --> 00:10:16.000
And then finally, and there's more risks,

339
00:10:16.000 --> 00:10:17.520
these are just some of the big ones.

340
00:10:17.520 --> 00:10:19.360
Single channel dependence, meaning you only have one way

341
00:10:19.360 --> 00:10:20.840
of getting customers, you have no other way,

342
00:10:20.840 --> 00:10:23.520
and if tomorrow that shut off, you be screwed, right?

343
00:10:23.520 --> 00:10:25.080
People just imagine, well, if it shut off,

344
00:10:25.080 --> 00:10:27.480
then I would lose my money and good investors don't take risks

345
00:10:27.480 --> 00:10:29.560
like that, they don't want to go to zero.

346
00:10:29.560 --> 00:10:32.280
And so that will massively impact the value of your business.

347
00:10:32.280 --> 00:10:33.240
All right, so these are deal killers.

348
00:10:33.240 --> 00:10:34.400
These are things that get you to not sell

349
00:10:34.400 --> 00:10:35.800
or sell for very, very little money.

350
00:10:35.800 --> 00:10:37.640
And so you must check off these boxes

351
00:10:37.640 --> 00:10:39.960
before you can get big institutional money.

352
00:10:39.960 --> 00:10:41.760
All right, so this is the big bottom line of that section,

353
00:10:41.760 --> 00:10:44.560
which is enterprise value is a discount applied

354
00:10:44.560 --> 00:10:48.320
to future sales, which means you have to take the total amount

355
00:10:48.320 --> 00:10:50.520
of sales that a business takes between now and the end of time

356
00:10:50.520 --> 00:10:52.200
and then you apply a discount to it,

357
00:10:52.200 --> 00:10:53.280
which basically means risk.

358
00:10:53.280 --> 00:10:54.760
What's the likelihood that occurs?

359
00:10:54.760 --> 00:10:57.000
All right, and so if you can show that you have a lot

360
00:10:57.000 --> 00:10:58.240
of future sales are going to happen

361
00:10:58.240 --> 00:11:00.680
and it's very, very likely that they are going to occur

362
00:11:00.680 --> 00:11:02.440
and you have a very, very valuable business.

363
00:11:02.440 --> 00:11:04.560
If you have a small amount of future sales

364
00:11:04.560 --> 00:11:05.960
or a declining amount of sales,

365
00:11:05.960 --> 00:11:07.720
then the likelihood that it happens is low

366
00:11:07.720 --> 00:11:09.240
and the amount is also low.

367
00:11:09.240 --> 00:11:10.760
All right, so that gives you low enterprise value.

368
00:11:10.760 --> 00:11:11.880
So that's the bottom line.

369
00:11:11.880 --> 00:11:13.080
That's what we want to show is we want to show

370
00:11:13.080 --> 00:11:14.120
that we're going to make lots of sales

371
00:11:14.120 --> 00:11:15.880
and continue to grow and the likelihood of occurring

372
00:11:15.880 --> 00:11:16.720
is very, very high.

373
00:11:16.720 --> 00:11:18.320
They should be asking you why are you selling this business

374
00:11:18.320 --> 00:11:20.560
and you need to have a good reason for it, okay?

375
00:11:20.560 --> 00:11:22.520
So, checked off that box.

376
00:11:22.520 --> 00:11:23.480
Let's go to face to you.

377
00:11:23.480 --> 00:11:24.800
Let's say you check all those boxes and you're like,

378
00:11:24.800 --> 00:11:26.760
okay, I think I have all those things.

379
00:11:26.760 --> 00:11:28.720
I now want you to find it banker or broker, right?

380
00:11:28.720 --> 00:11:29.920
And quick difference here.

381
00:11:29.920 --> 00:11:31.640
Bankers are what you're going to need to sell

382
00:11:31.640 --> 00:11:33.640
to an institutional for the most part.

383
00:11:33.640 --> 00:11:36.560
Brokers are usually when you're selling for less than five million,

384
00:11:36.560 --> 00:11:38.920
you get a broker and they have different fee structures

385
00:11:38.920 --> 00:11:40.520
because the amounts are lower

386
00:11:40.520 --> 00:11:42.160
and they have to do more deals, all that kind of stuff.

387
00:11:42.160 --> 00:11:43.320
All right, and to be fair,

388
00:11:43.320 --> 00:11:45.960
I think sometimes being a broker is even harder

389
00:11:45.960 --> 00:11:47.840
because you're selling shit, let's be real.

390
00:11:47.840 --> 00:11:49.880
Okay, so the way that I did this,

391
00:11:49.880 --> 00:11:51.200
and so I'm just being real, like,

392
00:11:51.200 --> 00:11:52.920
the way that I did this is that I network for interest.

393
00:11:52.920 --> 00:11:53.760
It's very hard.

394
00:11:53.760 --> 00:11:55.080
I think you can try it.

395
00:11:55.080 --> 00:11:57.200
Go Google investment banks, Google top,

396
00:11:57.200 --> 00:11:59.160
whatever investment banks, and specifically,

397
00:11:59.160 --> 00:12:02.040
you'd want them in your market and your size.

398
00:12:02.040 --> 00:12:02.920
So there's two components.

399
00:12:02.920 --> 00:12:04.720
It's, you know, do they have,

400
00:12:04.720 --> 00:12:06.080
have they sold some of them businesses?

401
00:12:06.080 --> 00:12:07.680
Have they sold e-commerce businesses?

402
00:12:07.680 --> 00:12:09.080
Have they sold software businesses?

403
00:12:09.080 --> 00:12:10.200
Have they sold e-learning businesses?

404
00:12:10.200 --> 00:12:11.800
Have they sold whatever type of business you have?

405
00:12:11.800 --> 00:12:12.960
Number one, and there are two,

406
00:12:12.960 --> 00:12:14.440
have they sold them of your size, right?

407
00:12:14.440 --> 00:12:16.240
If someone, you know, has sold lots of e-commerce,

408
00:12:16.240 --> 00:12:18.320
but they've only done deals that are like 500 million and up

409
00:12:18.320 --> 00:12:20.480
and you're doing like 10 million top line,

410
00:12:20.480 --> 00:12:21.440
you're not going to be a fifth of them

411
00:12:21.440 --> 00:12:23.400
because the buyers that they already know

412
00:12:23.400 --> 00:12:26.360
are not going to want to buy your thing

413
00:12:26.360 --> 00:12:27.880
because the check is too small, all right?

414
00:12:27.880 --> 00:12:29.920
And so these guys write a proportion,

415
00:12:29.920 --> 00:12:31.520
like checks proportional to the fund size

416
00:12:31.520 --> 00:12:33.120
that they have of the capital, right?

417
00:12:33.120 --> 00:12:34.400
Like if you have a billion dollars,

418
00:12:34.400 --> 00:12:35.560
you're not going to make a thousand dollar investment.

419
00:12:35.560 --> 00:12:36.400
It just doesn't make sense.

420
00:12:36.400 --> 00:12:38.000
The time investment makes no sense.

421
00:12:38.000 --> 00:12:40.360
All right, so I use my network,

422
00:12:40.360 --> 00:12:42.280
which means I just called everybody I possibly knew

423
00:12:42.280 --> 00:12:43.920
and said, hey, do you know anybody?

424
00:12:43.920 --> 00:12:45.320
Who knows anything about this?

425
00:12:45.320 --> 00:12:47.040
And so you can start with entrepreneurs,

426
00:12:47.040 --> 00:12:48.200
you can start with people,

427
00:12:48.200 --> 00:12:50.120
you can start with your actual bank where you go,

428
00:12:50.120 --> 00:12:53.520
like actually to do banking and you just pull threads.

429
00:12:53.520 --> 00:12:54.960
And this is what took me a long time.

430
00:12:55.680 --> 00:12:57.440
Now working to try and find these introductions

431
00:12:57.440 --> 00:12:58.280
was a pain.

432
00:12:58.280 --> 00:12:59.120
I don't know anybody.

433
00:12:59.120 --> 00:12:59.960
You know what I mean?

434
00:12:59.960 --> 00:13:01.960
I was born into an investment bank, so I have no clue.

435
00:13:01.960 --> 00:13:04.800
And so you network for introductions to these banks, okay?

436
00:13:04.800 --> 00:13:07.760
Once you have some introductions, right?

437
00:13:07.760 --> 00:13:10.440
You then give them a one page summary document.

438
00:13:10.440 --> 00:13:11.280
You send them because they'll be like,

439
00:13:11.280 --> 00:13:14.400
okay, well send me a teaser, right?

440
00:13:14.400 --> 00:13:17.080
It's like a sizzle page of like all the sexy things

441
00:13:17.080 --> 00:13:18.040
about your business.

442
00:13:18.040 --> 00:13:19.880
The assets, your lists, how you, you know,

443
00:13:19.880 --> 00:13:21.320
it's just literally a one page summary

444
00:13:21.320 --> 00:13:22.880
that should look really sexy as someone can look at

445
00:13:22.880 --> 00:13:24.520
and be like, I would like to take another call

446
00:13:24.560 --> 00:13:25.360
of these people.

447
00:13:25.360 --> 00:13:26.320
That's it, that's the objectives.

448
00:13:26.320 --> 00:13:28.680
Just to get them to say yes, I'll take a call with you.

449
00:13:28.680 --> 00:13:31.520
Once they say yes, I'd like to take call with you,

450
00:13:31.520 --> 00:13:36.400
you then basically sell them on selling your business, right?

451
00:13:36.400 --> 00:13:38.800
So you sell them on selling your business.

452
00:13:38.800 --> 00:13:40.360
And then if they do like that,

453
00:13:40.360 --> 00:13:43.360
they will usually fly out to you and meet with you in person

454
00:13:43.360 --> 00:13:45.280
with a team and then they will sell you

455
00:13:45.280 --> 00:13:46.720
on why they should sell your business.

456
00:13:46.720 --> 00:13:48.880
And so the process here goes, like you network

457
00:13:48.880 --> 00:13:50.320
for as many introductions you can to bankers

458
00:13:50.320 --> 00:13:52.480
who are relevant to your size and your space.

459
00:13:52.480 --> 00:13:54.000
You send them the one page teaser

460
00:13:54.000 --> 00:13:56.000
so that you can get them interested.

461
00:13:56.000 --> 00:13:57.440
They then, a certain percentage of those

462
00:13:57.440 --> 00:13:58.640
will take a phone call.

463
00:13:58.640 --> 00:14:00.040
Of the phone call, you sell those people

464
00:14:00.040 --> 00:14:01.000
on why it's a good deal.

465
00:14:01.000 --> 00:14:02.120
They will then follow up with you and say yes,

466
00:14:02.120 --> 00:14:02.960
I think it's a good deal.

