How to Sell Your Business for the Most Money | 5 Hard Lessons From Leaving $3,000,000 On The Table

A few years ago I sold a business for $16 million to a private equity group out of Dallas. That was a life changing event for me, but I easily left 3 million to $5 million on the table. Now I thought that I was being smart by selling my business for an eight figure exit. But if I knew what I know now, then I easily would have left the deal with millions more. More. The mistakes that I made were completely avoidable. So in this video I'm going to share with you how to get the most amount of money when you sell your business so that you walk away with a life changing exit. If you're an entrepreneur who looks forward to a big financial win in your future, then this video will literally add millions of dollars to your bank account when you go to sell your business. I help entrepreneurs build million dollar brands and once you get to that seven figure milestone, we can shift our focus to building up enterprise value. That's the amount of money that you'll put in your bank account when you exit a business. Life changes when you hit that seven figure milestone for sure. But you really accomplish freedom when you get a big financial windfall and that money shows up in your bank account. That's really when you have full choice and you can walk into the next chapter of your life completely on your own terms. So when does that happen? When should you consider selling a business? And that leads me to point number one. Sell when things are good. I hope I'm not insulting your intelligence here, but the best time to sell your business is when things are good, not when things are stressful. The most valuable business is the one that you would be happy to keep. If you are selling from a point of stress or a place of worry, then you are unlikely to get the most amount of money for your business. Instead, you're just going to take whatever offer looks good. Sometimes it is better to wait six to 12 months to improve the business before you sell, but more on that later. With that in mind, there are two good reasons to consider selling your business. The first is when you have taken the business as far as your skill set allows. In other words, you don't have the experience or the knowledge to be able to grow the business beyond its current point. The second reason is when the amount of money that you'll get from a sale will significantly change your life. If both of those two things are true, then it might be time to sell the business. For example, my partner and I sold our business when it was doing about $10 million a year in revenue at the Time that was the biggest business that either one of us had ever built and we didn't know how to take the business beyond that level. So our thought process was if we partnered with, if we sold most of the business to a group that had experience growing businesses beyond 10 million, we would get a life changing amount of money and we'd be able to sit on the sidelines while we learned how the big boys grew much bigger businesses. We each walked away with a life changing amount of money and we hoped that working with a private equity group would allow us to see how a professional team would run things. That didn't exactly happen, but more on that later. A lot of entrepreneurs will sell their business because they are scared. They're worried that the economy is going to change or that AI is going to put them out of business. And therefore they think that securing a fat bag will allow them to have the security that they wanted when they became entrepreneurs. However, you don't have to sell the business to get the same amount of security. There are other options to put a fat bag in your bank account without selling the business. I wish that I had known about these options before I sold my business because I probably would have made smarter financial decisions. The first option is to borrow against the business. A business is an asset. It has real value and that means that you can borrow against it just like you would take a home equity line of credit against your house. And the thing about this is when you borrow against an asset, that money is totally tax free. So if you believe in your business and, and it continues to grow and it's spitting off cash flow, you can borrow against the business and put millions of dollars into your bank account while still controlling the asset, meaning you're still the owner of that business. Now of course, you don't want to do is that the business is in decline or it's not producing cash. But if you believe in the long term vision of this business, you can take your money out now and allow the profits of the business to to pay back that loan. The second option is to hire a CEO. If your business is profitable, then you can use part of that profit to hire somebody who has gone out and built a business like yours before. You can partner with somebody who has the experience of growing it beyond the level of your skill set. And in a lot of cases, you can get a leader of a company for less money than you would imagine. Especially if you're willing to throw in a few points of equity and to compensate that person's experience. This way you still own the majority of the business, but now you're building the team that can grow it beyond your skillset. Now consider this. When I sold my business, I sold it to a group that used bank debt to buy my business and then they hired a CEO to grow the business. So if you do the same thing with a business that you own and you borrow against it and hire a CEO, you're basically doing what a private equity group is going to do to your business anyway. The only difference is that you get to keep all of the equity of the business and continue to grow it and maybe sell it for an even fatter payday later. If I knew what I know now, then I would have at least considered borrowing against the business that I own so that I had the security that I was looking for and then hired a CEO who could grow the business so that I could have the growth and the upside potential that