The Exit Strategy Handbook. A Complete Guide to Preparing Your Business for Sale

The Exit Strategy Handbook

A Complete Guide to Preparing Your Business for Sale

Photo of Jacob Orosz

by Jacob Orosz (President of Morgan & Westfield)

Questions Answered in This Book

  • Why do less than a third of businesses sell?
  • What factors can affect how long it takes to sell my business?
  • What do most buyers look for when evaluating a business?
  • How can the size of my business impact the multiple I receive?
  • How long does it take to sell a business?
  • Who are the four major types of buyers most likely to buy my business?
  • How does the type of buyer affect its value, and how can you prepare for the sale?

Overview

If you’re looking to sell a business that brings in $1 million to $50 million in revenue, you’ve come to the right place. The Exit Strategy Handbook demystifies the process of preparing your business for sale and helps you unlock real value in your business to dramatically increase your odds of success in the sales process.

A majority of your net worth may be tied to your company’s value, so maximizing the sale price is critical. Selling a home is child’s play compared to selling a business. You only get one chance – and The Exit Strategy Handbook shows you how. Planning to sell is all about building a business that buyers want to buy. By preparing well in advance, you’ll ensure you’ll receive the highest price possible.

The Exit Strategy Handbook isn’t theoretical. It’s based on more than 20 years I’ve spent as an M&A advisor in the trenches, selling businesses and dealing with thousands of buyers, from strategic acquirers and corporate purchasers to private equity firms and wealthy individuals. The lessons in this book are rooted in both successful and unsuccessful transactions that have happened in the real world.

My goal with The Exit Strategy Handbook is to arm you with simple steps you can take to increase your company’s value and dramatically increase the marketability of your business.

Table of Contents

Introduction

    Chapter 1: Background Information

    • Why Deals Die
    • Statistics on How Long It Takes To Sell

    Chapter 2: Introduction to Value Drivers

    • Steps to Completing the RVD™ Model
    • Sample RVD™ Model
    • Tips for Completing the RVD™ Model

    Chapter 3: Deciding to Sell

    • Why Owners Sell
    • The Big Decision
    • A Framework for Deciding to Sell
    • Deciding What’s Next

    Chapter 4: Exploring Alternatives to a Sale

    • Going All In or Cashing Out
    • Considering Other Options
    • Selling Part of Your Business

    Chapter 5: Exit Options and Buyer Types

    • Buyer Type #1: Individual Buyers
    • Buyer Type #2: Financial Buyers
    • Buyer Type #3: Strategic Buyers
    • Buyer Type #4: Industry Buyers

    Chapter 6: How Business Size Affects Value

    • Main Street vs. the Middle Market
    • The Impact of Size on Value

    Chapter 7: Normalizing Your Financials

    • Definitions of Financial Adjustments
    • List of Sample Adjustments
    • Tips for Making Adjustments
    • How to Produce a List of Adjustments

    Chapter 8: Measuring Cash Flow

    • Seller’s Discretionary Earnings
    • Earnings Before Interest, Taxes, Depreciation, and Amortization
    • SDE vs. EBITDA
    • Using the Right Measure of Cash Flow

    Chapter 9: The 8 Essential Principles of Valuation

    • Rule 1: Standard of Value Determines Methods Used
    • Rule 2: Size Affects Multiples
    • Rule 3: Valuations Aren’t Exact
    • Rule 4: Comparable Data is Limited
    • Rule 5: Valuations are Based on a Hypothetical Buyer
    • Rule 6: You Won’t Know Until You Sell It
    • Rule 7: Transaction Structure Impacts Price
    • Rule 8: Your Situation Affects Value

    Chapter 10: Valuation Methods

    • Selecting an Appraiser
    • Method #1 – Multiple of Earnings
    • Method #2 – Comparable Sales Approach
    • What’s Included in the Price
    • Special Situations
    • Preserving and Increasing Value