467
00:14:02.960 --> 00:14:04.800
Let's talk, let's talk in person.

468
00:14:04.800 --> 00:14:08.720
You'll then probably meet with, you know, four to six bankers

469
00:14:08.720 --> 00:14:10.520
to tell you why they think they would be the best ones

470
00:14:10.520 --> 00:14:13.080
to represent you and get you the highest enterprise value.

471
00:14:13.080 --> 00:14:15.760
And that's where you're gonna negotiate their fee structure

472
00:14:15.760 --> 00:14:17.400
and you're gonna be asking them questions

473
00:14:17.400 --> 00:14:19.400
around what other deals like yours they have sold

474
00:14:19.400 --> 00:14:20.400
and what their network looks like.

475
00:14:20.400 --> 00:14:21.760
Now they're all gonna say they know all the people

476
00:14:21.760 --> 00:14:23.600
and all the decision makers and all the things, right?

477
00:14:23.600 --> 00:14:26.080
But the real thing you want is people who have sold

478
00:14:26.080 --> 00:14:28.280
businesses similar to yours in terms of market

479
00:14:28.280 --> 00:14:30.760
and size in recent history, all right?

480
00:14:30.760 --> 00:14:32.760
Because that means that they are, it's recent.

481
00:14:32.760 --> 00:14:33.600
They're in the know.

482
00:14:33.600 --> 00:14:35.080
It's not like they sold something three years ago

483
00:14:35.080 --> 00:14:37.240
that was similar because they're way out of touch.

484
00:14:37.240 --> 00:14:39.000
All right, you want people who do this type of deal

485
00:14:39.000 --> 00:14:40.080
all the time.

486
00:14:40.080 --> 00:14:41.920
Now, the typical fee structures,

487
00:14:41.920 --> 00:14:42.920
what else to watch out for?

488
00:14:42.920 --> 00:14:45.040
So the, their fees and agreements,

489
00:14:45.040 --> 00:14:46.360
they usually have an upfront amount.

490
00:14:46.360 --> 00:14:47.960
Sometimes that's all these things are negotiable.

491
00:14:47.960 --> 00:14:49.760
You can negotiate that out, you can negotiate it in.

492
00:14:49.760 --> 00:14:52.840
They usually ask for upfront if the number is lower.

493
00:14:52.840 --> 00:14:54.160
So if they don't think that it's likely

494
00:14:54.160 --> 00:14:56.720
that they're gonna sell, they'll ask for an upfront

495
00:14:56.720 --> 00:14:58.080
which you can use in negotiating point,

496
00:14:58.080 --> 00:14:59.480
which is like, do you don't think you can sell it

497
00:14:59.480 --> 00:15:01.360
because then it gives you a point to argue back

498
00:15:01.360 --> 00:15:02.480
to somebody else, right?

499
00:15:02.480 --> 00:15:05.400
They'll give you targets for what they think they get sell for

500
00:15:05.400 --> 00:15:06.560
and then they will give you ratchets,

501
00:15:06.560 --> 00:15:08.240
which is like, and if we sell for over X,

502
00:15:08.240 --> 00:15:11.800
we get X% and we sell for over Y, we get Z%, right?

503
00:15:11.800 --> 00:15:13.440
What bankers will actually do is once,

504
00:15:13.440 --> 00:15:14.840
they will help you package the business

505
00:15:14.840 --> 00:15:16.280
and they will go out to market

506
00:15:16.280 --> 00:15:17.440
and they will pound the pavement

507
00:15:17.440 --> 00:15:19.320
and they will talk to hundreds of buyers

508
00:15:19.320 --> 00:15:20.880
and they will walk you through this process

509
00:15:20.880 --> 00:15:21.920
but it's good to have an understanding

510
00:15:22.040 --> 00:15:23.840
of this process by and large

511
00:15:23.840 --> 00:15:25.720
so that you can not sound like an income poop

512
00:15:25.720 --> 00:15:27.040
when you're talking to them, all right?

513
00:15:27.040 --> 00:15:28.240
There's usually also a breakup fee

514
00:15:28.240 --> 00:15:30.400
which you can negotiate out of the deal

515
00:15:30.400 --> 00:15:31.600
or at least decrease it.

516
00:15:31.600 --> 00:15:33.360
And you can also on the flip side have minimums

517
00:15:33.360 --> 00:15:35.560
which is like, if you guys don't sell me,

518
00:15:35.560 --> 00:15:37.880
if you don't get an offer above X,

519
00:15:37.880 --> 00:15:39.240
then you don't get paid at all, right?

520
00:15:39.240 --> 00:15:40.640
And so we had minimums in our deals

521
00:15:40.640 --> 00:15:42.200
so that they wouldn't actually get paid

522
00:15:42.200 --> 00:15:43.240
so they're super incentivized.

523
00:15:43.240 --> 00:15:46.840
So the things that like, you really wanna be cogniz enough

524
00:15:46.840 --> 00:15:49.680
is the minimums and especially how they're gonna get paid,

525
00:15:49.680 --> 00:15:50.760
like what number they're getting paid off,

526
00:15:50.800 --> 00:15:52.600
are they getting paid off the total enterprise value?

527
00:15:52.600 --> 00:15:54.640
Are they gonna get paid off the cash you receive, right?

528
00:15:54.640 --> 00:15:56.240
And you wanna negotiate off the cash receive

529
00:15:56.240 --> 00:15:56.920
not the enterprise value

530
00:15:56.920 --> 00:15:58.800
because let's say you sell 10% of the company

531
00:15:58.800 --> 00:16:02.440
for a billion dollars, I'm saying for silly math.

532
00:16:02.440 --> 00:16:03.720
So you get a hundred million bucks.

533
00:16:03.720 --> 00:16:06.320
If let's say they got 4% of enterprise value, right?

534
00:16:06.320 --> 00:16:09.040
They would get 40 million of the hundred million, all right?

535
00:16:09.040 --> 00:16:10.120
So there's little things like this

536
00:16:10.120 --> 00:16:11.600
that they will use to fuck you, all right?

537
00:16:11.600 --> 00:16:13.880
So like, be cognizant of these things

538
00:16:13.880 --> 00:16:16.360
and the targets and the ratchets that they put in place,

539
00:16:16.360 --> 00:16:19.640
it sounds like it's, like you want,

540
00:16:19.640 --> 00:16:21.720
you want them to be really excited to push it

541
00:16:21.720 --> 00:16:24.240
but the things that I really would want you to pay attention to

542
00:16:24.240 --> 00:16:25.080
are gonna be the minimums

543
00:16:25.080 --> 00:16:26.680
and what they're getting paid off of

544
00:16:26.680 --> 00:16:28.360
and break up fees and up fronts, all right?

545
00:16:28.360 --> 00:16:29.520
Because at the end of the day,

546
00:16:29.520 --> 00:16:31.240
you know, the ratchets and targets, hopefully you're happy

547
00:16:31.240 --> 00:16:31.880
with this on the front end

548
00:16:31.880 --> 00:16:33.440
because what happens sometimes is the reverse

549
00:16:33.440 --> 00:16:35.680
which is people as all of a sudden start hearing

550
00:16:35.680 --> 00:16:37.760
the LOIs and whatnot and start getting greedy

551
00:16:37.760 --> 00:16:38.600
and I don't think that's why.

552
00:16:38.600 --> 00:16:40.240
It's like decide, write down a number

553
00:16:40.240 --> 00:16:42.120
before you start the process and talking to all these guys

554
00:16:42.120 --> 00:16:43.280
because they'll blow your mind out

555
00:16:43.280 --> 00:16:44.600
and they'll tell you that you're gonna sell

556
00:16:44.600 --> 00:16:45.720
for a billion dollars and then you sell

557
00:16:45.720 --> 00:16:46.960
for not a billion dollars, okay?

558
00:16:46.960 --> 00:16:48.120
For much less less than that.

559
00:16:48.120 --> 00:16:50.600
So write down the number, write it to a letter to yourself

560
00:16:50.600 --> 00:16:52.480
and say I would accept this for this reason, all right?

561
00:16:52.480 --> 00:16:54.600
Because this is one of the most emotional processes

562
00:16:54.600 --> 00:16:56.640
you can possibly go through selling apart of yourself,

563
00:16:56.640 --> 00:16:57.600
selling part of your identity

564
00:16:57.600 --> 00:16:59.960
and so you can get tied up in it, okay?

565
00:16:59.960 --> 00:17:03.640
Now, you will sell your company better than almost any banker,

566
00:17:03.640 --> 00:17:04.480
all right?

567
00:17:04.480 --> 00:17:06.360
So they are going to be experts in the process.

568
00:17:06.360 --> 00:17:07.840
You will be the one who's gonna be an expert

569
00:17:07.840 --> 00:17:09.880
at selling your company, especially if you're a promotional

570
00:17:09.880 --> 00:17:11.520
entrepreneur, you know how to sell, right?

571
00:17:11.520 --> 00:17:14.960
And so you want to be very instrumental

572
00:17:14.960 --> 00:17:16.240
in giving them the selling store

573
00:17:16.240 --> 00:17:18.080
because they're gonna be the ones who are doing the selling

574
00:17:18.120 --> 00:17:19.760
but you're also gonna be doing selling as well.

575
00:17:19.760 --> 00:17:22.720
So you need to be giving them the selling points.

576
00:17:22.720 --> 00:17:24.400
You think that they're gonna say that they're experts

577
00:17:24.400 --> 00:17:26.560
at this, they're not, like even though they've sold

578
00:17:26.560 --> 00:17:28.520
a handful of companies, they've only sold a handful, right?

579
00:17:28.520 --> 00:17:29.520
They just sold five like yours.

580
00:17:29.520 --> 00:17:31.120
That's still a ton, just like yours,

581
00:17:31.120 --> 00:17:32.400
but you want to have the really selling points

582
00:17:32.400 --> 00:17:34.240
that only you will know because they don't know your business,

583
00:17:34.240 --> 00:17:35.080
right?

584
00:17:35.080 --> 00:17:36.840
You got to give them the really sexy stuff, all right?

585
00:17:36.840 --> 00:17:39.080
And as a reminder, these people are like real estate agents.

586
00:17:39.080 --> 00:17:40.480
They're trying to sell both sides.

587
00:17:40.480 --> 00:17:42.880
They're trying to get a deal done more than the best deal,

588
00:17:42.880 --> 00:17:45.280
even though they have ratchets, even though they have these things,

589
00:17:45.280 --> 00:17:47.920
the big thing they're trying not to do is not close a deal.