I wanted from this business. When we sold our business, we did sell when things were good. In fact, things were so good that we really dropped the ball on this next point. And as a result of ignoring what I'm about to share with you, we easily left $3 million on the table. And I so wish that I could have this one back. Point number two, Set your terms before you negotiate. When we went to sell our business, we let a broker shop the deal to a bunch of different buyers and then we waited for them to make an offer. What we should have done is set the terms up front. We didn't do that. Instead, we let the buyers set their terms. And that was a multimillion dollar mistake. Here's what I would do. If I could do the whole thing over again, I would have created a one to two page document that outlined the following. First, our minimum acceptable all cash price with a defined close date. In other words, the minimum amount of money that I'm willing to accept and the date that I want to close the deal. Second, it would have included our desired deal structure, including any earnouts or rollover equity. And third, it would have included our post close role. In other words, how we wanted to be involved in the business after selling it. If I had put this together before we sold, I easily would have made at least an extra million dollars. Here's why. After you sign the initial paperwork, you will go into the due diligence process. That is fancy business talk for having your anus rammed by a variety of different animal bones. If you don't set your terms up front, then the buyer will renegotiate the Terms during due diligence. When we sold, the buyer knocked almost $2 million off of the purchase price and they delayed the sale by almost six months. Plus they didn't raise all the capital they needed in order to finalize the deal, which means that we had to hold back additional equity in the deal. These were all red flags. If I had set my terms upfront, then I would have given myself permission to walk away from the deal when they knocked down the price, or they didn't meet the desired exit date, or they didn't raise all of the capital. But instead, we were tied up in a deal and we were basically just accepting whatever offer was on the table. If we had been more firm in our terms, and if we had set them upfront, then we would have been much more likely to get the deal that we wanted. Don't make the same mistake that I did. Before you go deep into a deal, set your terms upfront. And this way you're in the power position when you go to negotiate rather than taking a deal that is less than what you're worth. There is one more thing that you should establish upfront, and that is if you want to be a stock sale or, or an asset sale. A stock sale tends to be more favorable to the seller, whereas an asset sale tends to be more favorable to the buyer. If you don't know that, then the buyer is going to dictate their terms. Here's why a stock sale tends to be more favorable to you as the seller. It's something called the qualified small business exemption. And, and this basically says that if you sell a business that you've owned for at least five years, the first $15 million of that deal is essentially tax free. Now, this depends on how long you've held the business, but if you know this, then you can set that term up front. Otherwise the buyer is more likely to negotiate an asset sale which is more favorable to them, and you will be left with a 28% capital gains tax. So a 28% tax or the first $15 million tax free, which one do you want? This is simply a term that can be negotiated. So put it in your terms up front before you get too deep into a deal. Setting your terms up front is an awesome opening move. It's the logical framework that you need in order to get the deal that you want. So now let's talk about the emotional framing of the deal. If you do one more thing, you will not only make it more likely that you get the terms that you want, but you will get the buyer excited about your business and you might even drive up the valuation even further. Point number three, act like you've done this before, even if you haven't. Now, I don't mean to get too deep into the weeds here, but there are a few documents that if you prepare ahead of time, will make you look like a player, even if you've never done this before. If you prepare these documents ahead of time, then it will give the buyer the confidence that they need in order to pay the maximum price for your business. These documents are as follows. First, clean financials that have been reviewed by a third party so that the buyer knows that they're getting accurate information. The second is a written three year vision along with a product roadmap. And the third is a proper pitch deck with your growth plan, your next hires, and the big ideas that you never got to execute. There's a little bit of psychology to this. The financials give the buyer a picture of what the business looks like today. Most people think that a business is just valued on the profit and loss of what it's doing today. And there's some truth to that, but that's not the full story. The buyer is also buying the vision of the future and they're buying into how that vision complements the other businesses that they have in their portfolio. So if you provide a written vision along with the roadmap of products or the roadmap of projects that you are going to launch, then it gives the buyer that extra excitement to see that there is potential for this business to grow even bigger. And then the pitch deck allows the buyer to see that there is momentum to make that future real. So if you prepare these three documents in advance, then the buyer gets a complete picture of what the business looks like today. But they also get a peek into the future of the business and, and the momentum that it already has into that future. That gives them the confidence to pay the most amount of money for this business. In other words, it gets them excited about the business. And when people are excited, they're more likely to give you more money. Most people think that