I sold 8 businesses by age 32 [here’s how]

Summary

• I've sold eight businesses over my career, which have varied in size and industry.
• My portfolio company, Acquisition.com, focuses on service-based companies, particularly online and in the e-learning sector, and we buy minority stakes to help grow these businesses.
• Most companies don't have value unless certain prerequisites are met, such as not being too small or dependent on a few customers, having a defined sales process, presenting good timing, and offering a clear future growth story without being overly reliant on the owner.
• Business valuations are typically 6.7 times trailing 12 months for institutional buyers; however, many businesses sell for 1x to 3x because they don't meet these prerequisites.
• Understanding the sale process is crucial, including whether to use a banker or broker, actively participating in the selling story, and the need to network for introductions.
• Key points in negotiations include minimizing exclusivity and earnouts, maximizing cash at closing, and ensuring you retain control over the business's direction post-sale.
• Defining good terms is just as important as negotiating a good price.
• Selling to strategic buyers can yield better multiples, but there are more financial buyers available.
• Longevity increases a business's value, but a decline can make it unsellable.
• Key man risk, reliance on a single customer acquisition channel, and not having a substantial addressable market can severely impact the value of a business.
• Preparing a detailed Confidential Information Memorandum (CIM) and having audited financials are essential for presenting your business to potential buyers.
• Expect the sales process to take 12-18 months from start to finish, including negotiating the terms of the deal.
• Strategic negotiation of indemnities, non-competes, working capital, and escrow amounts can significantly impact your take-home amount from the sale.
• The process of selling your business is complicated and emotional, but understanding these elements can empower you to navigate it effectively.

Video

How To Take Action

I would suggest starting with the prerequisites for selling a business. Make sure you're not too small, not dependent on a few customers, have a clear sales process, and that the business can grow even if you’re not there. If you're missing any of these, focus on fixing them first, because they're essential for a valuable business.

A good way of doing this is to look at your customer base and diversify if needed. If most of your revenue comes from just a few clients, try to find more. This isn't just for selling your business, it's a good practice to reduce risks.

For the sales process, build a strong sales strategy. If customers just happen to come to you without a clear method or channel, you need to fix that. You can start small by choosing one new marketing channel to get customers. Monitor how well it works and tweak it until it's as reliable as the way you're getting customers now.

Then, cut down on key man risk. If your business depends too much on you, delegate some tasks to others or document the processes so anyone can do them. This might be slow and take some effort, but it's worth it.

Lastly, start networking for introductions to bankers or brokers for when the time comes to sell. Even if you're not ready now, knowing people can help a lot later. And remember, this entire process is going to take at least 12-18 months, so patience is key.

Quotes by Alex Hormozi

"Success is not the result of spontaneous combustion. You must set yourself on fire."

– Alex Hormozi

"Entrepreneurship is living a few years of your life like most people won't, so that you can spend the rest of your life like most people can't."

– Alex Hormozi

"The best time to plant a tree was 20 years ago. The second best time is now."

– Alex Hormozi

"Opportunities don't happen. You create them."

– Alex Hormozi

"Don't be afraid to give up the good to go for the great."

