Episode 187： How To Sell Your Business at the Highest Value
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Summary
In this episode, Patrick talks about how to sell your business at the highest possible value. Why do you want to sell a business? How do you know it's time for you to sell? Why should you sell it? What are the reasons why you should sell a company? And how to get educated about what the market is looking for in a business.
Transcript
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30 seconds. One time for the underdog. Ignition sequence start. Let me see you put them up. Reach the sky, touch the stars up above. Cause it's one time for the underdog. One time for the underdog.
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I'm Patrick Bedevi, host of Value Team, and today I'm going to talk to you about how to sell your business at the highest possible value.
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Number one. Look, the first thing you've got to ask yourself before you even think about selling your company is why do you want to sell in the first place? Why?
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Are you tired? Are you burned out? Why are you tired? Why are you burned out? Are you not taking some time off with your wife or with your husband?
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How's your personal life? Is it caused by that? Are you going through something? You know how sometimes people sell a home because they're going through a divorce or they're trying to sell the business?
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Is that really the reason? Can your marriage be saved? Is it a tax consequence? Is it bad financial decisions you made?
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Are you being forced out by your partners, your vendors? Maybe one of your investors is buying you out and no one knows about it.
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Maybe one of your big customers is saying, look, you're too big. We can't give you this much control. We've got to buy you out.
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What is the reasoning? Are you simply just wanting to retire and go live by a beach house and hang out and have the money and enjoy the rest of your life?
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What do you want to do? See, these are all questions you've got to ask yourself and go through.
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By the way, some of these I'm giving you. Believe me, a lot of people call me and they want to come and give me $100,000 and say,
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I want to sell my business. Can I sit with you for two hours because I need advice with you.
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This is something you've got to do with five other people to sit with who have sold their businesses and afterwards they changed their minds
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and they said, I wish I wouldn't have sold it and some that did sell it and they made the right decision.
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Either way, you're going to get a lot of counsel to know whether it's a good time for you to sell right now or whether it's not.
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Number two, so listen, once you've addressed why you want to sell the company and you're kind of clear about it,
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And the way you do it is by meeting with an M&A broker or a banker.
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These are guys who have contacts with lots of money.
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Some are billionaires, some are worth a couple hundred million dollars and they are looking to buy businesses.
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So let's just say, I'm Johnny. I'm the M&A broker.
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I know Bobby. He's one of my clients. He's worth a billion dollars.
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Bobby wants to buy businesses, so I introduce him to Cindy.
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Cindy's business is worth a hundred million dollars.
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That a hundred million dollar transaction that takes place, I get two to five percent on that deal,
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which means two to five million dollars for making the contact.
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So now, you realize when you meet with these guys, you've got to know what they do.
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So when you meet, they're probably going to ask you a lot of questions.
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They're going to ask you a lot of different questions.
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Who would you compare your business to, to other businesses?
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What do you think the market thinks your company's worth?
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What do you think sellers think your company's worth?
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You go through this process, and this entire sit-down, with three M&A bankers, it's going
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to be as if you went to university for three years to learn how to sell your company.
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So look, once you figure out why you want to sell your business, and you're comfortable
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with it, then you meet with the M&A broker, and you're getting educated about what the
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Then it's about setting timeline expectations of when you feel comfortable even having the
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You may say, three years I'll have the conversation, five years I'll have the conversation, ten years
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I'm open to it, right now I'm very happy, I am burned out a little bit, but all I need
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is to get away, maybe I'm going to go on a vacation with some family because of what I'm
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Even when you set timeline expectations, things could change.
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You still have to be nimble enough to know what's going on with the marketplace, and knowing that
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your own timeline could still change, but you have to mentally get to a place to say,
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I'm comfortable for this 2023, so now I have to work backwards to ask myself where I need
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to be six months from now, 12 months from now, 24 months from now, 36 months from now,
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so I'm getting ready for the day that I may sell the company.
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So once you've set your timeline, you're saying, I'm comfortable seven years from now having
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Five years, three years, and you know how you need to work back.
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The next thing you need to think about is the following.
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One, your exit strategy, meaning, who is an ideal buyer for you?
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Because you can go to New York and sit down with a PE firm who is willing to cut a $100
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million check to you based on the profits that you make.
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And they say, well, you know, there's $7 million of profits.
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10x on $7 million, $70 million, you want $70 million, and that's it.
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Or it's a strategic buyer, one of the current people you work with.
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You know they need certain things that you have that without you, they're going to be
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So they may come in and pay twice as much as these guys are going to pay because you
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You need to identify that from now and start thinking about that.
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You know who you want to be your strategic partner to buy your business, right?
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By the way, there's four different kinds of buyers.
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I've met every single one of them and I've dealt with every single one of them.
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It's a person who's very interested in your business, would love to buy it, but they can't
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This is like a person who goes to a Ferrari dealership and they want a Ferrari.
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But they can't even afford to buy a Ford Focus.
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It's a buyer that can buy 10 of you, but has no interest in your business.
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Because he wants to leak it to competitors so they know exactly what's going on.
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It's like a realtor that acts like a client and a buyer and walks into the house and saying,
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And what are you, are they going through a divorce?
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That's what happens with some of these guys as well.
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And last but not least, it's the kind you want to sit with.
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It's a person who is interested, has the money, and would like to cut a deal with you.
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But you need to know all the different kind of buyers that are going to sit with you.
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So now that you know your exit strategy, now that you know what kind of buyers are going
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to come, knock on your door to want to buy your business, what can you do in the interim
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It's like, I want to sell my house, but maybe it doesn't look that good.