businesses are just sold by what the profit is right now. Times a fair market multiple. And there is truth to that, but it is not the complete picture. Buyers are human beings and human beings are controlled by psychology and psychology is controlled by emotions. And when they get excited, they are more likely to pay you the most money for your business. A lot of entrepreneurs think that their business is simply worth what the business is producing in terms of profit today. Times a fair market multiple. And there's truth to that, that does go into the valuation of a business. But it is not the complete picture. It's not the whole story. Buyers are people. They're human beings. They have emotions. So allow the buyer to experience positive emotions about your business by painting a picture of what the business will become. If the buyer is excited about what you have built, they are more likely to give you the maximum amount of money when you sell the business to them. So what we've done up to this point is we have prepared your business to sell for the most amount of money, regardless of who buys the business. But the next point determines not only if you get the most amount of money when you sell, it also determines if you get a second bite at the apple, meaning if you get a second windfall within a few years. And that is completely dependent upon who you sell the business to. That's why point number four is treat the sale like you're dating. When you're dating, do you marry the first person that will touch your pee pee? Does the first person that you go out with represent your total value in the dating world? Or are some people just better fits than others? The biggest factor is in selling anything is who the buyer is. This is true in physical products. This is true with houses. And it is especially true when you're selling a business. Who you sell the business to can be a multimillion dollar difference in how much money you put into your bank account. Let's look at an example. The company Unilever is a conglomerate of a bunch of different brands. And in the last few years, Unilever bought native deodorant for $100 million. They bought on it for $300 million. They bought Nutrafol, the hair supplement company, for $1.2 billion. And they bought Dr. Squatch for $1.5 billion. To most people, these acquisitions were overpays. On the surface, these brands were not worth that much. They were only worth that much to one buyer. Unilever had the assets to make them worth that much. Unilever has the distribution and they're publicly traded, so it makes their stock go up. They have the executive team. They have the systems and the people and the processes to make these assets worth more than what they pay. But these acquisitions would not be profitable to any other buyer. So what does this mean for you? It means that you should start making connections in your industry now. You should start building relationships with competitors, with the people in your industry who buy businesses, with the portfolios, whose Business is buying other businesses. Get on their radar now. Go to the conferences, go to the networking groups, send emails to the executives at the companies in your space and introduce yourself. These might be the people who end up buying your business, and if not, they're likely the people who know the buyers in your industry who will pay you the most amount of money. When we went to sell our business, we hired a broker who shopped our deal to a bunch of different private equity groups. That was a mistake. We started getting offers for over $10 million and we were way too eager to say yes. Even though we knew nothing about these buyers and private equity groups, we were hypnotized by the size of the check that was being dangled in front of our faces. What we should have done is treated the process more like dating. We should have gone on a few dates. We should have seen who we could have had the most mutually beneficial long term relationship with. Instead, we fell in love with the first person that we went on a date with and then we ended up in a toxic relationship for years. This could have completely been avoided if we had been choosier about who we got married to. And when you are thinking about getting married to somebody who is going to buy your business, it is very important to look at their long term plan. Yes, it can be hypnotizing to see a large check down dangled in front of your face. But does the buyer have a plan for your business? Do they have the experience to be able to grow this business? Or are they just hoping that this asset that you built is going to continue to grow and compound without your involvement? Don't get married to someone who doesn't have a vision for the future. Do not get married to someone who does not have a plan to grow your business because you probably will keep some stock in the business or when you sell it to a buyer, and if you're like me and you sell it to somebody who doesn't know what they're doing, then the money that you have tied up in that deal will be worthless within a few years. But if you do it the right way and you sell it to a buyer who is established, who has done this before, who has experience in your industry, then the amount of money that you get when you sell that remaining stock could be just as much or even more than the payday that you get up for front. That's a good marriage. I'll tell you a story of someone that I know that did this really well. I have a friend who sold a business to A private equity group here in Austin, Texas. And he got about $25 million on the first exit. That's a good day. He held back a significant amount of shares, about 40% of the business, when he sold the business to this private equity group. Now, this private equity group knew what they were doing. They had experience in the same industry that this business had created a foothold in. They knew the right CEO that could bring that business from where it was to where it wanted to be. And a few years later, they sold to a private equity group for over $100 million. That means that my friend got a