– Alex Hormozi

Full Transcript

in this video i'm going to talk to you about how to sell a business and if you're wondering who is this dude in his mama's basement's closet wearing a wife beater have anything to do with talking about how to sell business how does he even have the right the audacity to talk about these things let me first make a quick intro i've sold eight businesses my name's alex ramsey i own acquisition.com which is a portfolio of companies that does over 100 million dollars a year make these videos because i was once broke and wore these beaters out of necessity rather than out of choice and was in my mama's basement out of necessity rather actually i'm not in her basement this is a 5 million condo in vegas but that's not the point i just like working in places that have no windows so i have sold eight businesses over my career just to name a few of them i sold allen uh which is a software company that did 12 million in trailing 12-month sales i cannot disclose the price that i sold to but that was the top-line revenue the nda is actually fairly common in uh in sales agreements especially of an appreciable amount of money and the reason for that is because they don't want a potential new acquirer in terms of if you were to roll in other companies after they buy your company to know what you got for yours because then it hurts their negotiating power now that being said the next two companies that i sold in 2021 i sold for 46.2 million dollars and i was able to do that because i negotiated that in because i was tired of not being able to talk to the other one and so there's the press release from that on top of that you might be like well i don't have businesses that big that's okay fear not i also sold five brick and mortar locations prior to this um and so i've sold actually that's seven i don't know why i said eight i shut down one there's the there's the other one there you go there's eight i had five brick mortar locations that i sold and here's what's even cooler i've actually sold those businesses to six different types of buyers i sold to financial buyers so private equity i sold two and family offices that's what fos so private equity or family offices which is all forms of private equity but institutional buyers or family offices second i bought i sold to strategic buyers uh which is the one who bought my software company i sold to friends i've sold to competitors i've sold to customers and i've sold to partners all right so i've done a lot of these deals and interestingly enough as it was going on i never thought wow this is someday going to come in handy and that i can help other people go through this as well because i've gone through all these kind of weird scenarios all right and so i've learned a lot in the process and i would like to make this because i get questions all the time about valuing companies and buying companies and we have companies that reach out to us so for acquisition.com we work with specifically service-based companies especially internet uh service-based businesses guru businesses e-learning businesses course business etc we purchase minority stakes in those companies to help grow them which is what the portfolio does now which is why it does over 100 million that being said we're very familiar with this process and so i wanted to walk you through this because a lot of people have questions about it and so i'll walk you through the overarching process and then i'll dive into each of them in more detail sound good awesome so phase zero zero is the pre-requisites these are the things that must be done or even even are required for you to be able to sell or have any kind of enterprise value to begin with which i'm gonna be really real with you most companies most businesses are not valuable at all all right most of them are just assets you might have equipment uh you know if you're a physical presence and if you're an online business you have very little value unless you have a lot of these things in place all right so most people want to try and go in business sell their business and find out that no one actually wants to buy it because people are not stupid all right so next is once you have these prerequisites which i'll go over you have to find a bank or a broker all right and this is something that i've gone back and forth on i sold some of them without i've sold some of them with i'll go pros and cons and i'll explain to you kind of how to negotiate that process and figure it out after that now we can actually start the selling process we have a bank we have somebody representing us to help us go sell our stuff all right and so this is the prep this is phase one all right phase two is now that we have prepared all the stuff now we go market the thing so that we can sell the thing to somebody all right phase three is now that we have people who wanna buy the thing now we gotta close the deal all right and so i'll walk you through each of the intricacies of these and there are honestly a lot of steps in this process if you want to have a big number money in the millions uh for a deal all right so let's start at the top all right prerequisites so these are deal killers these are things that make a deal not actually happen which i'll be wrote with you is the vast majority of the time most companies are just not that big and when i say this mind you i'm talking about institutional sized uh businesses so like if you wanna have a deal that's you know five million dollars plus which is about the smallest deal that any like real institutional investor private equity family office will will look at uh is there has to be you know a big enough size for it to make sense right now you you can have tons of people who do you know a lot of private investors and retail investors people who just have a little bit of money saved up then you know they might want to buy a dry cleaning business they want to drive by by a gym or they might want to buy whatever right like those are normal businesses but those aren't that's not what we're talking about here because those are all one-off and they're not going to make you rich all right and so that's why i'm focused on the how to make you rich type sale because these are much more uh difficult to understand and the process is a little bit more nuanced all right it took me a long time to learn this and guess what no one taught me this like i didn't see this anywhere and it took me a long long time took me a year to just kind of understand how the entire process worked to end in so that is what i'm trying to save you is a year of painstaking effort for me and i don't know who you are so i'm making this so that there you go all right so the biggest one though is that people are too small the next one is that there's a customer concentration meaning you have too few customers that equate to the business right if you have like 10 big customers if two of them leave or three of them leave all of a sudden you lose like a third of your business that is very risky all right people don't like that and so they will give you a massive discount on the value of business or not even be interested because it's too risky and especially if that's like those relationships are there because of you and they're they you know they like you and you're the kind of relationship manager which happens really commonly in small businesses next one is no defined sales process a lot of times people don't really have an acquisition process for getting new customers they don't know how they get customers they just kind of come their way and so if you don't have a repeatable or reliable way of acquiring customers ideally through multiple channels which i'll cover in a second you will probably not get a very good multiple or even want to get any kind of deal at all next is that when you when people do start this process a lot of the mistakes they make is they don't go through enough potential requires they're not trying to target of people they're like i talked to 10 people and no one wanted to buy well no you talked to people got to talk to 