590
00:17:47.960 --> 00:17:50.160
And so they will do everything they can to get both sides

591
00:17:50.160 --> 00:17:51.600
to just meet in the middle and sell,

592
00:17:51.600 --> 00:17:53.680
but that's not necessarily in your best interest, okay?

593
00:17:53.680 --> 00:17:56.560
So just remind here, it's not necessarily your best interest.

594
00:17:56.560 --> 00:17:59.200
All right, now, this was the false belief that I had,

595
00:17:59.200 --> 00:18:01.200
which is they will know what they're doing

596
00:18:01.200 --> 00:18:02.800
and will get you the best deal, which is not true,

597
00:18:02.800 --> 00:18:03.960
which I just explained this.

598
00:18:03.960 --> 00:18:05.560
And so this is the negotiating point.

599
00:18:05.560 --> 00:18:07.720
This is a writer downer for you.

600
00:18:07.720 --> 00:18:10.960
They only responded and I had to learn this the hard way

601
00:18:10.960 --> 00:18:14.800
to if I don't get this point, the deal is off.

602
00:18:14.800 --> 00:18:16.960
Otherwise, they basically just steamroll you

603
00:18:16.960 --> 00:18:19.080
and you might say, well, maybe you had bad banking experience.

604
00:18:19.080 --> 00:18:20.080
Who knows, but I'll just tell you,

605
00:18:20.080 --> 00:18:23.160
this is my experience, is that you have to be willing

606
00:18:23.160 --> 00:18:27.120
to walk away from the table in order to get the best deal.

607
00:18:27.120 --> 00:18:29.040
All right, which is why you win negotiations

608
00:18:29.040 --> 00:18:31.320
before you start them by having options.

609
00:18:31.320 --> 00:18:32.840
All right, you want to have an amazing business.

610
00:18:32.840 --> 00:18:34.480
You want to have a business you don't want to sell.

611
00:18:34.480 --> 00:18:35.600
That's the best way to sell a business.

612
00:18:35.600 --> 00:18:37.160
It's to not want to sell it, right?

613
00:18:37.160 --> 00:18:38.000
And you have to get there.

614
00:18:38.000 --> 00:18:39.840
If you're like, I would just get rid of this thing for nothing,

615
00:18:39.840 --> 00:18:41.760
then prepare, be prepared to get rid of this thing

616
00:18:41.760 --> 00:18:43.320
for nothing because it's going to get there

617
00:18:43.320 --> 00:18:44.000
because they're going to drill you

618
00:18:44.000 --> 00:18:45.640
because these are professional negotiators.

619
00:18:45.640 --> 00:18:46.480
On the other side table,

620
00:18:46.480 --> 00:18:47.480
what they do all day long,

621
00:18:47.480 --> 00:18:48.840
you might have sold your business one time,

622
00:18:48.840 --> 00:18:51.000
they buy businesses every fucking day.

623
00:18:51.000 --> 00:18:52.440
All right, so they know exactly how you feel.

624
00:18:52.440 --> 00:18:53.880
They know exactly how to manipulate your emotions

625
00:18:53.880 --> 00:18:56.280
to get you to say yes to the lowest price, okay?

626
00:18:56.280 --> 00:18:59.680
So what you want to say here is that if I don't get this,

627
00:18:59.680 --> 00:19:02.600
the deal is off and it took me a really long time to learn this

628
00:19:02.600 --> 00:19:03.600
and then all of a sudden,

629
00:19:03.600 --> 00:19:04.440
I want to start speaking in this language,

630
00:19:04.440 --> 00:19:05.600
the beggars started responding and be like,

631
00:19:05.600 --> 00:19:07.080
oh, no, this is really a big deal for them.

632
00:19:07.080 --> 00:19:08.800
Like if they don't get this and then all of a sudden,

633
00:19:08.800 --> 00:19:09.800
they start negotiating for me

634
00:19:09.800 --> 00:19:12.720
because what will happen in this world of institutionals,

635
00:19:12.720 --> 00:19:14.080
they just say no to everything.

636
00:19:14.080 --> 00:19:15.320
Unless you say you're going to walk,

637
00:19:15.320 --> 00:19:17.640
then they're like, okay, fine, we'll give you that one.

638
00:19:17.640 --> 00:19:19.520
Right, so they will just say this is our deal structure

639
00:19:19.520 --> 00:19:21.040
and unless you take it or leave it,

640
00:19:21.040 --> 00:19:22.880
unless you say I'm willing to walk on these points,

641
00:19:22.880 --> 00:19:24.440
all right, and then they will start moving.

642
00:19:24.440 --> 00:19:25.680
Just my observation.

643
00:19:25.680 --> 00:19:26.520
Now, I'm telling you,

644
00:19:26.520 --> 00:19:27.920
I'm sharing this stuff because no one shared this with me.

645
00:19:27.920 --> 00:19:30.920
All right, so we covered finding the banker,

646
00:19:30.920 --> 00:19:32.360
how to negotiate the fees,

647
00:19:32.360 --> 00:19:33.800
what to look at in terms of how to interface

648
00:19:33.800 --> 00:19:35.440
with them to negotiate on your behalf.

649
00:19:35.440 --> 00:19:37.560
Now, let's start the actual process, all right?

650
00:19:39.560 --> 00:19:40.760
Real quick, guys, you guys already know

651
00:19:40.760 --> 00:19:42.720
that I don't run any ads on this

652
00:19:42.720 --> 00:19:44.040
and I don't sell anything.

653
00:19:44.040 --> 00:19:45.880
And so the only ask that I can ever have

654
00:19:45.880 --> 00:19:47.200
are you guys that you help me spread the word

655
00:19:47.200 --> 00:19:48.720
so we can have more entrepreneurs,

656
00:19:48.720 --> 00:19:50.440
make more money, feed their families,

657
00:19:50.440 --> 00:19:52.840
make better products and have better experiences

658
00:19:52.840 --> 00:19:54.440
for their employees and customers.

659
00:19:54.440 --> 00:19:56.680
And the only way we do that is if you can rate

660
00:19:56.680 --> 00:19:58.880
and review and share this podcast.

661
00:19:58.880 --> 00:20:00.240
So the single thing that I have to do,

662
00:20:00.240 --> 00:20:01.480
is you can just leave a review,

663
00:20:01.480 --> 00:20:03.400
let's take 10 seconds or one type of the thug

664
00:20:03.400 --> 00:20:04.680
that it means the absolute will to me

665
00:20:04.680 --> 00:20:05.520
and more importantly,

666
00:20:05.520 --> 00:20:07.520
it may change the world to someone else.

667
00:20:09.280 --> 00:20:11.200
So there's the prep and this is a big picture

668
00:20:11.200 --> 00:20:13.800
of what this whole process looks like.

669
00:20:13.800 --> 00:20:15.840
Once you've got audit of financials,

670
00:20:15.840 --> 00:20:18.320
once you've got a SIM, which is a shoot,

671
00:20:18.320 --> 00:20:21.280
I don't even know if it's something model, I think.

672
00:20:21.280 --> 00:20:24.120
But basically, it's like this 100 page plus thing

673
00:20:24.120 --> 00:20:25.880
of really in depth of the financials

674
00:20:25.880 --> 00:20:27.400
and the story and the competitive analysis

675
00:20:27.400 --> 00:20:28.720
and the marketplace and the growth trajectory

676
00:20:28.720 --> 00:20:29.560
and all the stuff.

677
00:20:29.560 --> 00:20:31.120
That's what they should be doing for you, all right?

678
00:20:31.120 --> 00:20:32.240
They should make that thing.

679
00:20:32.240 --> 00:20:35.600
And they will send the teaser out to all the, you know,

680
00:20:35.600 --> 00:20:37.840
500 people of those people,

681
00:20:37.840 --> 00:20:39.520
a certain percentage will sign NDAs,

682
00:20:39.520 --> 00:20:40.520
which is not as good as your agreements,

683
00:20:40.520 --> 00:20:42.040
because then it's anonymous.

684
00:20:42.040 --> 00:20:43.040
They won't, they won't,

685
00:20:43.040 --> 00:20:44.160
when you're sending out the teaser,

686
00:20:44.160 --> 00:20:45.520
it doesn't disclose what the company is.

687
00:20:45.520 --> 00:20:47.560
That way, you know, employees and things like that

688
00:20:47.560 --> 00:20:50.640
don't get scared by you just shopping the company, all right?

689
00:20:50.640 --> 00:20:52.280
So this is how I recommend doing it.

690
00:20:52.280 --> 00:20:54.320
So you have 500 buyers contacted

691
00:20:54.320 --> 00:20:55.440
and you'd want to ask these questions,

692
00:20:55.440 --> 00:20:56.440
how many buyers will be contacting?

693
00:20:56.440 --> 00:20:57.280
How big is your list?

694
00:20:57.280 --> 00:20:59.120
What are your potential acquires, right?

695
00:20:59.120 --> 00:21:01.080
98 NDAs from there,

696
00:21:01.080 --> 00:21:05.280
you'll usually get like 14 or so IOIs, 15%, right?

697
00:21:05.280 --> 00:21:06.800
From there about half of those,

698
00:21:06.800 --> 00:21:09.120
you'll do kind of like management presentations.

699
00:21:09.120 --> 00:21:11.000
From there, you'll get two to four IOIs

700
00:21:11.000 --> 00:21:12.400
and IOIs, the indication of interest,

701
00:21:12.400 --> 00:21:13.320
which is non-binding,

702
00:21:13.320 --> 00:21:15.960
and LOI is also typically non-binding,

703
00:21:15.960 --> 00:21:18.040
but it's a letter of interest,

704
00:21:18.040 --> 00:21:20.400
which is like this is what we're prepared to pay for the business.

705
00:21:20.400 --> 00:21:22.320
From there, you negotiate them against each other

706
00:21:22.320 --> 00:21:23.800
and then you get one deal, right?

707
00:21:23.800 --> 00:21:25.640
And then you sign the LOI

708
00:21:25.640 --> 00:21:26.920
and then you go through the diligence process

709
00:21:26.920 --> 00:21:28.120
and then you close, okay?

710
00:21:28.120 --> 00:21:29.840
That is how these sales numbers break down.

711
00:21:29.840 --> 00:21:31.240
If you've talked to 10 people,

712
00:21:31.240 --> 00:21:33.120
then loan behold, you probably are not going to get

713
00:21:33.120 --> 00:21:34.400
a good number, right?

714
00:21:34.400 --> 00:21:35.560
And so that's how this process works.

