Mergers & Acquisitions

The Exit Strategy Handbook

A Complete Guide to Preparing Your Business for Sale

Written by Jacob Orosz, President of Morgan & Westfield

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 companies’ 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 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.

It wasn’t raining when Noah built the ark.

Howard Ruff

Benefits – My Goals in Writing This Book

Decide whether you should sell your business.

Sell your business faster.

Evaluate the salability of your business.

Establish a range of potential values for your business from low to high.

Maximize the value of your business.

Discover the ideal exit option to maximize your price.

Identify and mitigate the most significant risk factors that impact your business’s value.

Prioritize the actions you can take to prepare your business for sale

Be prepared to sell at all times, especially with an unsolicited offer.

Eliminate deal killers

Overview

Preparing your business for sale and maximizing its value can’t be boiled down to a few simple metrics. Rather, there are scores of factors that can affect your business’s value depending on its size, industry, location, employees, and myriad other variables. In The Exit Strategy Handbook, I walk you through dozens of factors to consider when planning the sale of your company and specific actions you can take to turn them to your advantage.

Planning to sell is all about building a business that buyers want. By preparing well in advance, you help ensure you’ll sell your business for the highest price possible. The Exit Strategy Handbook shows you how to:

  • Increase the value of your business
  • Enhance the chances of a successful sale
  • Accelerate the entire sales process
  • Strengthen your negotiating position
  • Improve your business operations and profitability

I’ve seen many a deal die a preventable death. Why? It’s simple – lack of preparation. The more risk factors present in your business, the harder it will be to sell, and the less buyers will pay for it. Investing the time to prepare your business for sale helps you eliminate problems long before a buyer sees them and dramatically increases your odds of success. By examining real-world case studies of businesses that didn’t sell, I provide insight into the salability of your own business. This includes what can potentially go wrong, and the steps you can take to help ensure your company sells for top dollar when you decide to put it on the market.

The Exit Strategy Handbook also explores how long it takes to sell a business, what variables can affect the timeframe, and what you can do to speed up the process. The smoothest sales happen quickly. The good news is that most of the factors that increase the value of your business also reduce the amount of time it will take to sell, so if you want to increase the value and speed up the timeframe, the steps are often the same. This comprehensive handbook offers you powerful tools to prioritize which actions to take when preparing your business for sale that will both speed up the process and increase your business’s value. 

Preparing your business for sale allows you to be ready to sell at any time. Why is that important? Because the best offers are often unsolicited. The advice outlined in this book helps ensure you maximize your company’s value regardless of when the sale takes place. 

The value of your business can vary widely depending on the buyer and their specific reason for acquiring you. Most entrepreneurs aren’t sure what buyers are looking for or who the most likely buyer will be. Still, there’s a common set of value drivers that buyers within an industry tend to prioritize. In this book, I help you identify the type of buyer most likely to buy your business and help you focus on the value drivers most important to them. Understanding the type of buyer for your business and what they’re looking for is essential to maximizing your business’s value. 

There are hundreds of ways to make your business more appealing to the right buyer. That’s where this book comes in. My goal is to arm you with simple steps you can take to increase your company’s value and dramatically increase its marketability. I then help you prioritize these actions to create the greatest impact on your specific business. Join me as I boil down my 20 years of experience into this concise guide.

Jacob Orosz

President & Founder of Morgan & Westfield

Less than 30% of small businesses on the market eventually sell. Why? Fewer than a fifth of small business owners actively plan their exits.

Questions Answered in This Book

Why do less than a third of businesses sell?

How long does it take to sell a business?

What factors can affect how long it takes to sell my business?

Who are the four major types of buyers most likely to buy my business?

What do most buyers look for when evaluating a business?

How does the type of buyer affect its value, and how can you prepare for the sale?

How can the size of my business impact the multiple I receive?

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

About the Author

Jacob Orosz

Jacob Orosz is President of Morgan & Westfield, host of the M&A Talk podcast series, and author of numerous articles and books on M&A, including The Art of the Exit, A Beginner’s Guide to Business Valuation, The Exit Strategy Handbook, and Closing the Deal. He has over 20 years of experience facilitating mergers, acquisitions, sales, and other business transfers with transaction values up to $75 million.

Your task is not to foresee the future, but to enable it.

Antoine de Saint-Exupéry

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