500. right and that's how you can get somebody's going to give you the right kind of multiple on your business if you want to sell to an institutional investor next one's getting timing wrong so everybody always thinks that like man if i said another 18 months i cannot tell you the amount of times like it's almost like the the standard response of entrepreneurs is i'll be ready in 18 months because a year they know they're not ready but 18 months for some reason feels like it's far enough out that they'll like somehow magically avoid their wand and all their problems will be done which is not true all right so uh getting the timing wrong is a huge issue and a lot of people sell too late very few people sell too early most people sell too late in my opinion uh and in so doing they can't sell at all and so the thing is is i heard this quote from the uh the managing partner of apg frasier preston really really bright guy he said this on one of our calls he said well business is always going to go up in value over time except when it doesn't and in case it becomes unsellable and so it was very very interesting to hear that because that is kind of the truth it's like either people see this thing as like oh wow this is a growing asset that's increasing in value and even if you stay the same for a period of time just more years under your belt makes it actually more reliable so it's less risky so literally the older a business gets even if it stays the same it becomes more valuable right that being said if you get the timing wrong as then it starts going down no one wants to catch a falling knife all right especially in private deals like this stocks and whatnot people are trying to time it it's a big enough company it's been around long enough et cetera that's different than small businesses which is what the vast majority of people who are watching this video have small business being defined as less than 100 i think employees next one you think it's worth more than it is and this is a big one right a lot of people are like man i heard that you know so and so got 20 times top line it's like yeah and that's because that's why it's newsworthy because it's weird right it's not common if there's a completed sale i think i just can't remember where i pulled this staff from the median number for uh m a deals for for this was uh for 5 million plus deals oh sorry camera what the media was shoot i think the median was five million dollars i can't i screw that the point is that the multiple was 6.7 times trailing 12 months and that is for institutional buyers right now you might not have an institutional buyer which is why the vast majority of businesses that get sold get sold in private deals for like 1x 2x 3x and it's because they're not really reliable businesses for the most part they're just kind of asset sales like i'm handing you know a handful of employees over with some kind of working model and i'm just moving on to do other things which is honestly the vast majority of businesses that get sold it sold for almost nothing all right so we hear about the big wins but that's not the majority all right and so i want to be clear in that most businesses either don't get sold or get sold for very little money and so the point of this presentation is how to sell it for lots of money all right which you have to meet these requirements to even be considered okay uh the next next little doodad that we have on our list listicle here uh is not growing big enough tam or growth stores there's three different things i put in one bullets i needed to fit in one place all right so if the business isn't growing you're going to get a big discount on it now i said earlier that the longer business is in place uh the more valuables which is true but if you're not growing or you don't have like a ways of growing it or it means that like the strategy you're doing is no longer working people will see that as a risk so if you have even a tiny amount of decline people see it as a big red flag because then they'll extrapolate that into infinity on the flip side if you have a tiny amount of growth people do extrapolate that out further so like flip it around and sustain that growth for 12 months 18 months prior to the deal to get a much better number big enough tam so people might think oh this is uh this this business is cool it's a niche but it can't expand beyond this niche so you need to have a good growth story as in how are we going to really 10x this thing because people are buying not to buy your business they're buying your business for what they think the business will become all right that's what kind of private equity is all about no one's really trying to buy the thing they want to try to buy what things would it become all right and so that's when you make great deals right that's on their side so you have to tell them or explain to them the story of how it's going to work right and the the more they can believe that story that it's likely to occur then the more valuable your business will become next one and this is a huge one for small business is key man risk as in like are you the one who's the rainmaker you're the one who's bringing in you know all the deals are you the one who's you know the special man who does all the fulfillment all that kind of stuff like are people coming for you if they're coming for you then they're not going to come for your business which means that when you leave the business is worthless right and so you're a big risk and a lot of times uh this is i'll be frank with you in acquisition.com we work with companies that have key man and we work them over the next three to five years to help them not have keyman risk which is how we were able to exit gym launch which was started as kind of a more uh guru-esque business and then transformed into just a true uh business licensing business at an enterprise level and so there is a process of getting through that and you have to take the time to do it if you don't your business will not be valuable okay and then finally a single and there's more risks these are just some of the big ones uh single channel dependence meaning you only have one way of getting customers you have no other way and if tomorrow that shut off you'd be screwed people just imagine well if it shut off then i would lose my money and good investors don't take risks like that they don't want to go to zero and so that will massively impact the value of your business all right so these are deal killers these are things that get you to not sell or sell for very very little money and so you must check off these boxes before you can get big institutional money all right so this is the big bottom line of that section which is enterprise value is a discount applied to future sales to future sales which means you have to take the total amount of sales that a business takes between now and the end of time and then you apply a discount to it which basically means risk what's the likelihood that that occurs all right and so if you can show that you have a lot of future sales are going to happen and it's very very likely that they that they're going to occur then you'll have a very very valuable business if you have a small amount of future sales or a declining amount of sales then the likely that it happens is low and the amount is also low all right so that gives you low enterprise value so that's the bottom line that's what we want to show is going to show that we're going to make lots of sales and continue to grow and the likelihood of occurring is very very high they should be asking you why are you selling this business and you need to have a good reason for it so checked off that box let's go to phase two let's say you check all those boxes and you're like okay i think i have all those things i now want to find a banker or broker right and quick difference here bankers are what you're gonna need to sell to an institutional for the most part brokers are usually when you're selling for less than five million you get a broker and they have different fee structures because