715
00:21:35.560 --> 00:21:36.880
And the thing is a lot of these guys are lazy,

716
00:21:36.880 --> 00:21:38.600
so you have to push them on these numbers

717
00:21:38.600 --> 00:21:41.880
to send out more, like follow up with these people,

718
00:21:41.880 --> 00:21:43.000
and I'll be honest with you,

719
00:21:43.000 --> 00:21:44.240
on the deal that we ended up doing,

720
00:21:44.240 --> 00:21:47.000
it wasn't the first set of buyers that we got to the table,

721
00:21:47.000 --> 00:21:49.960
it was actually somebody that my CFO pushed our bankers

722
00:21:49.960 --> 00:21:51.400
to follow back up with again,

723
00:21:51.400 --> 00:21:54.480
that ended up being the final acquires, all right?

724
00:21:54.480 --> 00:21:56.440
So like you want to push them because at the end of the day,

725
00:21:56.440 --> 00:21:57.520
they're going to try and do as little as possible

726
00:21:57.520 --> 00:21:58.360
to get paid, all right?

727
00:21:58.360 --> 00:22:00.080
I'm just being real with you, that's the real world, all right?

728
00:22:00.080 --> 00:22:01.480
So let's do it.

729
00:22:01.480 --> 00:22:02.920
So now that we have no understanding

730
00:22:02.920 --> 00:22:04.240
how the sales process works,

731
00:22:04.240 --> 00:22:06.080
this is now you're working with the bankers,

732
00:22:06.080 --> 00:22:07.520
you got to get this prep stuff done.

733
00:22:07.520 --> 00:22:09.000
So you got to get your due diligence in,

734
00:22:09.000 --> 00:22:09.840
you got to get organized,

735
00:22:09.840 --> 00:22:11.120
a lot of people don't have this stuff,

736
00:22:11.120 --> 00:22:12.200
drafted the SIM, there it is,

737
00:22:12.200 --> 00:22:14.560
confidential information, memorandum, all right?

738
00:22:14.560 --> 00:22:15.880
So you got to complete that, get a review,

739
00:22:15.880 --> 00:22:18.200
that's a huge amount of work, all right?

740
00:22:18.200 --> 00:22:19.960
And these weeks are just rough, all right?

741
00:22:19.960 --> 00:22:21.640
These are rough amount of weeks, all right?

742
00:22:21.640 --> 00:22:23.840
I'm going to show you 20 weeks in this presentation,

743
00:22:23.840 --> 00:22:26.040
but like that whole pre-process of getting the bankers

744
00:22:26.040 --> 00:22:27.240
took another like three months.

745
00:22:27.240 --> 00:22:29.880
So I would say roughly, from the time you want to,

746
00:22:29.880 --> 00:22:31.840
from the time you start this process,

747
00:22:31.840 --> 00:22:33.480
the time you get a check in your bank account

748
00:22:33.480 --> 00:22:36.800
is usually 12 to 18 months, all right?

749
00:22:36.800 --> 00:22:38.280
I'll say 12 is a nice like,

750
00:22:38.280 --> 00:22:40.720
if you're like, if today you decided you wanted to buy,

751
00:22:40.720 --> 00:22:43.040
it would take a year before that actually,

752
00:22:43.040 --> 00:22:44.920
you'd have a check in your bank account, all right?

753
00:22:44.920 --> 00:22:46.440
So then they're going to put together

754
00:22:46.440 --> 00:22:48.640
the list of potential buyers or investors,

755
00:22:48.640 --> 00:22:50.600
then they're going to have the summary fact sheet

756
00:22:50.600 --> 00:22:52.720
and the NDA is agreed upon,

757
00:22:52.720 --> 00:22:54.400
and then that's it, that's the prep phase, all right?

758
00:22:54.400 --> 00:22:56.240
That's it, simple, simple, all right?

759
00:22:56.240 --> 00:22:57.320
Now we start marketing,

760
00:22:57.320 --> 00:22:59.040
because we got all the materials done,

761
00:22:59.040 --> 00:23:00.640
now we market them, okay?

762
00:23:00.640 --> 00:23:03.200
So now we contact this prospective buyers,

763
00:23:03.200 --> 00:23:05.800
we go need a teaser, then NDA,

764
00:23:06.120 --> 00:23:07.880
which is the one to three page blind description

765
00:23:07.880 --> 00:23:09.960
of the business, then the data room,

766
00:23:09.960 --> 00:23:11.760
which is basically like, they have to put the stuff

767
00:23:11.760 --> 00:23:14.200
like in the cloud so that people can always have access

768
00:23:14.200 --> 00:23:15.200
to it, so all these potential buyers,

769
00:23:15.200 --> 00:23:17.680
and we sifting through all your resources

770
00:23:17.680 --> 00:23:19.400
to come up with questions that they're going to ask you,

771
00:23:19.400 --> 00:23:21.720
or say that's not a good deal for them, right?

772
00:23:22.720 --> 00:23:24.880
This is when you have your kind of your pitch deck,

773
00:23:24.880 --> 00:23:27.400
right, of what you were going to present to them, right?

774
00:23:27.400 --> 00:23:30.080
You're going to dry run, practice it, et cetera.

775
00:23:30.080 --> 00:23:32.640
Potential investors will then submit their IOIs,

776
00:23:32.640 --> 00:23:34.040
all right, that's the indication of interest,

777
00:23:34.040 --> 00:23:36.080
that they're like, we might be interested

778
00:23:36.080 --> 00:23:37.320
in buying this business,

779
00:23:37.320 --> 00:23:39.360
and they'd give a rough range, right?

780
00:23:39.360 --> 00:23:41.720
And then you have potentially a people who are,

781
00:23:41.720 --> 00:23:43.080
I'm trying to go through this part faster

782
00:23:43.080 --> 00:23:44.400
because it sounds boring, but this is the stuff,

783
00:23:44.400 --> 00:23:45.760
this is how it works, right?

784
00:23:45.760 --> 00:23:47.480
So potential investors visit company,

785
00:23:47.480 --> 00:23:49.280
they provide access to the data room

786
00:23:49.280 --> 00:23:51.000
of all the diligence stuff that they're going to need,

787
00:23:51.000 --> 00:23:53.080
so they have a cursory idea of what they need,

788
00:23:53.080 --> 00:23:54.000
and you do the data room,

789
00:23:54.000 --> 00:23:55.000
so you don't have to do all this interaction,

790
00:23:55.000 --> 00:23:56.120
you just put all the shit up there,

791
00:23:56.120 --> 00:23:57.480
and then they can all have access to it,

792
00:23:57.480 --> 00:24:00.240
and then when you start in the actual offers,

793
00:24:00.240 --> 00:24:02.560
which is here, week 18, final offers received

794
00:24:02.560 --> 00:24:04.400
and evaluated strategies determined

795
00:24:04.400 --> 00:24:06.880
for moving forward with final parties, right?

796
00:24:06.880 --> 00:24:09.240
So this is where you bid them back against each other,

797
00:24:09.240 --> 00:24:11.560
and then you get final offers, which is IOIs,

798
00:24:11.560 --> 00:24:13.680
okay, letters of intent, okay?

799
00:24:13.680 --> 00:24:15.440
Now, once you have the letters of intent,

800
00:24:15.440 --> 00:24:16.600
and you've bid them back together,

801
00:24:16.600 --> 00:24:17.760
you're gonna have different deal structures

802
00:24:17.760 --> 00:24:18.600
again, and we're presented to you,

803
00:24:18.600 --> 00:24:20.240
which I think is covered here, okay?

804
00:24:20.240 --> 00:24:21.600
So you start negotiating those,

805
00:24:21.600 --> 00:24:23.160
you go back and forth, et cetera.

806
00:24:23.160 --> 00:24:26.400
Now, here's the thing, there's the price,

807
00:24:26.400 --> 00:24:28.680
and then how it's paid, it's price and terms,

808
00:24:28.680 --> 00:24:31.800
and I can't tell you, getting good terms

809
00:24:31.800 --> 00:24:33.280
is worth discounts, right?

810
00:24:33.280 --> 00:24:34.240
Now, it depends on why you're selling,

811
00:24:34.240 --> 00:24:35.160
you just wanna sell to have a story,

812
00:24:35.160 --> 00:24:36.720
then that's one thing, but if you're selling it rich,

813
00:24:36.720 --> 00:24:38.720
then the terms matter a lot, all right?

814
00:24:38.720 --> 00:24:40.320
So people share a big number.

815
00:24:40.320 --> 00:24:41.840
Like, for example, if I wanted to say,

816
00:24:41.840 --> 00:24:44.800
I sold, you know, Jim launched a prestigious option

817
00:24:44.800 --> 00:24:47.280
for $100 million, I could've gotten $100 million.

818
00:24:47.280 --> 00:24:49.300
In paper, all right, so you hear me out.

819
00:24:49.300 --> 00:24:52.720
So if I said, hey, pay me $25 million earned out,

820
00:24:52.720 --> 00:24:55.720
if we do a billion dollars this year in sales, sure,

821
00:24:55.720 --> 00:24:56.960
they'll sign it, and then I could say

822
00:24:56.960 --> 00:25:00.000
that added $25 million to my enterprise value on the sale.

823
00:25:00.000 --> 00:25:01.560
I will be transparent with you.

824
00:25:01.560 --> 00:25:03.720
I had no seller financing, I had no earn out,

825
00:25:03.720 --> 00:25:05.640
I had no, I did do, I've did a raw equity

826
00:25:05.640 --> 00:25:09.880
because I sold 66%, and I had no transition services

827
00:25:09.880 --> 00:25:11.360
and no consulting, all right?

828
00:25:11.360 --> 00:25:13.760
And that was because that was the agreed upon way

829
00:25:13.760 --> 00:25:15.000
that I wanted to sell this business,

830
00:25:15.000 --> 00:25:16.680
and I said that up front to everybody.

831
00:25:16.680 --> 00:25:19.360
I said, this is a full leadership exit,

832
00:25:19.360 --> 00:25:21.640
I will not be involved, I will not have transition,

833
00:25:21.640 --> 00:25:23.280
because the thing is if they're like, sure,

834
00:25:23.280 --> 00:25:25.080
if you just keep working for the business for two years,

835
00:25:25.080 --> 00:25:26.480
yeah, we're fine selling to you,

836
00:25:26.480 --> 00:25:28.320
it's like, well, I might as well just own the darn thing, right?

837
00:25:28.320 --> 00:25:29.640
And I'll just grow up myself.

838
00:25:29.640 --> 00:25:32.280
And so this is where this is important.

839
00:25:32.280 --> 00:25:34.880
Now mind you, acquisition.com, for example, for our business,

840
00:25:34.880 --> 00:25:36.160
we only do minority investments

841
00:25:36.160 --> 00:25:38.640
because we want the leadership team there.

