Inside the Draft Room

The finish line is within sight. You’ve invested time, effort, sweat equity; sacrificed greatly and now’s the time to take some chips off the table. Now’s the time to assemble an expertly crafted group of professionals well versed in selling businesses like yours. Drafting these five critical transaction advisors is the last preparation step in determining your financial future and legacy. There’s a lot at stake!

Virtually all successful private business owners and entrepreneurs have one thing in common – complex problem-solving ability. You’re not the type to take a shortcut in anything. When it comes to selling your company, this same mindset will be required to address distinct nuances and complexities. You’re the expert at doing what you do! However, you’re not an expert at selling businesses, that’s what we do!

This process of selling your life’s work is nothing like acquiring a new client or selling one of your new products. The sooner you get out of your own way, the better you realize the financial, emotional and legacy results you must have. The next mindset shift is moving from business operator to a business seller just like that of an NFL General Manager.

Assembling a solid deal team includes an M&A advisor, the quarterback, who leads the team and runs the process to win your game. Your team also includes a wealth advisor, an M&A attorney (NOT your brother-in-law who does real estate transactions), your CPA, and a tax attorney. There are ancillary people on occasion based on individual circumstances such as T&E Attorney (trust and estate).

These high-value draft experts provide specific knowledge, guidance and advice from cradle-to-grave in every aspect of a business sale. Their job is to provide peace of mind while you continue to tackle the daily grind.  One of the best things you can do early on as the GM of your team is to convene a kickoff of all the team members to discuss your plans, their roles and goals. You’ll also understand what will be required of you during the process and how results are delivered as fast as possible. The caveat – time kills all deals! The slower you lead, the certainty to close diminishes.

Deal team members possess connections, networks and industry knowledge that may prove invaluable in the sale process.  Every case faces  challenges and you will make mistakes – be prepared!  The support of well-connected deal team professionals provides owners with essential guidance, advice and resilience throughout the sale process. Drafting the best deal team available ensures a smooth transaction while generating stronger offers and ultimately a higher sale price.

 

Who Is On the Team?

The Bench. Every professional sports team has supporting players like the scout team. For example, some situations require trust and estate attorney providing alignment for those goals and succession plans. Other advisors may have minor roles than most transactions yet still have a vital function such as your current service providers. For example, your insurance broker, who will likely provide policy information, and loss runs during due diligence, or your landlord, who will need to consent to a lease transfer. Some will be industry-specific, such as heavily regulated industries needing specialized licensing requirements to help with required filings. We started off with ‘the bench’ because there are more bench players than starters in every game.

Wealth Advisor. Upon closing, sellers receive the most significant cash inflow or waterfall of their lifetime. Selecting the best wealth advisor for your unique situation ensures there’s an active plan for protecting and preserving the new liquidity. Perhaps, you already have an established relationship, and they likely played a critical role in guiding you to the decision to sell in the first place.  Choosing a wealth advisor based on their favorable track record of preservation and growth is essential. If you’re not there yet, our network covers local, regional and national relationships we can recommend.

Tax Advisor. Selling your life’s work as a transferable asset for a premium price can feel like a win. However, if you’re not properly prepared, taxes will significantly eat into those proceeds. Factors that may affect net proceeds include capital gains taxes, state taxes, holding period, sale structure, etc. all have a direct impact. Understanding these factors and working with an experienced tax expert will help you protect your earnings and minimize potential surprises. At JSP we prefer to work with a tax advisor who’s experienced many business cases like yours. Properly planning for federal and state taxes, the terms of your sale, its structure and any reorganization necessary all affect your tax burden. Here we emphasize a carefully crafted, well-developed plan and the time to properly implement it. Another reason why we want the entire team together at kickoff.

CPA. Closely tied to your wealth manager will be your CPA. There is a key differentiator here; your wealth advisor looks forward, your CPA looks backward. If your CPA doesn’t have direct transaction expertise, we will engage the deal attorney together with your wealth advisor. No disrespect to your guy, but if they lack deal expertise you’re jeopardizing your unique situation and specific case elements. The best plan is to mitigate your tax liability in the year of the sale. It is also vital to convey your vision for your life post-closing whether that’s purchasing major assets or other financial alterations to your lifestyle.  A crystal-clear picture of post-closing life impacts the specific transaction structure, i.e., how much equity you rollover, any seller financing, or how much cash will be released at closing, any acceleration of equity, etc. As the GM of your Deal Team, clarity is imperative for a successful case closing.