the amounts are lower and they have to do more deals all that kind of stuff all right and to be fair i think sometimes bro being a broker is even harder because you're selling let's be real okay so uh the way that i did this and so i'm just being real like the way that i did this is that i network for intros it's very hard i think you can try it uh go you know google investment banks google top whatever investment banks and esp specifically you'd want them in your market and your size so there's two components it's you know do they have they sold supplement businesses have they sold e-commerce businesses have they sold software businesses have they sold elearning businesses have they sold whatever type of business you have number one and number two have they sold them of your size right if someone you know has sold lots of e-commerce but they've only done deals that are like 500 million and up and you're doing like 10 million topline you're not going to be a fit for them because the buyers that they already know are not going to want to buy your thing because the check is too small all right and so these guys write a proportion like checks proportional to the fund size that they have of the capital right like if you have a billion dollars you're not gonna make a thousand dollar investment it just doesn't make sense at the time investment makes no sense all right so i use my network which means i just called everybody i possibly knew and said hey do you know anybody who knows anything about this and so you can start with entrepreneurs you can start with people you can start with your actual bank where you go like actually to do banking and you just pull threads and this is what took me a long time which is why i make this video to hopefully save you guys some time is that like networking to try and find these introductions was a pain i didn't i don't know anybody you know i mean like i wasn't born into an investment bank so i have no clue and so you network for introductions to these banks okay once you have that that uh some introductions right you then give them a one-page summary document you send them because they'll be like okay well send me send me a a a a teaser right it's like a sizzle sizzle page of like all the sexy things about your business the assets your lists how you you know it's just literally a one-page summary that should look really sexy that someone can look at and be like i would like to take another call with these people that's it that's the objectives just to get them to say yes i'll take a call with you once they say yes i'd like to take a call with you you then basically sell them on selling your business all right so you sell them on selling your business and then if they do like that they will usually fly out to you and meet with you in person with a team and then they will sell you on why they should sell your business and so the process here goes like you network for as many introductions as you can to bankers who are relevant to your size and your space you send them the one page teaser so that you can get them uh interested they then a certain percentage of those will take a phone call of the phone call you sell those people and why it's a good deal they will then follow up with you and say yes i think it's a good deal let's talk let's talk in person you'll then probably meet with you know four to six bankers um to tell you why they think they would be the best ones to represent you and get you the highest enterprise value and that's where you're going to negotiate their fee structure and you're going to be asking them questions around what other deals like yours they have sold and what their network looks like now they're all going to say they know all the people and all the decision makers and all the things right but the real thing you want is people who have sold businesses similar to yours in terms of market and size in recent history all right because that means that they are it's recent they're in the know it's not like they sold something three years ago that was similar because they're way out of way out of touch all right you want people who do this type of deal all the time now the typical fee structures what else what to watch out for so the their fees and agreements they usually have an upfront amount sometimes that's all these things are negotiable you can negotiate that out you can go shade it in they usually ask for upfront if they if the number is lower so if they don't think that it's likely that they're going to sell they'll ask for an upfront which you can use at a negotiating point which is like you don't think you can sell it because then it gives you a point to argue back to somebody else right they'll give you targets uh for what they think they could sell for and then they will give you ratchets which is like and if we sell for over x we get x percent we sell for over y we get z percent what bankers will actually do is once they will help you package the business and they will go out to market and they will pound the pavement and they will talk to hundreds of buyers and they will walk you through this process but it's good to have an understanding of this process by and large so that you cannot sound like an income poop when you're talking to them all right there's usually also a breakup fee which you can negotiate out of the deal or at least decrease it and you can also on the flip side have minimums which is like if you guys don't sell me if you don't get an offer above x then you don't get paid at all right and so we had minimums in our deals so that they wouldn't actually get paid so they're super incentivized so the things that like you really want to uh be cognizant of uh is is the minimums and especially how they're gonna get paid like what number they're getting paid off are they getting paid off the total enterprise value or they're gonna get paid off the cash you receive right and you wanna negotiate off the pass you receive not the enterprise value because let's say you sell 10 of the company for a billion dollars i'm saying for you know silly math so you'd get 100 million bucks if let's say they got four percent of enterprise value right they would get 40 million of the 100 million all right so there's little things like this that they will use to you all right so like be cognizant of these things and the targets and the ratchets that they put in place it sounds like it's um you want them to be really excited to push it but the things that i really would want you to pay attention to are gonna be the minimums and what they're getting paid off of and breakup fees and upfronts all right because at the end of the day you know the ratchets and targets hopefully you're happy with this on the front end because what happens sometimes is the reverse which is people all of a sudden start hearing the lois and whatnot and start getting greedy um and i don't think that's why it's like decide write down a number before you start the process and talking to all these guys because they'll blow your mind up and they'll tell you that you're gonna sell for a billion dollars and then you sell for not a billion dollars okay for much less less than that so write down the number write it to a letter to yourself and say i would accept this for this reasons all right because this is one of the most emotional processes you can possibly go through it's selling a part of yourself selling part of your identity and so you can get tied up in it okay now you will sell your company better than almost any banker all right so they're going to be experts in the process you will be the one who's going to be an expert at selling your company especially if you're a promotional entrepreneur you know how to sell right and so you want to be very instrumental in giving them the selling story because they're going to be the ones who are doing the selling but you're also going to be doing selling as well so you need to be giving them the salient points you think that they're they're going to say that they're experts at this they're not that like even though they've