842
00:25:38.640 --> 00:25:40.560
So we actually want to just participate in the growth

843
00:25:40.560 --> 00:25:42.960
and help grow the companies from 3 million to 10 million,

844
00:25:42.960 --> 00:25:44.800
to 20 million to 50 million and beyond, right?

845
00:25:44.800 --> 00:25:46.120
We want to participate in the growth

846
00:25:46.120 --> 00:25:47.840
and we're happy taking a smaller life

847
00:25:47.840 --> 00:25:49.480
of what we consider to be a bigger pie

848
00:25:49.480 --> 00:25:50.960
rather than ripping out the management, right?

849
00:25:50.960 --> 00:25:52.480
So we work with people who are like,

850
00:25:52.480 --> 00:25:55.160
not really ready for institutional yet,

851
00:25:55.160 --> 00:25:58.480
but want to get that $20 million, $50 million, $100 million,

852
00:25:58.480 --> 00:26:01.760
plus exits, I'm gonna get them ready, just for context, all right?

853
00:26:01.760 --> 00:26:04.880
So these are the things that will discount you.

854
00:26:04.880 --> 00:26:07.560
So if you had $100 million, for example, for an exit,

855
00:26:07.560 --> 00:26:09.280
they might say, okay, well,

856
00:26:09.280 --> 00:26:11.080
we're gonna put 25 million in and earn out,

857
00:26:11.080 --> 00:26:12.720
25 million is gonna be seller financed,

858
00:26:12.720 --> 00:26:15.440
you're gonna roll 20%, which is 20 million.

859
00:26:15.440 --> 00:26:17.240
So there's $30 million left.

860
00:26:17.240 --> 00:26:19.560
And so we'll give you $30 million in cash.

861
00:26:19.560 --> 00:26:21.320
And you say, oh, I sold my company for $100 million, right?

862
00:26:21.320 --> 00:26:24.000
And then of the 30, you've got the bonuses

863
00:26:24.040 --> 00:26:26.520
and you've got other equity partners if you have those.

864
00:26:26.520 --> 00:26:27.680
And then you've got the tax man.

865
00:26:27.680 --> 00:26:29.400
So all of a sudden, let's say you've got 20%

866
00:26:29.400 --> 00:26:30.520
that's given to your team.

867
00:26:30.520 --> 00:26:32.320
So now you're at $24 million

868
00:26:32.320 --> 00:26:35.280
and then tax man takes his $30, right?

869
00:26:35.280 --> 00:26:36.960
And you've got closing fees and things like that

870
00:26:36.960 --> 00:26:37.800
and escrow fees.

871
00:26:37.800 --> 00:26:40.240
And so now you're at $18, $17 million.

872
00:26:40.240 --> 00:26:41.920
So you sold your business for $100 million,

873
00:26:41.920 --> 00:26:44.200
but you only got $17 million, right?

874
00:26:44.200 --> 00:26:46.400
That's why this stuff matters, okay?

875
00:26:46.400 --> 00:26:49.600
So you want to make sure that you know why you are selling

876
00:26:49.600 --> 00:26:51.480
and what the most important things are for you.

877
00:26:51.480 --> 00:26:55.160
And you need to ruthlessly, ruthlessly communicate that

878
00:26:55.160 --> 00:26:56.920
to the bankers, okay?

879
00:26:56.920 --> 00:26:58.640
Very important point because they will negotiate

880
00:26:58.640 --> 00:26:59.880
on those points for you.

881
00:26:59.880 --> 00:27:02.400
Now, the things that they're also looking for for them

882
00:27:02.400 --> 00:27:04.360
is it's a fit within their portfolio.

883
00:27:04.360 --> 00:27:05.760
Like a family office, for example,

884
00:27:05.760 --> 00:27:07.160
it's just going to buy something that they think

885
00:27:07.160 --> 00:27:08.520
is a good cash flow investment.

886
00:27:08.520 --> 00:27:10.560
And the price is going to be very important to them.

887
00:27:10.560 --> 00:27:12.840
A strategic buyer would be somebody who's going to be,

888
00:27:12.840 --> 00:27:17.120
let's say you own a car wash, you know, chain or whatever.

889
00:27:17.120 --> 00:27:18.480
If there's a bigger car wash chain

890
00:27:18.480 --> 00:27:19.640
that just wants to buy yours,

891
00:27:19.640 --> 00:27:22.120
they'll give you a better multiple because they already

892
00:27:22.120 --> 00:27:23.240
have all these systems in place.

893
00:27:23.240 --> 00:27:24.720
So they're going to make more money from your business

894
00:27:24.720 --> 00:27:26.240
than just a generic buyer will.

895
00:27:26.240 --> 00:27:28.080
So the ideal way to exit is to a strategic

896
00:27:28.080 --> 00:27:29.760
because you get the best multiples.

897
00:27:29.760 --> 00:27:31.400
But to be fair, there are more financial buyers

898
00:27:31.400 --> 00:27:32.240
than there are strategic.

899
00:27:32.240 --> 00:27:33.640
So that's kind of the trade off.

900
00:27:33.640 --> 00:27:35.680
And you want to make sure that your business is in good hands

901
00:27:35.680 --> 00:27:37.920
so that you want people who have relevant experience.

902
00:27:37.920 --> 00:27:39.800
We were very fortunate that the people that we felt

903
00:27:39.800 --> 00:27:41.720
were most equipped to buy the company

904
00:27:41.720 --> 00:27:44.280
were also the ones who ended up giving us the best offer.

905
00:27:44.280 --> 00:27:45.920
And so that doesn't happen.

906
00:27:45.920 --> 00:27:48.200
We were very fortunate in working out that way for us,

907
00:27:48.200 --> 00:27:49.880
but it doesn't always happen that way.

908
00:27:49.880 --> 00:27:51.080
And then this is a really simple one.

909
00:27:51.080 --> 00:27:51.920
Do I like these people?

910
00:27:51.920 --> 00:27:52.720
Well, my team like these people

911
00:27:52.720 --> 00:27:54.520
because ultimately the team's going to be working with them.

912
00:27:54.520 --> 00:27:56.960
So you want to ask those questions as you're going throughout.

913
00:27:56.960 --> 00:27:58.920
So like you can have assholes who pay you a little bit more

914
00:27:58.920 --> 00:28:01.040
and then really nice guys who pay you a little bit less.

915
00:28:01.040 --> 00:28:02.040
Life's short, man.

916
00:28:02.040 --> 00:28:04.760
So like I would go with people who,

917
00:28:04.760 --> 00:28:07.560
a lot of people were grit just taking the highest offer

918
00:28:07.560 --> 00:28:09.800
rather than 10% less and having a much better life.

919
00:28:09.800 --> 00:28:10.600
Okay.

920
00:28:10.600 --> 00:28:14.520
Now, at this point, you would sign your L.O.I.

921
00:28:14.520 --> 00:28:16.120
All right, most of the time it's going to be exclusive

922
00:28:16.120 --> 00:28:18.800
saying like, if you have a tremendous amount of interest,

923
00:28:18.800 --> 00:28:20.440
you might be able to sign L.O.I.'s

924
00:28:20.440 --> 00:28:21.800
and have them not be exclusive

925
00:28:21.800 --> 00:28:23.920
and they still bid all the way up to the purchase agreement.

926
00:28:23.920 --> 00:28:24.960
Most times that's not the case.

927
00:28:24.960 --> 00:28:27.480
They don't want to, they don't want to expend the money.

928
00:28:27.480 --> 00:28:29.280
So like the, so APG when they bought us

929
00:28:29.280 --> 00:28:30.960
spent probably about a million bucks,

930
00:28:30.960 --> 00:28:33.200
indiligence, just indiligence, right?

931
00:28:33.200 --> 00:28:35.800
To figure out whether our company was worth buying, right?

932
00:28:35.800 --> 00:28:37.320
And again, you're not going to attract guys

933
00:28:37.320 --> 00:28:38.560
who are going to write $100 million,

934
00:28:38.560 --> 00:28:39.960
you know, do a million dollars of diligence

935
00:28:39.960 --> 00:28:40.760
for a $5 million deal.

936
00:28:40.760 --> 00:28:41.600
It makes no sense, right?

937
00:28:41.600 --> 00:28:43.600
So like if you want big money numbers,

938
00:28:43.600 --> 00:28:45.880
you have to, you know, got to file the big money process.

939
00:28:45.880 --> 00:28:46.720
All right?

940
00:28:46.720 --> 00:28:49.320
So at this point, you sign an exclusive L.O.I. meaning

941
00:28:49.320 --> 00:28:50.920
you can't shop the business to anybody else

942
00:28:50.920 --> 00:28:53.560
during the period of the due diligence.

943
00:28:53.560 --> 00:28:55.240
Now, I'm going to say it at the end,

944
00:28:55.240 --> 00:28:56.800
but I'm going to say it again, all right?

945
00:28:56.800 --> 00:28:59.240
And I've got a special tree free, which I'm now remembering.

946
00:28:59.240 --> 00:29:00.720
At the end of this video, I'll actually,

947
00:29:00.720 --> 00:29:03.320
I videotaped us actually having the,

948
00:29:03.320 --> 00:29:05.800
the escrow hit and the final signing

949
00:29:05.800 --> 00:29:08.000
and you can actually see it go down for real.

950
00:29:08.000 --> 00:29:10.120
All right, it's very anticlimactic.

951
00:29:10.120 --> 00:29:11.560
But you could see it for real and see

952
00:29:11.560 --> 00:29:12.840
what a $50 million that looks like.

953
00:29:12.840 --> 00:29:15.480
Okay, so the due diligence will begin.

954
00:29:15.480 --> 00:29:16.880
They're going to try and negotiate time,

955
00:29:16.880 --> 00:29:18.400
saying like, oh, we can get a faster close

956
00:29:18.400 --> 00:29:19.240
if blah, blah, blah.

957
00:29:19.240 --> 00:29:20.760
If you accept this lower price bullshit,

958
00:29:20.760 --> 00:29:21.920
they're going to take as long as they want.

959
00:29:21.920 --> 00:29:23.040
Literally ignore it.

960
00:29:23.040 --> 00:29:24.840
They seriously, they will try and you speed.

961
00:29:24.840 --> 00:29:28.240
I had every single person try to you speed as a selling point.

962
00:29:28.240 --> 00:29:30.040
I thought it was legit the first time.

963
00:29:30.040 --> 00:29:33.280
They said 30 day clothes and it took 112 days.

964
00:29:33.280 --> 00:29:34.520
And I accepted,

965
00:29:34.520 --> 00:29:36.880
worth this is on one of the other companies we sold.

966
00:29:36.880 --> 00:29:38.480
I accepted worst terms on them, right?

