Prepare! to get higher returns on selling your business

1. PREPARE! TO GET HIGER RETURNS
ON SELLING YOUR BUSINESS
Leamon Crooms
STRATEGIC GROWTH ADVISORS LLC

2. To Get High Returns on Selling Your
Business
Copyright © 2014 Strategic Growth Advisors, LLC
All Rights Reserved
Please treat this draft as proprietary and confidential.
Prepare!

3. Confidentiality
Agreement.
By receiving and reading this draft you are agreeing to keep this document
confidential and all contents herein. Furthermore, you agree to use this
document only for purposes of developing a statement of work, and
to limit distribution only to those employees or vendors that need
to view the information in support of the creation of a
statement of work.

4. Do you know the saying, "Proper preparation prevents piss poor performance."? If you want to
get a high return on selling your company, remember it and put it into practice well before you
start marketing your business for sale.
My years of experience running and selling my own businesses as well as advising and selling
They usually not only get the price they want but they often get more than their initial asking
price.

5. Without proper preparation before you start your sale process you will
seem unprepared, and your business will appear less valuable. You
know this if you have ever sold a car or a home.
Simply put, clean and shiny looks more valuable than grimy and dull.
Unfortunately, my experience is that most sellers don't prepare to sell
until a buyer or their circumstances force the issue. The consequences
of this reactionary approach compounded by
the lack of preparation can severely and negatively impact your sales price.

6. Most real-world, buy-sell transactions initially favor your buyer. Think of it like dating. You want
to attract the best buyer. You want them to notice you, date you and seal the deal. No not just
At the beginning of the process you have very little power. However, your leverage increases as
your buyer progresses through the process and begins to really anticipate a deal with you. But
remember, your buyer can always walk away, so everything you do to keep your buyer
interested and comfortable will keep the process moving toward your goal.
You have 3 goals when you prepare:

7. PREPARATION IS YOUR MOST POWERFUL TOOL.
As you read this ebook you will discover:
look as good as possible to your buyer

8. But what are the components of preparation? And what
specifically should you do to prepareyour business and
how? We will answer these questions and more in
this ebook.
begin preparing
destroy deal value
how
to influence it

9.  You will learn that you created all the value in your business during the years that you devoted
to building your business and that during the sales process in the last 6-12 months you can only
receive all the value you created leave some on the table.
 If you are a first time seller or a serial entrepreneur I guarantee that you will learn something
that will help you get a higher price at close or show you how to avoid mistakes that could ruin
your deal.
 After reading this ebook you will be prepared to get a higher return on what may be be the most
important business day of your life.

10. Why 3 Years Before You Sell Is the Right Time to Begin Preparing
Preparation is not merely what you do before you start the sales process. It is the beginning of your sales
process. Yes, taking the time to prepare is mandatory if you expect to get a high return when you sell
your business
The big secret when selling your business is that it has all been done before,
and there is a standard and accepted approach for everything within a sale process.
LEARN IT AND YOU GAIN AN ADVANTAGE

11. Since the Middle Ages, Merchant banking dominance shifted from the Italian states, to
Amsterdam, London, and then the US as Private Equity.
Throughout its 500 - 600 year evolution, countless businesses have been bought
and sold. Even today we are using some of the same the rules of the buy-sell
game created long ago.
Central to the rules is the expectation that the buyer will request a historical accounting of your
business prepared by neutral party. This standard is also followed when requesting a loan from
a bank. In both situations they will expect to see 3 years historical financial statements.

12. Why 3 years?
Because, 3 years is the shortest amount of time within which
you can detect a business trend:
So, if you decide to put your company up for sale without
knowing the 3 year standard you will have missed out on
the opportunity to fix those things that might easily
maximize your sale price.