sold a handful of companies they've only sold a handful right they just sold five like yours that's still a ton just like yours but you want to have the really selling points that only you will know because they don't know your business right you got to give them the really sexy stuff right and as a reminder these people are like real estate agents they're trying to sell both sides they're trying to get a deal done more than the best deal even though they have ratchets even though they have these things the big thing they're trying not to do is not close a deal and so they will do everything they can to get both sides to just meet in the middle and sell but that's not necessarily in your best interest okay so just remind you here it's not in necessarily your best interest all right now this was the false belief that i had which is they will know what they're doing and we'll get you the best deal which is not true which i just explained this and so this is the negotiating point this is a writer downer for you they only responded and i had to learn this the hard way to if i don't get this point the deal is off otherwise they basically just steamroll you and you might say like well maybe you had bad banking experience who knows but i'll just tell you this is my experience is that you have to be willing to walk away from the table in order to get the best deal all right which is why you win negotiations before you start them by having options all right you want to have an amazing business you want to have a business you don't want to sell that's the best way to sell a business is to not want to sell it right and you have to get there if you're like i would just get rid of this thing for nothing then prepare be prepared to get rid of this thing for nothing because it's because it's going to get there because they're going to drill you because these are professional negotiators on the other side table that's what they do all day long you might have sold your business one time they buy businesses every day all right so they know exactly how you feel they know exactly how to manipulate your emotions to get you to say yes to lowest price okay so what you want to say here is that if i don't get this the deal is off and it took me a really long time to learn this and then all of a sudden when i started speaking this language the beggar started responding to me like oh no this is really a big deal for them like if they don't get this then all of a sudden they start negotiating for me because what will happen in this world of institutional is they just say no to everything unless you say you're going to walk then they're like okay fine we'll give you that one right so they will just say this is our deal structure unless you take it or leave it unless you say i'm willing to walk on these points all right and then they will start moving just my observation now i'm telling you i'm sharing this stuff because no one share this with me all right so uh we covered finding the banker uh how to negotiate the fees uh what to look at in terms of how to interface with them to negotiate on your behalf now let's start the actual process all right so there's the prep and this is a big big picture of what the what this whole process looks like once you've got audited financials once you've got a sim which is a um shoot i don't even know it's something model i think but basically it's like this hundred page plus thing of really in depth of the financials and the story and the competitive analysis and the marketplace and the growth trajectory and all the stuff that's what they should be doing for you all right they should make that thing um and they will send the the teaser out to all the you know 500 people of those people a certain percentage will sign ndas which is non-disclosure agreements because then because it's anonymous they won't they won't when you're sending out the teaser it doesn't disclose what the company is that way you know employees and things like that don't get scared by you just shopping the company all right so this is how i recommend doing so you have 500 buyers contacted and you'd want to ask these questions how many buyers are you contacting how big is your list what are what are your potential requires right 98 uh ndas from there you'll usually get like 14 or so is 15 right uh from there about half of those uh you'll do kind of like management presentations from there you'll get two to four lois and io is the indication of interest which is non-binding and loi is also typically non-binding um but it's a letter of of interest which is like this is what we're prepared to pay for the business from there you negotiate them against each other and then you get one deal right and then you you sign the loi and then you go through the diligence process and then you close okay that is how these sales numbers break down if you've talked to 10 people then lo and behold you probably are not going to get a good number right and so that's how this process works the thing is a lot of these guys are lazy so you have to push them on these numbers to send out more like repeat follow up with these people and i'll be honest with you on the deal that we ended up doing it wasn't uh the first set of buyers that we got to the table it was actually somebody that my cfo pushed our bankers to follow back up with again that ended up being the the final acquirers all right so like you want to push them because at the end of the day they're going to try and do as little as possible to get paid i'm just being real with you that's the real world all right so let's do it so now that we have to understand how the sales process works this is now you're working with the bankers you got to get this prep stuff done so you got to get your due diligence in you got to get organized a lot of people don't have this stuff draft of the sim there it is confidential information memorandum all right so you got to complete that get a review that's a huge amount of work all right uh and these weeks are just rough all right these are rough amount of weeks all right i'm going to show you 20 weeks in this presentation but like that whole pre-process of getting the bankers took another like three months so i would say roughly from the time you start this process the time you get a check in your bank account is usually 12 to 18 months all right i'll say 12 is a nice like if you're like if today you decided you wanted to buy it would take a year before that actually you'd have a check in your bank account all right so then they're going to put together the list of potential buyers or investors then they're going to have the summary fact sheet and the confidentially the nda is agreed upon and then that's it that's the prep phase all right that's it simple simple all right now we start marketing because we got all the materials done now we market them okay so now we contact those perspective virus we go neat uh teaser then nda then which is the one to three page blind description of the business then the data room which is basically like they have to put the stuff like in the cloud so that people can always have access to it so all these potential buyers will be sifting through all your your resources to come up with questions that they're gonna ask you or say that's not a good deal for them right this is when you have your kind of your pitch deck right of what you're going to present to them right you're going to dry run practice it etc potential investors will then submit their ios all right that's the indication of interest that they're like we might be interested in buying this business and they'd give a rough range right and then you have potential people who are i'm trying to go through this part faster because it sounds boring but this is the stuff this is how it works right so potential investors visit company they provide you provide access to the data room of all the diligent stuff that they're gonna need so they have a cursory idea of what they need and you do the data room so you don't have to do all this interaction just put all the up