967
00:29:38.480 --> 00:29:39.480
So the next time I came around,

968
00:29:39.480 --> 00:29:40.840
this is why I'm giving you this stuff.

969
00:29:40.840 --> 00:29:41.960
Next time I came around, they were like,

970
00:29:41.960 --> 00:29:42.960
oh, we could do a fast close.

971
00:29:42.960 --> 00:29:44.400
I was like, what ever, take your time.

972
00:29:44.400 --> 00:29:46.520
My company's grown, do it everyone, right?

973
00:29:46.520 --> 00:29:47.680
And when you do it that way,

974
00:29:47.680 --> 00:29:49.640
you're in the position of power, okay?

975
00:29:49.640 --> 00:29:51.960
So they're going to audit your quality of earnings,

976
00:29:51.960 --> 00:29:53.240
which is something you have to get the bankers

977
00:29:53.240 --> 00:29:54.280
to explain how to do that,

978
00:29:54.280 --> 00:29:56.000
which is to make sure that your numbers are legit,

979
00:29:56.000 --> 00:29:57.280
that they are what you say they are, right?

980
00:29:57.280 --> 00:29:58.440
That anybody can put numbers in the excel sheet,

981
00:29:58.440 --> 00:30:00.680
but are they for real, right?

982
00:30:00.680 --> 00:30:01.680
Then they'll do legal diligence.

983
00:30:01.680 --> 00:30:03.200
So they're going to make sure you actually own the company.

984
00:30:03.200 --> 00:30:04.480
Do you have any lawsuits against you?

985
00:30:04.480 --> 00:30:05.480
Are you breaking any laws?

986
00:30:05.480 --> 00:30:07.960
Which actually is fairly common when it comes to claims

987
00:30:07.960 --> 00:30:10.040
and things like that for like FTC,

988
00:30:10.040 --> 00:30:11.800
things like it's actually fairly common.

989
00:30:11.800 --> 00:30:13.600
So you want to make sure that stuff's all right.

990
00:30:13.600 --> 00:30:14.680
And that stuff can blow deals up.

991
00:30:14.680 --> 00:30:16.160
I had an acquaintance of mine

992
00:30:16.160 --> 00:30:17.840
that had two different deals blow up

993
00:30:17.840 --> 00:30:20.760
that were like nine figure deals multiple years apart

994
00:30:20.760 --> 00:30:22.680
because they were not compliant, all right?

995
00:30:22.680 --> 00:30:24.720
So like, and they thought that the lack of compliance

996
00:30:24.720 --> 00:30:26.800
was one of the reasons that they were so successful.

997
00:30:26.800 --> 00:30:29.280
And so they didn't want it too risky, all right?

998
00:30:29.280 --> 00:30:30.760
What they'll then do is they'll start interviewing

999
00:30:30.760 --> 00:30:31.600
your customers, all right?

1000
00:30:31.600 --> 00:30:33.160
This may sound freaky, but that's what they're going to do.

1001
00:30:33.160 --> 00:30:34.120
They're going to talk to your customers,

1002
00:30:34.120 --> 00:30:34.840
they're going to talk to your employees,

1003
00:30:34.840 --> 00:30:35.840
they're going to interview them.

1004
00:30:35.840 --> 00:30:38.280
The firm that purchased us spent like $250,000,

1005
00:30:38.280 --> 00:30:41.680
I'm pulling that number out of air, but it's a lot on research

1006
00:30:41.680 --> 00:30:43.720
to see what your customers think about you.

1007
00:30:43.720 --> 00:30:45.520
So if you're terrified to think about what your customers

1008
00:30:45.520 --> 00:30:47.440
who are past customers who no longer pay you,

1009
00:30:47.440 --> 00:30:49.120
think about you, you're prepared, right?

1010
00:30:49.120 --> 00:30:49.960
They're going to talk to them and be like,

1011
00:30:49.960 --> 00:30:50.800
should I buy this company?

1012
00:30:50.800 --> 00:30:51.920
Is this a good company, right?

1013
00:30:51.920 --> 00:30:53.680
What has your experience been like, right?

1014
00:30:53.680 --> 00:30:55.560
And same thing with your employees.

1015
00:30:55.560 --> 00:30:56.400
Now they're not going to ask them,

1016
00:30:56.400 --> 00:30:58.000
but that stuff they're going to only talk to people

1017
00:30:58.000 --> 00:30:59.160
already know about the deal.

1018
00:30:59.160 --> 00:31:01.160
But they're going to interview them really heavily

1019
00:31:01.160 --> 00:31:02.360
to see what's your involvement.

1020
00:31:02.360 --> 00:31:04.440
Is he really passively involved?

1021
00:31:04.440 --> 00:31:06.120
Like, what do you do on our daily basis?

1022
00:31:06.120 --> 00:31:06.960
What do they do on the daily basis?

1023
00:31:06.960 --> 00:31:07.960
Because they want to know that if you leave,

1024
00:31:07.960 --> 00:31:09.400
it's still going to keep going and growing.

1025
00:31:09.400 --> 00:31:11.080
Then you've got background checks of you

1026
00:31:11.080 --> 00:31:12.160
and your management team to make sure

1027
00:31:12.160 --> 00:31:15.720
it owns a convicted criminal or something sketchy,

1028
00:31:15.720 --> 00:31:18.080
which more realistically is like financial fraud,

1029
00:31:18.080 --> 00:31:19.840
employment contracts to make sure that if you leave,

1030
00:31:19.840 --> 00:31:20.960
they don't all leave with you,

1031
00:31:20.960 --> 00:31:23.120
or they're only there for you, et cetera.

1032
00:31:23.120 --> 00:31:24.720
And you're like, okay, I feel like I'm done.

1033
00:31:24.720 --> 00:31:26.200
Nope, there's more, okay?

1034
00:31:26.200 --> 00:31:27.720
So once you've gone through this whole deal

1035
00:31:27.720 --> 00:31:29.320
just process which takes 16 to 90 days.

1036
00:31:29.320 --> 00:31:30.720
Now if you're tracking with me,

1037
00:31:30.720 --> 00:31:33.320
there was like three months of looking for bankers

1038
00:31:33.320 --> 00:31:34.560
and figuring that part out

1039
00:31:34.560 --> 00:31:36.120
and making sure that your business is ready

1040
00:31:36.120 --> 00:31:37.200
may take much longer than that.

1041
00:31:37.200 --> 00:31:39.400
But assuming your business is ready, right?

1042
00:31:39.400 --> 00:31:40.880
And you have met the prerequisites.

1043
00:31:40.880 --> 00:31:42.720
Might take you 12 weeks to find the right bankers.

1044
00:31:42.720 --> 00:31:45.280
From there, it's 20-ish weeks to get to this point.

1045
00:31:45.280 --> 00:31:48.040
And then you might have another 60 to 90 for diligence.

1046
00:31:48.040 --> 00:31:49.800
Now, bankers will say that it's going to take less time.

1047
00:31:49.800 --> 00:31:51.760
They're incentivized to tell you that it takes less time.

1048
00:31:51.760 --> 00:31:53.360
So I was talking to a good friend of mine

1049
00:31:53.360 --> 00:31:54.960
who was like, hey, man, I got,

1050
00:31:54.960 --> 00:31:56.720
they said there are 30-day diligence

1051
00:31:56.720 --> 00:31:58.400
and then it quit closed and I was like, dude,

1052
00:31:58.400 --> 00:31:59.160
it's not going to happen

1053
00:31:59.160 --> 00:32:01.480
and it was for a nine-figure number, right?

1054
00:32:01.480 --> 00:32:04.840
And lo and behold, 90 days later,

1055
00:32:04.840 --> 00:32:08.800
he was like, yeah, fast, they said, wrong, they were.

1056
00:32:08.800 --> 00:32:09.800
Right, he's like, why didn't you tell me?

1057
00:32:09.800 --> 00:32:11.240
This was going to be so much fun, right?

1058
00:32:11.240 --> 00:32:13.400
And he's now, I think, like, five months

1059
00:32:13.400 --> 00:32:17.160
into his process of post-agreement sign, right?

1060
00:32:17.160 --> 00:32:19.320
So like, I'm not saying that that's typical,

1061
00:32:19.320 --> 00:32:21.360
but I'm saying like, you need to be prepared for a year.

1062
00:32:21.360 --> 00:32:23.080
Like, it's going to be a year slog.

1063
00:32:23.080 --> 00:32:25.640
And a lot of your focus is going to go to this process.

1064
00:32:25.640 --> 00:32:28.000
So like, you really need a strong management team

1065
00:32:28.000 --> 00:32:29.840
in place who can continue to grow the business without you.

1066
00:32:29.840 --> 00:32:31.400
All right, and that'll prove the point.

1067
00:32:31.400 --> 00:32:33.760
And this is a note.

1068
00:32:33.760 --> 00:32:35.160
The longer the process takes,

1069
00:32:35.160 --> 00:32:38.200
it is in the buyer's advantage that it take a long time.

1070
00:32:38.200 --> 00:32:40.240
All right, so you want a fast close.

1071
00:32:40.240 --> 00:32:41.840
They want a slow close.

1072
00:32:41.840 --> 00:32:45.120
And being real, the only way to speed up the close

1073
00:32:45.120 --> 00:32:46.880
is to keep growing like crazy,

1074
00:32:46.880 --> 00:32:48.880
because then they're going to realize that all of a sudden

1075
00:32:48.880 --> 00:32:51.280
the evaluation from the beginning to the end

1076
00:32:51.280 --> 00:32:52.760
will have changed.

1077
00:32:52.760 --> 00:32:54.240
And then you will have much more negotiating power

1078
00:32:54.240 --> 00:32:56.480
and you can break the agreement and get other offers, right?

1079
00:32:56.480 --> 00:32:58.520
So important point there.

1080
00:32:58.520 --> 00:32:59.560
So once you've gotten to that point,

1081
00:32:59.560 --> 00:33:01.040
you'll get a purchase agreement.

1082
00:33:01.040 --> 00:33:02.160
Inside of the purchase agreement,

1083
00:33:02.160 --> 00:33:03.560
you will have these different pieces

1084
00:33:03.560 --> 00:33:04.640
that you have to watch out for.

1085
00:33:04.640 --> 00:33:06.800
Indemnities are the things that you were liable for.

1086
00:33:06.800 --> 00:33:08.160
These are the things that will keep you up at night.

1087
00:33:08.200 --> 00:33:09.520
You need to negotiate hard on these things.

1088
00:33:09.520 --> 00:33:11.160
Now, give the things that are reasonable.

1089
00:33:11.160 --> 00:33:13.840
Like, yes, like fundamental, you know,

1090
00:33:13.840 --> 00:33:16.680
endemic warranties, I think is the name of the clause, whatever.