13. After understanding how your business is trending, a buyer will
generally turn his or her attention to the trailing twelve months
(TTM) of EBITDA (earnings before interest taxes depreciation
and amortization) as a representation of the profit your business generates
without the effects of financing and accounting decisions.
And what about other impacts on profitability such as
the building the business owns or the perks like an
airplane or boat that the business funds

14. There is a process called normalization where
you add back to EBITDA all of the expenses that
are perks or non-essential to running the business.
After you complete the normalization process
your EBITDA becomes Adjusted EBITDA.
As you can imagine there can be some debate
and negotiation around which adjustments are
acceptable to both buyer and seller.
Use The 5 C's To Prepare Your
Diamond In The Rough
Certain elements need to be present to achieve
the high value sale. Remember, the buy-sell
process is an ancient one, so it always shocks
me a little bit when I see sellers failing to take
the time to identify and understand these
high-value generating keys. Fortunately, you
are not one of those sellers.

15. The phrase "Cash is King" couldn't be more true when it comes to selling your company
positive
adjusted EBITDA) then it couldn't possibly have any real value as
an ongoing concern.
What would you pay me for a business that generates $50 million in revenue,
has $50 million in expenses, and a negative adjusted EBITDA?

16. Of course, there are more than a few ways to value and price a company, and depending upon the situation many
factors can make an impact. But, in general the value of your company is calculated using 3 components:
Actual and projected EBITDA
stated in today's dollars. Time
value of money tells us that a
dollar today is worth more than a
dollar we are expecting to receive
a year from now.
The EBITDA it actually
produces today
The EBITDA it is projected to
produce over a number of
years usually 5-10
So,we must discount future dollars and state them in present value terms.
1 2 3

17. If your company does not generate a positive EBITDA then it has no real value as an ongoing concern.
Here is what you do:
Streamline and improve the efficiency of key
processes that impact cash such as the order
to cash process, returns or reverse distribution,
spoilage or shrinkage
Get rid of non-essential
expenses such as the carrying
cost of unused assets or
inventory
Improve and streamline your revenue cycle
convert receivables into cash more quickly

18. Consistency
If Cash is King, Consistency is surely the Queen. What if your
business consistently makes $750 thousand in profit
year 1, $1 million in year 2, and $1.25 million in year 3?
But your competitor makes
$3 million in year 1, loses $2 million in year 2 and
makes $2 million in year 3.
Which business do you consider the stronger business?
Of course, both made $3 million in profits over the 3 years, but
the way your business made it looks better. That is because
your performance was predictable and consistent. At a visceral
level that increasing trend line communicates strength and
optimism.

19. So, the business that produces $3 million over 3 years with the greatest consistency will get the higher price.
Your consistency has value because the buyer is looking everywhere
for assurance that the business will continue to generate profits
after the transition. In fact, he has nightmares
of going into the office the day after the
sale, and showing a loss for the
business he just bought.
In finance, the definition of risk is the
standard deviation or variability of the
returns of an investment, or EBITDA in
the case of your business. The greater
the variability, the greater the
risk. The opposite is also
true - the more consistent
the lower the risk.

20. Yes, consistent cash produces a higher value and higher price.
Manage your business so your cash profits are as consistent
as possible.
COLLATERAL
When selling your business your marketing document that
presents your business for sale is commonly called a "
because it provides just enough information to "tease" your
buyer forward in the process.
No, not "collateral" as in "damage", but collateral as in your
marketing documentation.

21. All documentation that you provide
your buyer is marketing and sales
documentation.
And, there is a lot of documentation to provide in the
typical sales process. From the confidentiality
agreement (CA), the teaser, Letter of intent (LOI) to
the countless due diligence documents, each tells
your buyer a bit more about you and either swings
the negotiation in your favor

22. So, as you turn over documents you will want to communicate 3 important points to your buyer:
- essentially that you are not a
rookie. And, it shows because you are running a standard process.
- you are ready to "open the kimono" by having the documents
prepared and ready to go
- you're not trying to "bury" facts, use non-standard approaches or
cheap tricks to get around disclosing issues that may exist. No business is without any
issues.
Run a standard process.
It will be important to invest the time to learn the standard process, or to hire an advisor
that is knowledgeable enough to create one for you. Prepare each step in advance and
prepare contingent steps to account for unexpected changes. Explain the process
to your buyers and verify that they understand it.