there and they can all have access to it and then when you start on the the actual uh offers which is here week 18 final offers received and evaluated strategy is determined for moving forward with final parties right so this is where you bid them back against each other and then you get final offers which is lois okay letters of intent okay now once you have the letters of intent and you bid them back together you're gonna have different deal structures are to be presented to you which i think is covered here okay so you start negotiating those you go back and forth et cetera now here's the thing there's the price and then how it's paid it's price and terms and i can't tell you like getting good terms is worth discounts right now it depends on what you're selling if you just want to sell to have a story and that's one thing but if you're starting to get rich then the terms matter a lot all right so people share a big number like for example if i wanted to say i sold you know gym launch prestige ops for a hundred million dollars i could have gotten 100 million dollars in paper all right so hear me out so if i said hey pay me 25 million earn out if we do a billion dollars this year in sales sure they'll sign it and then i could say that added 25 million to my enterprise value on the sale i will be transparent with you i had no seller financing i had no earn out i had no i did do i did real equity because i sold uh 66 and i had no transition services and no consulting all right and that was because that was the that was the agreed upon way that i wanted to sell this business and i said that upfront to everybody i said this is a full uh leadership exit i will not be involved i will not have a transition because the thing is if they're like sure if you just keep working for the business for two years yeah we're fine selling too it's like well i might as well own the damn thing right and i'll just grow it myself right and so this is where this is important now mind you acquisition.com for example for our business we only do minority investments because we want the leadership team there so we actually want to just participate in the growth and help grow the companies from 3 million to 10 million to 20 million to 50 million and beyond right we want to participate in the growth and we're happy taking a smaller life of what we consider to be a bigger pie rather than ripping out the management right so we're we work with people who are like not not really ready for institutional yet but want to get that 20 million dollar 50 million 100 million dollar plus exit i'm going to get them ready just for context all right so these are the things that will discount you so if you had 100 million dollars for example for an exit they might say okay well we're going to put 25 million in earn out 25 million is gonna be seller financed you're gonna roll 20 which is 20 million so there's 30 million dollars left uh and so we'll give you 30 million dollars in cash uh and you say oh i sold my company 100 million right and then of the 30 you've got the bonuses and you've got other equity you know partners if you have those and then you've got the tax man so all of a sudden let's say you've got 20 that's given to your team so now you're at 24 million and then taxman takes his 30 right uh and you've got closing fees and things like that and escrow fees uh and so now you're at uh whatever 18 17 million so you sold your business for a hundred million dollars we only got 17 million bucks right that's why this stuff matters okay so you want to make sure that you know why you are selling and what the most important things are for you and you need to ruthlessly ruthlessly communicate that to the bankers okay very important point because they will negotiate on those points for you now the things that they're also looking for for them is is it's a fit within their portfolio like a family office for example is just going to buy something that they think is a good cash flow investment and the price is going to be very important to them a strategic buyer would be somebody who's going to be let's say let's say you own a car wash you know chain or whatever if there's a bigger car wash chain that just wants to buy yours they'll give you a better multiple because they already have all these systems in place so they're going to make more money from your business than just a generic buyer will so the ideal way to exit is too strategic because you'll get the best multiples but to be fair there are more financial buyers than their strategic so that's kind of the trade-off okay and you want to make sure that that your business is in good hands so that you want people who have relevant experience we were very fortunate that the people that we felt were most equipped to buy the company were also the ones who ended up giving us the best offer and so that's that doesn't happen we were very fortunate end up working out that way for us um but this this it doesn't always happen that way and then this is a really simple one do i like these people will my team like these people because ultimately the team's gonna be working with them right so you want to ask those questions as you're going throughout all right so like you can have who pay a little bit more and then really nice guys who pay a little bit less life's short man so like i would go with people who a lot of people regret just taking the highest offer rather than 10 less and having a much better life okay at this point you would sign your loi all right most of the times it's going to be exclusive saying like if you have a tremendous amount of interest you might be able to sign lois and have them not be exclusive and they still bid all the way up to the purchase agreement most times that's not the case they don't want to they don't want to expend the money so like the so apg when they bought us spend probably about a million bucks in diligence just in diligence right to figure out whether our company is worth buying right and again you're not going to attract guys who are going to write 100 million you know do a million dollars in diligence for a 5 million deal it makes no sense right so like if you want big money numbers you have to you got to follow the big money process all right so at this point you signed an exclusive loy meaning you can't shop the business to anybody else during the period of the of the due diligence now i'm gonna say at the end but i'm gonna say it again all right and i've got a special treat for you which i'm now remembering uh at the end of this video i'll actually i videotaped us actually having the the escrow hit and the final signing and you can actually see it go down for real all right it's very anticlimactic but you can see it for real and now see what a 50 million cell looks like okay so the due diligence will begin they're going to try and negotiate time saying like oh we can get a faster close if blah blah blah if you accept this lower price they're going to take as long as they want literally ignore it they seriously they will try and use speed i had every single person try to use speed as a selling point i thought it was legit the first time they said 30 day close and it took sorry they said four i said 30 day close and it took 112 days and i i accepted worth this is on one of the other companies we sold i expected worse terms on that right so the next time i came around this is why i'm giving you this stuff next time i came around they were like oh we could do a fast because i was like whatever take your time my company's grown do whatever you want right and when you do it that way you're in the position of power okay so they're going to audit your quality of earnings which is something you have to get the bankers will explain how to do that which is to make sure that your numbers are legit that they are what you say they are right anybody can put numbers in excel sheet but are they for real right then they'll do legal diligence so they're going to make sure you actually own the company do you have any lawsuits against you are you in are you go are