1091
00:33:16.680 --> 00:33:18.400
It's like, you actually own the company.

1092
00:33:18.400 --> 00:33:19.600
You actually own the trademarks.

1093
00:33:19.600 --> 00:33:20.880
Like, yes, you have to, like, yes,

1094
00:33:20.880 --> 00:33:22.400
otherwise the whole purchase is off, right?

1095
00:33:22.400 --> 00:33:24.480
And you can be liable for the total purchase amount

1096
00:33:24.480 --> 00:33:25.640
for that stuff, right?

1097
00:33:25.640 --> 00:33:27.400
Now, that's the endemnities.

1098
00:33:27.400 --> 00:33:28.560
But the other endemnities are things

1099
00:33:28.560 --> 00:33:30.160
that like are completely out of your control.

1100
00:33:30.160 --> 00:33:32.000
So you want to make sure you negotiate those things out.

1101
00:33:32.000 --> 00:33:33.640
And again, with all these negotiations,

1102
00:33:33.640 --> 00:33:35.920
you have to be willing to walk away and say, like,

1103
00:33:35.920 --> 00:33:38.120
I don't, like, if this bullet's in there, the deal's off.

1104
00:33:38.120 --> 00:33:39.760
Like, and if you can't say that,

1105
00:33:39.760 --> 00:33:42.600
you're going to get raked over the coals, okay?

1106
00:33:42.600 --> 00:33:44.680
Now, non-compete, depends on why you're selling

1107
00:33:44.680 --> 00:33:45.800
and what you want to do next.

1108
00:33:45.800 --> 00:33:47.320
But you want to be very specific.

1109
00:33:47.320 --> 00:33:48.760
And this is one of the hardest things

1110
00:33:48.760 --> 00:33:50.280
that you're going to get into negotiating,

1111
00:33:50.280 --> 00:33:51.200
especially if you have a skill.

1112
00:33:51.200 --> 00:33:53.440
If you're really good at, you know, trash compacting,

1113
00:33:53.440 --> 00:33:55.480
then they're going to not want you to touch anything

1114
00:33:55.480 --> 00:33:58.000
trash-related for a long period of time, all right?

1115
00:33:58.000 --> 00:34:00.600
And what's really tricky about this is that

1116
00:34:00.600 --> 00:34:02.520
if you roll equity into the new company

1117
00:34:02.520 --> 00:34:05.720
that they're going to be buying your company in or whatever,

1118
00:34:05.720 --> 00:34:07.400
they will write in the articles of incorporation

1119
00:34:07.400 --> 00:34:09.800
that none of the people who have that can compete.

1120
00:34:09.800 --> 00:34:12.200
And so even if you have a purchased non-compete,

1121
00:34:12.200 --> 00:34:14.640
you may have a non-compete as long as you are an equity

1122
00:34:14.640 --> 00:34:16.040
holder in that other company,

1123
00:34:16.040 --> 00:34:17.880
which means that if you want to breach your non-compete,

1124
00:34:17.880 --> 00:34:20.880
you would have to give up the equity that you rolled, all right?

1125
00:34:20.880 --> 00:34:22.520
That's once the other non-compete expired.

1126
00:34:22.520 --> 00:34:24.280
So you have to be very, very careful

1127
00:34:24.280 --> 00:34:26.840
about how these non-compete are written.

1128
00:34:26.840 --> 00:34:28.520
And the definitions that you have around this

1129
00:34:28.520 --> 00:34:29.520
is so important.

1130
00:34:29.520 --> 00:34:31.760
Like, I can't tell, like, so for example,

1131
00:34:31.760 --> 00:34:34.320
if you were selling, let's say, a skincare line,

1132
00:34:34.360 --> 00:34:37.040
they might say, the first one you get

1133
00:34:37.040 --> 00:34:39.240
might just say, like, you can't be in beauty anymore.

1134
00:34:39.240 --> 00:34:40.680
Well, that'd be freaking ridiculous, right?

1135
00:34:40.680 --> 00:34:42.160
Cause you know the space and you're not competing

1136
00:34:42.160 --> 00:34:43.600
with your company if instead of skincare,

1137
00:34:43.600 --> 00:34:45.480
you start getting into makeup, right?

1138
00:34:45.480 --> 00:34:47.120
And you have to make that argument, right?

1139
00:34:47.120 --> 00:34:48.120
And it depends on the size of the deal

1140
00:34:48.120 --> 00:34:49.680
and what you're willing, like, if this is the one deal

1141
00:34:49.680 --> 00:34:51.280
that's going to seal all deals for you,

1142
00:34:51.280 --> 00:34:52.960
then maybe you'll be willing to give more, right?

1143
00:34:52.960 --> 00:34:54.040
And be like, all right, I'm not going to touch

1144
00:34:54.040 --> 00:34:55.400
the space for a long time, right?

1145
00:34:55.400 --> 00:34:57.280
On the flip side, if you're like, I already know

1146
00:34:57.280 --> 00:34:58.200
what my next thing's going to be,

1147
00:34:58.200 --> 00:35:00.480
and the best thing to do with the non-compete

1148
00:35:00.480 --> 00:35:01.960
is know what you're going to do next.

1149
00:35:01.960 --> 00:35:03.000
Cause if you know what you're going to do next,

1150
00:35:03.000 --> 00:35:04.600
then you can be very specific with the language

1151
00:35:04.600 --> 00:35:06.080
and you can make sure that you're 100% covered

1152
00:35:06.080 --> 00:35:07.640
and just tell them, this is what I plan on doing next.

1153
00:35:07.640 --> 00:35:09.080
I just don't want that to be affected.

1154
00:35:09.080 --> 00:35:11.000
And if you say that, and I'm telling you guys,

1155
00:35:11.000 --> 00:35:12.360
the best way to negotiate these things

1156
00:35:12.360 --> 00:35:14.640
is to be honest, just tell them what you want.

1157
00:35:14.640 --> 00:35:15.760
And a lot of times it's much easier

1158
00:35:15.760 --> 00:35:17.560
than trying to guess and ascribe blame

1159
00:35:17.560 --> 00:35:18.600
and all that kind of stuff.

1160
00:35:18.600 --> 00:35:20.320
Schedules is all the stuff that you provide.

1161
00:35:20.320 --> 00:35:22.400
It's basically another word of, like, proof, right?

1162
00:35:22.400 --> 00:35:24.440
We're doing all this based on these assumptions

1163
00:35:24.440 --> 00:35:25.560
and the assumptions have to be true.

1164
00:35:25.560 --> 00:35:27.600
For some reason, the schedules are not there.

1165
00:35:27.600 --> 00:35:29.520
Like, we did this based on this, you know,

1166
00:35:29.520 --> 00:35:30.680
cusher segmentation analysis,

1167
00:35:30.760 --> 00:35:32.320
if you've mentioned it in the selling process

1168
00:35:32.320 --> 00:35:34.320
of getting them to say yes and negotiating,

1169
00:35:34.320 --> 00:35:35.800
but then you don't include it in the agreement

1170
00:35:35.800 --> 00:35:37.760
as a schedule, it's as though it didn't happen

1171
00:35:37.760 --> 00:35:39.280
and then they can come back and screw you.

1172
00:35:39.280 --> 00:35:40.920
Now, this all sounds scary.

1173
00:35:40.920 --> 00:35:43.080
Most of times these agreements don't get repealed, all right?

1174
00:35:43.080 --> 00:35:44.880
But you want to make sure that you include all the stuff

1175
00:35:44.880 --> 00:35:46.160
and that stuff sucks, but you got to do it

1176
00:35:46.160 --> 00:35:48.160
and you got to have a good lawyer for it, all right?

1177
00:35:48.160 --> 00:35:50.720
Definitions, this is kind of interesting

1178
00:35:50.720 --> 00:35:52.600
as a total philosophical point.

1179
00:35:52.600 --> 00:35:55.800
The agreement itself is almost as long as the pages

1180
00:35:55.800 --> 00:35:57.840
of definitions for the terms that are used in the agreement.

1181
00:35:57.840 --> 00:36:00.000
And I think Socrates said, wisdom begins

1182
00:36:00.000 --> 00:36:01.200
to the definition of terms.

1183
00:36:01.200 --> 00:36:05.200
And so like fundamentally, the agreement is like party A

1184
00:36:05.200 --> 00:36:10.200
as defined by X agrees to pay Y according to these terms,

1185
00:36:10.480 --> 00:36:13.280
two party Z according to these terms.

1186
00:36:13.280 --> 00:36:15.320
So it's like all these things are just terms

1187
00:36:15.320 --> 00:36:16.320
that have to get defined.

1188
00:36:16.320 --> 00:36:19.320
And so I'll give you an example, a term that we were able

1189
00:36:19.320 --> 00:36:21.760
to redefine, I think it was, actually, I think we redefined

1190
00:36:21.760 --> 00:36:24.880
a term within the non-compete that dramatically changed

1191
00:36:24.880 --> 00:36:27.760
the meaning of the document and made it much better

1192
00:36:27.760 --> 00:36:29.520
for us to do whatever we wanted to do next.

1193
00:36:29.640 --> 00:36:32.720
And so like just changing the definition of a single word

1194
00:36:32.720 --> 00:36:34.120
can run through an entire agreement.

1195
00:36:34.120 --> 00:36:36.240
And sometimes rather than fighting on clauses,

1196
00:36:36.240 --> 00:36:39.280
it's better to really narrow down the definition

1197
00:36:39.280 --> 00:36:41.000
of what you're trying to define.

1198
00:36:41.000 --> 00:36:43.560
So the scope might be geography for a non-compete

1199
00:36:43.560 --> 00:36:45.360
or it might be like, there's a million things

1200
00:36:45.360 --> 00:36:46.560
they define in these documents,

1201
00:36:46.560 --> 00:36:48.760
but making sure that you read the definitions

1202
00:36:48.760 --> 00:36:50.920
for what these words mean is really important.

1203
00:36:50.920 --> 00:36:53.200
Now, the few points, and this is just the points

1204
00:36:53.200 --> 00:36:54.040
that you'll want to negotiate.

1205
00:36:54.040 --> 00:36:54.880
There's a zillion other things.

1206
00:36:54.880 --> 00:36:56.640
These are the main, the big headers.

1207
00:36:56.640 --> 00:36:58.160
Networking capital says the very end,

1208
00:36:58.160 --> 00:36:59.000
you've already agreed on everything.

1209
00:36:59.120 --> 00:36:59.840
You've already agreed on the terms.

1210
00:36:59.840 --> 00:37:00.680
You already agreed on the price.