bigger payday the second time than he did the first time. That's how you want it to go. And that can only happen if you sell to the right buyer. Do not be like me and be overly romantic about the amount of money that you're being given up front. The most amount of money comes when you partner with the right buyer who is willing to pay its fair value and has a vision to take it to an even bigger future over the next several years. If I had courted other buyers, if I had been more thoughtful and making connections with people in my industry, I would have been less distracted by a big check dangled in front of me by a private equity group that really had no business buying my company. Even though they wrote me a big check, the deal still almost fell through because I didn't do this next step. We almost lost the deal because they had to bring in an executive team to make the investors feel comfortable about investing in the business. Problem was they brought in this executive team that had no idea what they were doing. That's why point number five is as much as possible, remove yourself from the business. The biggest thing that will kill the amount of money that you will get is if you are too involved in the business. No one wants to buy your crappy job. If you run a business and the whole business depends on you running it, then the minute you step away, the business is worthless. No one wants to buy that. It's also very expensive to fix, because if the financials of a business reflect all of this profit, but all of that profit is going to you because you don't have a team in place. And when you walk away, the business is dead. No one wants to buy that because the buyer knows that they will have to invest the profits into building a real team that can support the business without you. That's why it's important for six to 12 months before the deal happens for you to remove yourself from the Business as much as possible. That might mean hiring new people, that might mean simplifying the business. That might mean cutting projects that are not profitable so that you've got the profit with the rest of the business to be able to invest in systems and teams and processes that remove you from the business. There is a term called founders risk. That is the risk involved if the founder of the business goes away. For example, when I sold my business, my co founder was sticking staying on with the business and the the buyers took out a life insurance policy on him because he knew that if he walked away from the business or if something happened to him, the business may not survive. So they had to get insurance on the founder. That's founders risk. Now in my experience, founders risk can bring down the value of a business by a full, full point, meaning a full year's worth of profit. So if you spend six to 12 months removing yourself from the business, you will get that money back in the increased valuation of the business. Even if you plan to stay on as CEO or as an advisor to the company, it is important for the buyer to see that the business can run without you and that if they need to replace you as CEO, that the business is going to be fine. If you do that ahead of time, you will dramatically increase the amount of money that the right buyer is willing to pay for your business. That might mean simplifying the business. That might mean cutting projects that are not profitable. That might mean giving more attention and energy to the things that are working so that you can spit off more profit and show growth as you invest in into the systems and people. That will remove you as the bottleneck to the business. You will sell your business for the most amount of money if you do these five things. Sell when things are good, not when they're stressful. Set your terms up front. Act like you've done this before. Treat the sale like you're dating. And to as much as possible, remove yourself from the business. If you do these five things, you will dramatically increase the amount of money that you sell your business for. And they don't take a lot of time. They just take a little bit of thoughtfulness ahead of the signing table. These are the things that I learned through trial and error. These are the things that I wish I had done when I sold my business. But now I know that when I sell the same business again, or sell a business in the future, or when I help a client maximize their exit, that if we do these five things, they will dramatically increase the amount of money that they get when they sell their business. Otherwise, if you don't do these things, then you're more likely to just take whatever deal looks good. It means that you will not be setting the terms of the agreement. It means that you will get beat up in due diligence. It means that you won't partner with the right person and there's a good chance that the thing that you spent years building gets flushed down the toilet. I know so many entrepreneurs who built a seven figure business and they want to get paid for the asset that they've built, but they have to settle for a low valuation because they've never done this before. These five things will put the negotiations in your favor so that you get what you are worth. When I work with a client, our minimum Target valuation is $10 million. As soon as we cross into seven figures we start to turn our attention to driving toward a $10 million exit. Because in most cases that is enough to completely change someone's life. So that is our minimum valuation. I'm curious, from your perspective, what is your target number? Put it in the comments. How much would you like to sell your business for in the future? And if you need an advisor who can help you prepare for exit and get the most money possible, if you have a seven figure business that you want to drive towards an eight figure valuation that See the resources that we have in the description of this video because that is something that I do and that we do@capitalism.com My name is Ryan Daniel Moran. I work with capitalism.com thank you for being here and I'll see you guys in the next video. Take care.