23. Hide nothing!
Be as open and transparent as you can. Prepare and present
all documentation in advance. For example, put effort into
your teaser by having it professionally drafted. This is your
initial impression and your first chance to tell your story.
Tell it well. Also, if you want to make it easy on yourself
and your buyers, use a data room. A data room is web
Technology where you can upload all documents once,
and keep track of who downloads, when and howoften.
This information can be very valuable to you in discerning
who really has an interest,where there interest lies, and
when that interest changes.
If your business has issues clean them up before you sell.
If issues remain after you start the sales process make your
standard documentation available. It is the task to
identify issues and get comfortable with your business
through due diligence.

24. One additional point just for you - leverage your collateral to create a negotiation
advantageBefore you turn over your due diligence documents there is a standard process that typically
starts the negotiations. If you miss it, then you will surely leave money on the table.
It is customary for you, the seller, to draft a non-binding Letter of Intent (LOI) to purchase your
company and request your buyers to sign it. In their response to the LOI, the buyers offer a
price or price range that they are willing to pay. You select the buyer that looks the best.
Using this process and your due diligence documentation in this way creates a significant

25. CUSTOMERS
You have devoted most of your business life to building this business and
everything comes down to the one day you sign final documents.
It may be the most important day of your business life. And,
buyer may be your most important customer of all.
How important will that day be to you?
So, you will want to keep this in mind throughout your interactions.
This final customer is no less a customer than any others you have
had over the years. The relationship is probably much more complex
than most relationships with customers because of the stakes and
the intensity of negotiations.

26. Nevertheless, treat them as you would any of your best
customers. Take them through your "white glove" process.
Surprise and delight them at every interaction. You must
give them every reason to buy your company at the
highest value, and feel good about it.
It is highly likely that they have recently looked at or are
in the process of looking at other deals. Just as the
experienced buyer will expect that you are courting other
buyers they will have other options also. You must give
your buyers a reason to stop looking elsewhere and
focus their attention on you!
Your buyer is your final and most
important customer.

27. Confidant
Who you choose to work with through your sale process is critically important.
That person or group will become one of your most intimate and trusted
advisers, your
leadership team and your business so they can help guide you through what
will inevitably be an exciting but challenging process.
So, why does hiring an advisor that reaches the level of a confidant make
sense vs. hiring someone else?
Of course, buyers and sellers are meeting and doing deals all of the time,
and deals are getting done every day without the assistance of a "middleman".

28. But
Remember when we said that
deals are naturally stacked in
favor of the buyer?
Here's one very important reason
why - most buyers that are
buying well run and higher
valued businesses like yours are
generally professional buyers.
They are Private Equity firms, or
professionals working in M&A
departments of companies.
From the very beginning they
have bigger teams with more
expertise.
To tip the scales in your favor
you will want your "confidant"
to do 4 very specific things for
you.

29. Assist you with preparing your business for sale well
before the process begins :
Who better than your confidant to roll up their sleeves and
help you prepare your business for sale. By doing so your
advisor gets to know your business very well before the sale
process unfolds. Engage your sell-side advisor early to help
prepare your business and tips the odds in your favor.
Apply experience from both the sell and buy side of
the process:
Having an advisor on your team with experience from the
buy and sell side of a transaction will give you a unique
advantage. Perspectives change when you have
experience
from both sides of the transaction and have had to
personally live with the buys and sells you
have made.

30. Deliver the right potential buyers to the table
Delivering the right buyer is critical in getting a deal done. Your advisor
will need to fully understand that value that your company delivers
and what potential buyers in your market are looking for.
Support you and the process as it unfolds
The journey from planning to a completed sale generally averages
6 - 12 months. Once you start the process you only have 1 of two
options. That is, hold on and see the process through
or hit the emergency brake and bail out.