1211
00:37:00.680 --> 00:37:01.520
Oh, blah, blah, blah, blah, blah.

1212
00:37:01.520 --> 00:37:02.760
Now you have to agree on networking capital,

1213
00:37:02.760 --> 00:37:04.960
which is how much money you're gonna leave in the business, right?

1214
00:37:04.960 --> 00:37:07.480
And this we're gonna try and get you there too, right?

1215
00:37:07.480 --> 00:37:09.320
It's like, hey, let's see, you've got a million bucks

1216
00:37:09.320 --> 00:37:10.760
to work in capital in the bank account.

1217
00:37:10.760 --> 00:37:11.920
They're gonna be like, well, you've had a million dollars

1218
00:37:11.920 --> 00:37:12.960
sitting there for a whole year,

1219
00:37:12.960 --> 00:37:14.000
so that comes with the business.

1220
00:37:14.000 --> 00:37:15.000
You're like, well, I've just had it there

1221
00:37:15.000 --> 00:37:16.280
because I didn't take dividends out of it.

1222
00:37:16.280 --> 00:37:19.240
Which, why, by the way, is a good reason

1223
00:37:19.240 --> 00:37:21.800
to dividend out stuff and keep little in the bank account

1224
00:37:21.800 --> 00:37:22.640
if you're a smaller business.

1225
00:37:22.640 --> 00:37:24.480
Now, if you're reinvesting and buying and doing M&A

1226
00:37:24.480 --> 00:37:25.560
and stuff, and that's a different question,

1227
00:37:25.560 --> 00:37:27.280
which most of you guys are not doing that right now.

1228
00:37:27.280 --> 00:37:29.680
So, that being said, networking capital is what,

1229
00:37:29.680 --> 00:37:31.720
how much money is required to run this business

1230
00:37:31.720 --> 00:37:32.920
so that when we have this transition,

1231
00:37:32.920 --> 00:37:34.680
it can continue to work as normal, right?

1232
00:37:34.680 --> 00:37:36.440
And you want that to be as little as possible so that as,

1233
00:37:36.440 --> 00:37:38.120
so that you can take as much of that cash

1234
00:37:38.120 --> 00:37:39.880
to the bank account in addition to what they're gonna pay you,

1235
00:37:39.880 --> 00:37:41.440
all right?

1236
00:37:41.440 --> 00:37:42.760
And then finally is the escrow amount.

1237
00:37:42.760 --> 00:37:44.640
So, let's say you've got that $100 million deal,

1238
00:37:44.640 --> 00:37:46.080
like I said earlier, and they might say,

1239
00:37:46.080 --> 00:37:47.560
we wanna keep 20% in escrow.

1240
00:37:47.560 --> 00:37:49.880
All of a sudden, you've got $20 million in escrow.

1241
00:37:49.880 --> 00:37:51.920
And again, we still have the escrow.

1242
00:37:51.920 --> 00:37:53.840
We've got the seller finance, we've got the earn out,

1243
00:37:53.840 --> 00:37:55.680
we've got the splits that you have, we've got taxes,

1244
00:37:55.680 --> 00:37:57.120
we've got all these other things

1245
00:37:57.120 --> 00:37:58.480
that are gonna come out of it, all right?

1246
00:37:58.480 --> 00:38:00.000
As you gotta make sure it makes sense.

1247
00:38:00.000 --> 00:38:02.960
And so, escrow amounts, like if you can keep it under 10%,

1248
00:38:02.960 --> 00:38:03.880
you're rocking, all right?

1249
00:38:03.880 --> 00:38:05.680
Now, they're gonna probably keep some of it there,

1250
00:38:05.680 --> 00:38:08.200
and that's because they keep that as insurance.

1251
00:38:08.200 --> 00:38:10.160
Like if something else comes up or there's some bill

1252
00:38:10.160 --> 00:38:11.240
or blah, blah, blah, that's your fault,

1253
00:38:11.240 --> 00:38:13.720
some back taxes, whatever, they take it out of the escrow amount.

1254
00:38:13.720 --> 00:38:14.800
All right, that's how they do it.

1255
00:38:14.800 --> 00:38:16.120
And then usually they will release that.

1256
00:38:16.120 --> 00:38:19.480
And again, when they release it, they can release it in phases.

1257
00:38:19.480 --> 00:38:22.280
I think there was like a 90 day and then a one year for ours.

1258
00:38:22.320 --> 00:38:23.240
Like it can change.

1259
00:38:23.240 --> 00:38:24.720
Some people have escrow that holds for two years.

1260
00:38:24.720 --> 00:38:26.120
Some people don't have any escrow,

1261
00:38:26.120 --> 00:38:28.080
but it's a negotiating point, all right?

1262
00:38:28.080 --> 00:38:29.280
And I'm repeating this.

1263
00:38:29.280 --> 00:38:31.320
Don't let speed be negotiating until we used against you.

1264
00:38:31.320 --> 00:38:32.160
All right, it doesn't matter

1265
00:38:32.160 --> 00:38:33.280
they're gonna take as long as they want.

1266
00:38:33.280 --> 00:38:35.440
So don't let them use that against you, all right?

1267
00:38:35.440 --> 00:38:37.720
Finally, you've done all this stuff.

1268
00:38:37.720 --> 00:38:39.800
You've negotiated all the hard points.

1269
00:38:39.800 --> 00:38:43.440
You've gotten here and it's now payday, all right?

1270
00:38:43.440 --> 00:38:45.880
So first off, it's very add to come back to it

1271
00:38:45.880 --> 00:38:48.200
because it takes all this time and then all you do see

1272
00:38:48.200 --> 00:38:50.240
is just like a big deposit in your bank account.

1273
00:38:50.240 --> 00:38:52.320
And you're like, oh, well, I guess I am the same.

1274
00:38:52.320 --> 00:38:53.880
So I'm just telling you that's what's gonna happen.

1275
00:38:53.880 --> 00:38:55.040
All right, that being said,

1276
00:38:55.040 --> 00:38:57.160
you actually don't even sign papers.

1277
00:38:57.160 --> 00:38:58.760
There's so many papers that you actually have to pay

1278
00:38:58.760 --> 00:39:00.400
so I'm gonna sign it because it takes so long.

1279
00:39:00.400 --> 00:39:01.600
So we actually paid our attorneys

1280
00:39:01.600 --> 00:39:02.920
and I think it took them like six hours

1281
00:39:02.920 --> 00:39:05.360
just to sign on our behalf for all the documents

1282
00:39:05.360 --> 00:39:06.640
and do that for us, all right?

1283
00:39:06.640 --> 00:39:08.640
Now, once all the documents have received

1284
00:39:08.640 --> 00:39:12.120
by the escrow company, both parties have signed everything.

1285
00:39:12.120 --> 00:39:14.240
At that point, they initiate the deposits

1286
00:39:14.240 --> 00:39:16.040
to the parties that have already been predefined.

1287
00:39:16.040 --> 00:39:17.560
So if you have payouts that go to,

1288
00:39:17.560 --> 00:39:19.960
let's say your bankers are brokers, that comes off the top.

1289
00:39:19.960 --> 00:39:21.680
If you have payments that go to the escrow company,

1290
00:39:21.680 --> 00:39:22.520
comes off the top.

1291
00:39:22.520 --> 00:39:24.680
If you have distribution that come to your employees

1292
00:39:24.680 --> 00:39:26.320
or other equity holders or investors,

1293
00:39:26.320 --> 00:39:29.280
that then all comes and then you get your piece.

1294
00:39:29.280 --> 00:39:31.720
And just hold on because I'll show you the actual video.

1295
00:39:31.720 --> 00:39:33.520
It's only like I think 30 or 40 seconds

1296
00:39:33.520 --> 00:39:35.720
of the actual signing moment for us

1297
00:39:35.720 --> 00:39:37.080
and you can see what it really looks like

1298
00:39:37.080 --> 00:39:38.760
to close a $50 million deal.

1299
00:39:38.760 --> 00:39:40.080
But just a few closing thoughts on this

1300
00:39:40.080 --> 00:39:42.680
is that they're gonna treat you like you don't know anything.

1301
00:39:42.680 --> 00:39:44.720
All right, and so you gotta get smart.

1302
00:39:44.720 --> 00:39:47.640
You gotta read stuff, watch this video, rewatch it

1303
00:39:47.640 --> 00:39:49.800
and understand the pieces that someone's gonna try

1304
00:39:49.800 --> 00:39:51.600
and do to screw you over.

1305
00:39:51.600 --> 00:39:54.840
And a trust is gonna be a big component of this.

1306
00:39:54.840 --> 00:39:56.560
So you have to trust the people

1307
00:39:56.560 --> 00:39:57.520
that you're gonna do business with.

1308
00:39:57.520 --> 00:39:59.560
And if you don't, it's gonna be really difficult.

1309
00:39:59.560 --> 00:40:01.120
Now that being said, you can trust them,

1310
00:40:01.120 --> 00:40:02.320
but you still wanna verify.

1311
00:40:02.320 --> 00:40:03.600
You still wanna make sure that the words say

1312
00:40:03.600 --> 00:40:04.840
what they say they say.

1313
00:40:04.840 --> 00:40:06.720
And a lot of times that's not the case.

1314
00:40:06.720 --> 00:40:10.320
And so big picture, if you do get to this point,

1315
00:40:10.320 --> 00:40:12.960
congratulations, it's very, very hard to grow a business,

1316
00:40:12.960 --> 00:40:15.720
do all this stuff and sell to an institutional buyer

1317
00:40:15.720 --> 00:40:18.160
who will pay tens of millions or hundreds of millions

1318
00:40:18.160 --> 00:40:19.360
of dollars for a company.

1319
00:40:19.360 --> 00:40:21.040
These are just some of the lessons that I learned

1320
00:40:21.040 --> 00:40:22.600
and this is the process that took me a long time

1321
00:40:22.600 --> 00:40:24.320
to even just figure out how it worked.

1322
00:40:24.320 --> 00:40:26.560
And for most of the nation, I make these videos

1323
00:40:26.560 --> 00:40:28.200
because no one told me this stuff.

1324
00:40:28.200 --> 00:40:31.200
And so I'm hoping that for you guys, this helps you out.

1325
00:40:31.200 --> 00:40:32.520
And if you're doing over through a million,

1326
00:40:32.520 --> 00:40:34.800
you can hit us up and we'll see what we can do to help you out

1327
00:40:34.800 --> 00:40:36.360
and help walk you through the process.

1328
00:40:36.360 --> 00:40:38.080
So it's lots of love, everybody.

1329
00:40:38.080 --> 00:40:39.080
Keep being awesome.

1330
00:40:39.080 --> 00:40:39.920
Ba!