you breaking any laws which actually is fairly common when it comes to claims and things like that uh for like ftc things like like it's it's actually fairly common so you want to make sure that stuff's alright and that stuff can blow deals up i had a an acquaintance of mine that had uh two different deals blow up that were like nine figure deals multiple years apart because they were not compliant all right so like and they thought that the lack of compliance was one of the reasons that they were so successful and so they didn't want us too risky all right what they'll then do is they'll start interviewing your customers all right this may sound freaky but that's what they're going to do they're going to talk to your customers they're going to talk to your employees they're going to interview them the firm that purchases spent like 250 000 i'm pulling that number out of air but it's a lot on research uh to to see what the what your customers think about you so if you're terrified to think about what your customers who who are past customers who no longer pay you think about you be prepared right they're going to talk to them and be like should i buy this company is this a good company right what has your experience been like right and same thing uh with your employees now they're not going to ask them but the that stuff they're going to only talk to people already know about the deal but they're going to interview them really uh heavily to see what's your involvement is he really is he really passively involved like what do you do on a daily basis what do they do on the daily because they want to know that if you leave it's still going to keep going and growing all right then you've got background checks of you and your management team to make sure no one's you know a convicted criminal or something sketchy uh which more realistically is like financial fraud employment contracts to make sure that if you leave they don't all leave with you or they're like only there for you etc and you're like okay i feel like i'm done nope there's more okay so once you've gone through this whole dildos process which takes 60 to 90 days now if you're tracking with me there was like three months you know of looking for bankers and figuring that part out and making sure that your business is ready may take much longer than that but like assuming your business is ready right and you have met the prerequisites might take you 12 weeks to find the right bankers from there it's 20-ish weeks to get to this point and then you might have another 60 to 90 for diligence now bankers will say that it's gonna take less time they're incentivized to tell you that it takes less time so i was talking to a good friend of mine who was like hey man i got they said their 30-day diligence uh and it quick closed and i was like dude it's not gonna happen and it was for a nine figure number right and lo and behold 90 days later he was like yeah fast they said wrong they were right he's like why didn't you tell me this was gonna be so much fun right and he's now i think like five months into his process of post post agreement signed right so like i'm not saying that that's typical but i'm saying like you need to prepare it for a year like and it's going to be a year slog and a lot of your focus is going to go to this process so like you really need a strong management team a place who can continue to grow the business without you all right other and that'll prove the point and this is a note the longer the process takes it is in the buyer's advantage that take a long time all right so you want a fast close they want a slow close and being real the only way to speed up the close is to keep growing like crazy because they then they're going to realize that all of a sudden the valuation from the beginning to the end will have changed and then you will have much more negotiation power and you can break the agreement and get other offers right so important point there now so once you've gotten that point you'll get a purchase agreement inside of the purchase agreement you'll have these different pieces you have to watch out for indemnities are the things that you're reliable for these are the things that will keep you up at night you need to negotiate hard on these things now give the things that are reasonable like yes like fundamental you know individual warranties i think is the name of the clause whatever it's like you actually own the company you actually own the trademarks like yes you have to like yes otherwise the whole purchase is off right and you could be liable for the total purchase amount for that stuff right now that's the indemnities that the other indemnities are things that like are completely out of your control so you want to make sure you negotiate those things out and again with all these negotiations you have to be willing to walk away and say like i don't like if this bullet's in there the deal's off like and if you can't say that you're going to get raked over the calls okay now non-competes depends on why you're selling and what you want to do next but you want to be very specific and this is one of the hardest things that that you're going to get into negotiating especially if you have a skill if you're really good at you know trash compacting they're going to not want you to touch anything trash related for a long period of time all right and what's really tricky about this is that if you roll equity into the new company that they're going to be buying your your company in or whatever they will write in the articles of incorporation that none of the people who have that can compete and so even if you have a purchase non-compete you may have a non-compete as long as you are an equity holder in that other company which means that if you want to breach your non-compete you would have to give up the equity that you rolled in addition to uh the the the that's once the other non could be expired so you have to be very very careful about how these non-competes are written and the definitions that you have around this is so important like i can't tell like so for example if you were selling let's say a skincare line they might say they they they the first one you get might just say like you can't be in beauty anymore well that'd be freaking ridiculous right because you know the space and you're not competing with your company if instead of skincare you start getting into makeup right and you have to make that argument right it depends on the size of the deal and what you're willing like if this is the one deal that's going to seal all deals for you then maybe you'll be willing to give more right and be like all right i'm not going to touch the space for a long time right on the flip side if you're like i already know what my next thing is going to be and this is the best thing to do with the non-competes is know what you're going to do next because if you know what you're going to do next then you can be very specific with the language and you can make sure that you're 100 covered and just tell them that's what i plan on doing next i just want that to be affected and if you say that and i'm telling you guys the best way to negotiate these things is to be honest just tell them what you want and a lot of times it's much easier than trying to guess and ascribe blame and all that kind of stuff all right schedules is all the stuff that you provide it's basically another word of like proof right we're doing all this based on these assumptions and the assumptions have to be true for some reason the schedules are not there like we did this based on this you know customer segmentation analysis if you mentioned it in the selling process of getting them to say yes and negotiating but then you don't include it in the agreement as a schedule it's as though it didn't happen and then they can come back and screw you now this all sounds scary most of the times these agreements don't get repealed all right but you want to make sure that you include all the stuff and that stuff sucks but you got to do it you got to have a good lawyer