31. Because a sale generally involves high stakes all parties are usually highly sensitized. It kind of like riding a vintage wooden
roller coaster, a really large and long wooden roller coaster. You will feel every bump, anticipate the slow climb to the top,
seat next to you.
Training
there is no way to get around the fact that selling a
company is a technicalprocess that requires training
and skill. Look for an advisor with:
• A degree in finance or an MBA
• Valuation training or certification
• Training or solid experience as a consultant
growing and improving businesses
• Training as an investment banker

32. Preparation
Many advisors are primarily sales focused and they
run their businesses like real estate agencies where
volume is key to their success. There may be a place
for that type of advisor in the high volume market.
However, for your business consider that it has taken
your advisor spend significant time helping you
prepare your business to sell so you can get the
highest return? Look for an advisor that:
• Is willing to spend the time to prepare your
business before the sale
• Has operational expertise with businesses like yours
• Has a track record of helping businesses improve

33. Experience
Many advisors are sales focused and they want to get to and through the sale as quickly as possible. Sure, you want a trusted
Advisor and confidant that can close your deal but you want and should expect more. You want your transaction to have the
advisor and confidant to have experience:
youthrough this process

34. • Attention –
A successful sale will be the catalyst for a great relationship but
long before the relationship develops much time and attention
will be invested in you and your company. You will want your
even. Yours is not a high volume sale so your advisor should:
Attention
business
and understand your business
practicing your roles, processes and sales pitch

35. How Crappy Collateral And Cheap Tricks Destroy Deal Value
Why would a seller present crappy collateral or resort to cheap tricks? Simple, the seller is
either uninformed and does not understand the consequences, or he knows his business has
fatal flaws and he is trying to sell you a pig with lipstick.
Unfortunately, your buyer won't easily be able to distinguish between
the uninformed seller and the pig promoter.
But, the real value of this section is in the cheap tricks that you want to avoid.

36. Here are the top 3:
Multiple of Revenue Pricing
Occasionally a seller may attempt to use an unconventional approach to valuation and pricing. Beware the seller that
attempts to convince you to pay based on a multiple (1x, 2x, etc.) of revenue. Remember that valuation and pricing for
an ongoing and healthy concern is based on bottom line, cash profits.
Not every seller or buyer understands this, nor does every broker or adviser. And, that is
precisely what the seller may be counting on.
Not every seller or buyer understands this, nor does every broker or adviser. And, that is precisely what the seller
may be counting on.

37. Add backs to EBITDA
The commonly accepted measure of profitability in traditional buy-sell transactions is EBITDA. It is an accepted measure
of company operating profitability, and often inaccurately accepted as a proxy for cash flow.
It is an acronym that stands for earnings before interest, taxes, depreciation and amortization, and is commonly used by
investment bankers, brokers and advisers. You will see company valuations and prices presented in terms of a multiple of
EBITDA such as 3 times (3x) or 7 times (7x) EBITDA. The multiple range is based on what comparable companies like
yours are sellingfor in the market.

38. When using EBITDA to value a company it is customary to
add back to EBITDA or "normalize"EBITDA with items like
excessive salary taken out by the owner, non-essential family
workerson the payroll, owner perks such as the company
airplane or yacht.
Cash accounting is used primarily by small companies because
it is an easier accounting method. Some companies exploit the
"flexibility" of cash basis for tax purposes by pre-paying items
at the end of the year, or holding checks into the new year to
delay revenue. All for the purpose of manipulating tax eects
because it is harder to track cash.
Because of this flexibility, cash accounting is a lousy basis to
use for valuation.

39. The Secret to Controlling the Sale
Getting a deal done is not easy!
If it were, there would be no need for investment bankers, brokers or
advisers. When a deal issuccessfully concluded you can bet that a
buyer, a seller and their respective teams have invested anywhere
from 6 - 12 months on average working through countless details.
Each side needing to play its part, and working together toward a
successful conclusion.
As we discussed previously, buyers are ultimately in control - they
hold all the cash and can walk away at any time. But, as the process
continues the seller gains more leverage as the buyer becomes more
invested in the deal. The more control you can maintain over the sales
process - finding, engaging and closing the buyer, the greater your
odds of closing a successfuldeal.