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Maybe I've got to spend an additional $1,500,000 to increase the value of the company by $400,000,
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Hire a new CFO that kind of knows what they're doing, that's been through this process before.
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And you kind of come in advance for three years, so prepare for that opportunity that
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Could it be extending your contracts with your customers or your vendors or suppliers?
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There are certain things you can do today to increase the value of your business between
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So the next thing is a little dirty because you've got to start dealing with attorneys,
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By the way, I'm not a fan of 80% of attorneys, but when you find a good attorney, you've got to
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You've got to bring your attorney in, spend a little bit more money, and get the attorney
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to update every single contract and bring it all in one place.
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Because when somebody buys a business, they're looking for all the contracts, all the agreements.
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Sometimes the value of a company is based on the contracts and the agreements that they
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have with their vendors, partners, all those different kinds of people you're dealing
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If you're wondering how you find a good attorney, I sat down with Robert Shapiro a few months
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ago, and he's one of the most celebrated attorneys in America, ranked top 100 on some list, top
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10 on many other lists, he explains three things every entrepreneur needs to know about before
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So look, now that you've dealt with your attorney, now we've got to talk to your CPAs.
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And by the way, there's a few things you've got to be thinking about when it comes down
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One, what is the buyer expecting to see with your finances?
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I am not a fan of businesses, once they cross $10 million a year business, to still deal
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If it's a one office shop and you're doing a couple million, you're fine, they can handle
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$10 million plus you want to get to the next level, you need to go to an accounting firm.
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But it's going to save you so much more because of a buyer saying, wow, you got audited financials
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Audited financials could cost $25,000 to $100,000, depending on how the business is.
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But I'm saying a business that does $50 million a year, $100 million a year, could cost you
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between $25,000 to $40,000, $25,000 to $100,000 you're doing.
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And the more consecutive years you have audited financials, the buyer is liking this.
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Let me explain it in a way that makes sense to you.
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Look, if you want to buy a house, you've got to get your credit score done earlier to know
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where you're at because you're going to know, why is my score 620 here?
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I know I'm not going to get the best interest rate.
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Then you go see if you're going to get approved for a million dollar home.
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It's going to be the difference between you paying $4,900 a month for a mortgage payment
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versus $7,300 a month for a mortgage payment because your credit score, right?
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So this is the difference between a buyer wanting to buy your business for $180 million versus
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I don't buy baseball cards that are not graded by PSA.
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I don't buy them because that gives me credibility.
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The same goes that a buyer buys a business that has audited financials from a very good
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Number nine, let's just see at this point you've done your attorney stuff, you've done
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You are ready three to five years from now to go out there and start putting your business
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Is your website aligned with the way you want to tell your story?
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Does it look like the businesses within your industry where somebody comes in and say,
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When you go and say, hey, here you go, marketing material, marketing material, marketing material,
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marketing material, oh, wow, this is good stuff, high-end stuff.
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You may want to spend a little bit more money before you present your business to buyers
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that you're expecting to cut a big check for you.
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So you've got to spend some time getting your story together.
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And your website, marketing, home office, all of that stuff is part of the story.
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Number 10, so it's that time, it's negotiation time.
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One is the owner says, I don't need anybody's help.
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Well, I typically believe in capitalism because a lot of people make money together.
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And if a lot of people make money together, and you put the tiers of bonuses based on
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what amount they sell it for, you're probably going to sell it for a higher number than you
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So I lean more towards this side, especially if you're dealing with a $100 million plus check.
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Some of you that are not good in sales and you're selling for $10 million, you still go get a pro.
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One of the offers is the one that everybody wants.
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If you want to compete with us in the same space, we're not worried.
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We'll give you $150 million with a 10-year non-compete because you are never going to compete
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with us in real estate, in IT, in technology, in insurance, whatever it may be.
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The next one is they buy and exchange for stock options.
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And last but not least, they'll buy, whether it's cash, stock, whatever way it is, and they'll
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tie a salary to you with you sticking around for two years and a non-compete after that.
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We want you to stick around, we'll give you $100 million up front, then we'll give you
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a two-year salary of $1 million per year, then we'll give you stocks at the end, and
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if the company performs the next two years, we'll give you another $75 million, dot, dot,
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So you need to know all your options on how you're selling, what you're most comfortable
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with, but those are generally some of the options you'll have when you sell your business.
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So look, everything could go right in the first 11 steps.
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And then all of a sudden, 80% of the deals don't go through because of the 12th step.
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So as you go through the first 11 steps, if you tell any numbers to the buyers that are
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slightly off the real numbers after they audit your numbers, they're going to say, wait a
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First, I am indicating to you that I, the investor, am interested in buying your business.
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Open up the books a little bit for us to see something.
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I'm the one that wants to invest into your business and buy you, right?
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Based on this term sheet, we're going to buy your business.
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So for instance, we want seven years non-compete.
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We'll give you 75 million cash and 75 million stock.
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I want $100 million cash and $75 million stock.
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Until everything proves here based on the audit we do with you.
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When the purchase agreement comes and you get the call from your guy, from your CPA,
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from your accountant that says the $125 million is in the checking account.
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Your banker from the bank calls you and says your $17 million is in the checking account.
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By the way, your checking account has $1.7 million.
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You keep telling me, oh my God, look at the statement, baby.
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Or you're going to wake up the next day and say, oh my gosh, I can't believe I sold this business.
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But regardless, you're going to have all those emotions.
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Anyways, these are the 12 steps that you go through when selling your business.
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And by the way, if you haven't already subscribed to Valuetainment on iTunes, please do so.
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And if you have any questions for me that you may have, you can always find me on Snapchat,
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And I actually do respond back when you snap me or send me a message on Instagram.