    Chapter 11: What Buyers Look For

    • Buyer Type 1: Individual Buyers
    • Buyer Type 2: Corporate Buyers
    • What All Buyers Look For

    Chapter 12: Products & Services

    • Product Concentration
    • Distribution Channel Concentration

    Chapter 13: Financial

    • Profitability
    • Revenue
    • Margins
    • Recurring Revenue
    • Cash-Flow Cycle
    • Working Capital Requirements
    • Capital Expenditures
    • Financial Records
    • Financial Statement Adjustments
    • Pre-Sale Financial Due Diligence
    • Switching Accounting Systems
    • Treatment of Debt

    Chapter 14: Customers

    • Customer Base
    • Customer Contracts
    • Customer Acquisition
    • Customer Sales Pipeline
    • Customer Database
    • Customer Metrics
    • Close Relationships
    • Customer Concentration

    Chapter 15: Operations

    • Suppliers
    • Premises
    • Online Presence
    • Branding
    • Real Estate
    • The Lease
    • Inventory
    • Equipment
    • Legal
    • The Transition Period

    Chapter 16: Staff

    • Ownership
    • Family
    • Management Team
    • Key Employees
    • New Employees
    • Compensation
    • Tenure
    • Employee Manual
    • Informing Employees
    • Retention Bonuses
    • Staff Related Agreements

    Chapter 17: Team

    • M&A Advisor
    • M&A Lawyers
    • Accountant or Tax Advisor
    • Franchisor
    • Other Specialists
    • Tips for Hiring and Working With Your Advisors
    • The Annual Audit

    Chapter 18: Buyers

    • Targeted Campaigns
    • Finding Other Buyers

    Chapter 19: Financing

    • Source #1 – Buyer’s Personal Equity
    • Source #2 – Seller Financing
    • Source #3 – Bank or SBA Financing
    • Other Forms of Financing
    • Common Transaction Structures
    • All Cash Deals

    Chapter 20: Due Diligence

    • The Purpose of Due Diligence
    • Preparing for Due Diligence

    Chapter 21: Taxes

    • Asset vs. Stock Sale
    • Entity Types and Tax Implications
    • Allocation and Taxes

    Chapter 22: Confidentiality

    • Reasons for Maintaining Confidentiality
    • Strategies to Implement Before the Sale
    • Strategies to Implement During the Sale
    • Who Else to Inform

    Conclusion

    • Deciding to Sell
    • Exploring Your Exit Options
    • The Planning Process
    • Valuation
    • Know Your Buyer
    • Start with an Assessment
    • Strategies and Tactics
    • Final Thoughts
    • Additional Resources

    The Exit Strategy Handbook

    A Complete Guide to Preparing Your Business for Sale

    About the Author

    Photo of Jacob Orosz

    Jacob Orosz

    President and Founder of Morgan & Westfield

    20+ Years of M&A Experience: Over 20 years of experience facilitating mergers, acquisitions, sales, and other business transfers with transaction values up to $500 Million.

    300+ Transactions: Successfully participated in or managed the sale of over 300 privately held companies representing both buyers and sellers in North America, Central America, South America, Europe, and Asia.

    Author of 6 Books on M&A: The Art of the Exit, A Beginner’s Guide to Business Valuation, The Exit Strategy Handbook, Closing the Deal, Acquired and Food & Beverage M&A

    Host of M&A Talk: Host of the #1 podcast on mergers and acquisitions – M&A Talk.

    Host of Food & Beverage Talk: Host of the #1 podcast on mergers and acquisitions specializing in the food & beverage industry – Food & Beverage Talk.

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    Host of: The #1 Podcast on Mergers & Acquisitions
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    Browse Our Other Books

    Acquired. The Art of Selling a Business with $10 Million to $100 Million in RevenueThe Art of the Exit. The Complete Guide to Selling Your BusinessClosing the Deal. The Definitive Guide to Negotiating the Sale of Your BusinessFood and Beverage M&A. An Insider's Guide to Selling a Food or Beverage Business
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