Month: April 2018

Due Diligence

Legal matters, business strategy, and life perspectives from the mind of a non-attorney.

 

So you want to sell your business, eh?

Obviously, the reality is somewhere in the middle. Which end of the spectrum does it fall on? Hard data indicates that reality is much closer to the latter.

70% of businesses placed on the market NEVER sell.

That’s 7 out of 10.

If you’re a small business owner, I want you to think about your top 2 competitors. If you all went on the market today, statistically speaking, only one of you is going to sell. The other two would be liquidated. Yikes.

 

Even if you are fortunate enough to receive an initial Letter of Intent, you are not “home-free”.

According to Forbes, nearly 50% of all deals fall apart in the formal due diligence process!

That means, in a TON of cases, the money and mutual interest is there, but it doesn’t get to the finish line because of something that happens in Due Diligence!

 

What is Due Diligence?

Merriam-Webster says, “Research and analysis of a company or organization done in preparation for a business transaction.”

I really like that definition. It’s simple and straightforward. Unfortunately, Due Diligence is anything but simple and straightforward.

 

It’s a HIGHLY complex process that requires a TON of time, for both the buyer and the seller.

 

The process of formal Due Diligence begins when a Letter of Intent is executed. This letter is generally non-binding, and usually discloses a range of possible purchase prices.

Next, the buyer will likely sign a non-compete and non-disclosure agreement in exchange for the ability to review the seller’s sensitive documents.

Then, all H*** breaks loose.

A well-educated and experienced buyer will look for every conceivable way to “re-negotiate” terms of the original offer. They analyze and scrutinize until they are satisfied that every stone has been overturned. This includes:

  1. Financial Documents
  2. Organizational Documents
  3. Physical Assets
  4. Technology
  5. Intellectual Property
  6. Customers
  7. Strategic Direction
  8. Contracts
  9. Employee Benefits
  10. General Employee Issues
  11. Key Personnel
  12. Litigation
  13. Environmental Issues
  14. Tax Matters
  15. Insurance Matters
  16. Professional Affiliations
  17. Press Releases

These are just a handful of the topic areas typically covered. Have you ever seen an actual Due-Diligence Checklist? A short checklist is 10 pages long. An extensive checklist can push 25 pages without blinking an eye.

What if you can’t find some of the information requested?

…Or it takes you a few weeks to deliver the information because you’re ‘busy’?

…Or you feel uncomfortable disclosing the information?

As the selling party, that’s all your prerogative. I can promise you, though, it doesn’t paint you in a good light.

 

Buyers generally are given 30 to 60 days, just to review the material once it has been received. At that point, all parties may come back to the negotiation table to try and close the deal.

Start to finish, most deals take at least 6 months to close. Many can take significantly longer. Can you imagine the pain of having a deal fall apart in the final stages?!

If the Due-Diligence process equates to actual wartime preparation (in terms of the planning and strategy required to do it well), most business owners act like they are preparing for a casual water gun fight in their backyard. Woefully unprepared.

 

Practice Makes Perfect

Wouldn’t it be nice if you could get a practice run at Due Diligence? You know, get bruised up a little bit – maybe a few years in advance of your exit. That way, you could figure out the things that you need to correct while you still have time on your side. Plus, you wouldn’t be blindsided by anything when Due Diligence happens for real, because you’ve got experience on your side. No surprises.

Man… That would be perfect…

 

By Exit Planning with Epiphany Law, you can do just that.

Your first step is completing a State of Readiness assessment, which offers an unbiased opinion on the preparedness of YOUR COMPANY for a transition / sale. If you’re ready, great! Keep up the good work until it’s time to hit the ‘eject’ button. If you aren’t, we will recommend ‘next steps’ to get you where you need to be.

 

Give us a call or shoot me an email if you have more specific questions!

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What is Exit Planning?

Legal matters, business strategy, and life perspectives from the mind of a non-attorney.