for it all right definitions this is kind of interesting as a total philosophical point the agreement itself is is almost as long as the pages of definitions for the terms that are used in the agreement and i think socrates said wisdom begins with the definition of terms and so like fundamentally the agreement is like party a as defined by x agrees to pay y according to these terms two party z according to these terms according to the you know uh for this amount according you know whatever so it's like all these things are just terms that have to get defined and so i'll give you an example um a term that we were able to redefine i think it was actually i think we redefined a term within the non-compete that dramatically changed the the meaning of the document and made it much better for us to do whatever we wanted to do next and so like just changing the definition of a single word can run through an entire agreement and sometimes rather than fighting on clauses it's better to really narrow down the definition of what you're trying to define so the scope might be geography for non-compete or it might be like there's a million things that you define in these documents but making sure that you read the definitions for what these words mean is really important all right now the few points and this is just the points that you'll want to negotiate there's a zillion other things these are the main the big hitters networking capital since the very end you've already agreed on everything already agreed on the terms you already get in the price right now you have to grow networking capital which is how much money you're going to leave in the business right and this we're going to try they're going to try and get you there too right it's like hey let's say you've got a million bucks of working capital in the bank account they're gonna be like well you've had a million dollars sitting there for a whole year so that comes with the business you're like well i've just had it there because i didn't take dividends out of it which why by by the way is a good reason to dividend out stuff and keep you know little in the bank account if you're a smaller business now if you're reinvesting and buying and doing mma and stuff then that's a different question which most of you guys aren't doing that right now so that being said networking capital is what how much money uh is required to run this business so that when we have this transition it can continue to work as normal right and you want that to be as little as possible so that is so that you can take as much of that cash to the bank account in addition to what they're going to pay you all right and then finally is the escrow amount so let's say you've got that 100 million deal like i said earlier and they might say we want to keep 20 in escrow all of a sudden you've got 20 million in escrow and again we still have the escrow we've got the seller financing we've got the urn out we've got the splits that you have we've got taxes we've got we've got all these other things that are going to come out of it all right is you got to make sure it makes sense and so escrow amounts like if you can keep it under 10 you're rocking all right now they're going to probably keep some of it there and that's because they keep that as insurance like if something else comes up or there's some bill or blah blah that's your fault some back taxes whatever they take it out of the escrow amount all right that's how they do and then usually they will release that and again when they release it they can release it in phases so i think we had i think there was like a 90 day and then a one year for ours but like it can change some people have escrow that holds for two years some people don't have any escrow but it's a negotiating point all right and i'm repeating this don't let speed be a negotiating tool used against you all right it doesn't matter they're gonna take as long as they want so don't let them use that against you all right finally you've done all this stuff you've negotiated all the the hard points you've gotten here and it's now payday all right so first off it's very anticlimactic because it takes all this time and then all you do see is just like a big deposit in your bank account you're like oh well i guess i am the same so i'm just telling you that's what's gonna happen all right that being said you actually don't even sign papers there's so many papers that you actually have to pay someone to sign up because it takes so darn long so we actually paid our attorneys and i think it took like six hours just to sign on our behalf for all the documents and and do that for us all right now once all the documents are received by the escrow company both parties have signed everything at that point they initiate the deposits to the parties that have already been predefined so if you have payouts that go to let's say your bankers or brokers that comes off the top if you have payments that go to the escrow company comes off the top if you have distribution that come to your employees or other equity holders or investors that then all comes and then you get your piece all right and so uh to uh to and just hold on because i'll show you the actual video it's only like i think 30 or 40 seconds of the actual signing moment uh for us and you can see what it really looks like to close a 50 million deal but just a few closing thoughts on this is that they're going to treat you like you don't know anything all right and so you got to get smart you got to read stuff watch this video rewatch it and understand the pieces that someone's going to try and do to screw you over all right and you know a trust is gonna be a big component of this right so like you have to trust the people that you're gonna do business with and if you don't uh it's gonna be really difficult now that being said you can trust them but you still wanna verify right you still wanna make sure that the words say what they say they say and a lot of times that's not the case all right and so big picture if you do get to this point congratulations it's very very hard to to to grow a business do all the stuff and sell to an institutional buyer who will pay you know tens of millions or hundreds of millions of dollars for a company um these are just some of the lessons that i learned and this is the process it took me a long time to even just figure out how it worked um and for mozy nation i i make these videos because i no one told me this stuff and so i'm hoping that for you guys this helps you out and uh and hey if you're doing over three million you can hit us up and we'll see what we can do to help you out and help walk you through the process and just so you know this is the actual video of us giving the final word and seeing a 50 million deal go down in the real world between us and the lawyers and the private new firm so it's all there enjoy it and so if you could confirm that you release your signature pages contemporaneously with the release of the seller's signature pages we will be done on our side okay confirmed great um elizabeth yep we are we're good confirmed okay great and and alex can you can you confirm your release of signature pages um contemporaneously with the buyer signature pages such that we can close confirmed great well congratulations everybody um just in time for uh for a nice weekend hopefully uh i'll you know turn it over to frasier or alex if they want to say any words but um congratulations yeah alex is layla oh yeah yeah right here she's right excellent great okay good well guys congratulations it's a big milestone um we're happy to be here with you and um you know i know this has been like a long road and we're happy to be at the at the starting line here so are we we're excited for uh for the future and uh we have so many it's gonna be fun to announce it to the team on i think monday and tuesday so we're stoked it's gonna be a good it's gonna be a good next phase it's gonna be a good kickoff year for everyone yep anyways lots of love everybody see you in the next video keep being awesome bye