40. As the seller you get to decide the rules of your particular sale process. If you start with what is considered standard then
you will attract the most potential buyers. A standard process looks something like this:
company financials in depth
- a non-binding statement of interest,
and indication of desire to move forward

41. out lookie-
-binding commitment to purchase subject to key conditions
from remaining buyers
to finalize their price and conclude the purchase, including onsite visits
describing the deal

42. Variations of this process may exist based upon the size and complexity of
the company you are selling, and based upon how you would like to
control the process.
When selling your company, time is your enemy once the process
gets started.
There are a million things that can go wrong and the longer it takes to
conclude a deal the greater the likelihood that something will go wrong.
Any number of deal killers can occur like:
results from his company
by the buyer
downward trend beginning

43. So, invest the time to structure your sale process to your advantage because everything else remains in the hands
of your buyer.
Know the 1 Thing That Is Out Of Your Control and How to Influence It
Whether you get a deal done or not during any particular sales process is really not completely within your power to see.
The most you can do is to apply leverage to increase your odds of a successful outcome; that is, running a tight process
with the right support team, selecting the right buyer to enter into exclusivity, and getting a bit lucky with your timing.
Knowing this will help you think realistically about what it will take to sell your business. In the face of all of that

44. In the face of all of that uncertainty your big concern is probably,
"What if I go through the process and I don't sell?"
Prepare for extremes and the rest will be easy!
Here is what you can do:
You will want someone that can help you prepare the business and
help you sell it.
Prepare early and thoroughly
Start your prep process 1, 2 even 3 years before you are ready to sell.
Deliver a clean business, with organized documentation, and an
improving profit trend.

45. Invest in value generating activities
focus on processes like your revenue to cash cycle, and on trimming non-essentials. This will immediately increase your profits
regardless of how long it takes to get your deal done.
Commit to the long haul
Remember that it may not happen fast nor the first time so be prepared for a 1 -2 year process

46. Include employees in the payo
This one is easy but almost always overlooked. Oer a bonus for a successful close and transition, and as a nice way to say
thank you after years of successfully working together. Right up to the day you sign closing documents and very often even
after the new owners take over, employees are critical to maintaining your value and sale price. If key employees or a significant
number of employees leave, then your price will surely drop or you may lose the deal altogether. And, if you have to run more
than one process your employees will be more likely to stay engaged.

47. Take care of customers
What is true for employees is doubly true for customers. Your customers will obviously be concerned about a change in
ownership so deal with it by ramping up your customer service and benefits before the sale process starts.
At a point when a transaction is imminent, contact your customers by phone or in person and break the news. Yes, you! The
head honcho. Be sure to calm their fears and let themknow as is customary that you will be continuing with the business
for some time to assistwith the transition. Plan on staying for a period of time through the transition. Remind them
of your commitment to them now and through the transition.

48. Put your competitors on the defensive
When your competitors get wind of a potential change in ownership
(and they eventually will) anticipate that they might use that information
to cherry pick your best customers.
Don't let that happen. Direct your sales force to double its eorts well
before the news becomespublic. As we discussed earlier, enlist them to
deliver improved customer service and additional benefits. Personally
contacting each of your key customers will also help.

49. Then, if you want to take an aggressive posture direct your salesforce to increase their calling activity on
your competitor's customers. Beat them to the punch.
PREPARE YOUR BUSINESS TO SELL AND GET A HIGHER PRICE AT CLOSE

50. P.S. one final secret:
Remember that real value and your higher price is created long before the
deal gets done.
So, look for an advisor that is truly interested in you, your business,
and willing to invest the time to prepare your business. Make sure they have
the operate experience, business improvement expertise and training to
work with you up to 1 -3 years before the sale.
Supporting you with the transaction is the easy part at the end of a longer
value-creating, preparation process.

51. TOOLS
Due diligence process
Due diligence documents
Data room