 

If you would be so kind, please share this with others. The madness needs to end. People need to know what Exit Planning is. Thanks in advance!

 

If you’ve been following this since the beginning, you may remember that I wrote a post with this same title last November.

Fast forward 6 months, despite many related posts and marketing efforts, I remain convinced that people still have no clue what I do.

That’s on me. I haven’t found easy, simple ways to explain it.

All of that changes now. For once – and for all…

 

What is Exit Planning?

From the dawn of time, business owners have sold their businesses just like they would sell their homes:

 

“Alright, I’m sick of doing this, I want to retire.”

*Contacts Business Broker* *Business Broker lists the business for sale* *Interested parties make offers*

 

Everything goes pretty smoothly until an offer is accepted.

 

“Sweet, I have offers. I’ll accept the highest one.”

*Accepts best offer.* *Interested buyer conducts due diligence, finds a bunch of things wrong with the company.* *Offer is ‘renegotiated’.*

“Damnit. That’s a lot lower than before.”

 

At this point, the business owner is exhausted after spending MONTHS negotiating the deal. They feel mediocre and insecure due to all the nit-picking that the buyer is doing.  They are stuck between a rock and a hard place – backing out means restarting the whole painstaking process and trying to find a new buyer, but moving forward means accepting a reduced offer.

 

“I just want this to be over with. Tell them they have a deal.”

*Deal closes* *Business owner goes to meet with accountant*

 

“Oh shoot. I forgot about taxes.”

“Pay off debt? I thought the buyer was assuming my debt!!”

 

And THAT is why 75% of business owners who sell their business feel “profound regret” about when, why, and how they sold within 12 months of the sale.

 

Don’t sell a business like you would sell a home

Selling a business is like WAY more difficult than selling a home.

 

EXAMPLES:

When you sell a home, you have thousands of potential buyers.

When you sell a business, you have a handful.

 

When you sell a home, your buyers are not highly educated and often let emotion or feeling dictate when making their decisions.

When you sell a business, your buyers are highly educated and rely on concrete fact and skilled negotiations when making their decisions.

 

When you sell a home, an accepted offer may lead to a closing in a matter of days (and that offer is unlikely to change).

When you sell a business, an accepted offer may lead to a closing in a matter of months (and that offer is likely to be renegotiated along the way).

 

Practice makes perfect

Your kid wants to get better at basketball. What do you tell them?

“Practice! You need to get your butt out on the court instead of playing Fortnite all day.”

 

Heed thine own words.

 

You want to exit your business smoothly? Here’s what I tell you:

“Practice! You need to put the time in and plan out your exit if you want to avoid disaster.”

 

Exit Planning offers business owners an opportunity to learn, practice, and strategize in a safe environment. It offers business owners the opportunity to simulate the Due-Diligence experience so they can correct areas of concern before a potential buyer ever sees them.

 

Business owners get a “report card” and a detailed list of action items that they would be wise to accomplish before listing the company for sale. If they want our help in implementing the plan – great, we can do that! If not, there’s no hard feelings.

 

Succession Planning

But what if a business is being passed to family or management team? In that case, is there anything to practice?

YES!!!

Read this.

Basically, all the same principles apply AND we are faced with the additional challenge of helping your successor obtain financing.

 

Epiphany Law will conduct Due-Diligence on your company and tell you what to do in order to sell your business for more money.

 

Business Owner Beware

Exit Planning is a new practice, and it is becoming “trendy” among advisors who see it as an opportunity to generate new business.

I can vouch for the process we have. We give WAY more value than we receive for our services. I cannot definitively say the same for others.

 

 

Give us a call or shoot me an email if you have more specific questions!

Thanks for reading! To subscribe to our weekly content, you can enter your email on our homepage. You can also follow Epiphany Law on Facebook and LinkedIn for regular updates from the Firm. Finally, you can follow me on Instagram (@kelton.official), where I regularly post links to new blogs, as well as random pictures of my life.