M&A Attorney. The attorney on your team will take the lead role in drafting and negotiating the purchase agreement as well as the specific elements of inbound LOIs. At JSP, our earned reputation for creating competitive friction delivers the highest price possible for your business case while avoiding an auction buyers detest. Your experienced M&A attorney ensures we maintain leverage, minimize unfavorable risk and the satisfactory completion of complex and nuanced elements for your specific case. Other non-specialized attorneys don’t have the level of knowledge, skills and experience transaction attorneys have. You are legally agreeing to specific elements in your businesses past and present that also protects your current and future interests. So no, your BIL cannot play M&A with your future!

“A deal will die three times before it closes, if it closes.” – David Reed

Unfortunately, we’ve witnessed sellers ignore our wisdom and advice and postpone hiring an attorney until they sign the LOI. You have ALL the leverage before signing an LOI. Once you sign the LOI, it’s gone! “But it’s non-binding”, only certain elements are non-binding. It is the framework for the purchase agreement, and now you’ve signed your leverage away. This is why we recommend sellers involve legal counsel in the very beginning before signing the LOI. It allows your attorney to have input early and often making the process of drafting the purchase agreement and other definitive transaction documents smoother and more favorable.

M&A Advisor. Your advisor is the primary point of contact for the assembled team – the quarterback. Your advisor is often the first transaction professional successful business owners hire. In general terms, an M&A Advisor and their firms engage business owners whose revenue ranges between $10MM to $150MM, which is largely considered the lower-middle market. Investment Bankers often lead acquisitions above $100MM and business brokers cover businesses of $3MM and below, and there’s exceptions to almost everything. As your advisor, we will walk you through the process and timeline ensuring alignment and clarity of all details involved . We have seen what’s worked, and what doesn’t work. We can guide you and recommend for you, however it’s your sale and you own your results! We want to help you prepare to the level you decide and have the energy and determination to deliver a premium exit if that’s your desire.

When drafting for your advisor or investment banker, consider their experience, track record and familiarity with businesses like yours. Some of our peers push back on industry or market familiarity as generalists.  Would you rather have a cardiologist for your heart surgery or are you good with an orthopedist? We have two dedicated teams executing our valuation analysis,  QofE (quality of earnings) providing financial guidance and a creative marketing team personalizing your CIM (confidential information memorandum or pitchbook) in addition to producing all collateral and video production.

We prefer to proactively lead your business case while you execute the day-to-day business operations. We’ve experienced good to great cases as well as the ones that didn’t close. Yes, many business cases don’t close for a variety of reasons sadly. We have seen great exits, solid exits, and successful business owners sabotage themselves. The dark side of selling businesses many bankers avoid discussing is because they live in the world of rainbows and unicorns. In the real world, occasionally buyers have put pencils down and walked out because the owner was too difficult to deal with or the owner or team members dragged their feet. Our worst case involved an owner throwing up their hands in frustration and say, ‘fuck it’ and walked out. Anyone who avoids reality is selling something.

“It’s your sale and you own the results. Job #1 is to get you the highest possible value!” – Scott Spector

 

Wrap Up. Every business sale is unique. As a result, the specific members of the deal team will vary from one business to the next. We’ve shared the five key deal team members most influential in the successful execution of closing a successful business sale transaction. JSP Executives have advised, led or integrated over one-hundred investments in +30 years as well as having a dedicated valuation team certified by the National Association of Certified Valuators and Analysts (NACVA). Your wealth advisor, preferably a CFP familiar with the intricacies of case transactions and your situation, protects your post- sale wealth and ensures it fulfills your goals of legacy and purpose. The M&A Attorney takes the lead role in critical aspects of structuring the sale, from drafting and reviewing contracts, regulatory compliance and more ensuring the transaction proceeds smoothly and the seller is protected at every stage.

One last thing you need to know. We were in your shoes having sold several of our businesses; good and not so good exits. We made mistakes and learned what not to do and what we did next time. We no longer have a mortgage payment or worry about ends meeting, so we’re not going to skirt the edges just to make a sale. If it’s a bad deal, we’re going to tell you.