Who is Brandon Jacob?

Top FIVE Myths of Selling Your Business:

1. The Letter of Intent. It is a myth that the Letter or Intent is just the beginning of negotiations. The letter of intent (or LOI) is a legal document that hashes out the high level points of a proposed transaction. Typically, high level points such as tax structure, time frame and of course the proposed purchase price are outlined in the document. It is a NON-binding agreement and both the seller and the buyer can step out at any time. Many sellers rush in to sign an LOI falsely believing that they can “horse trade” later. The majority of transactions are closed based on the agreements made in the LOI. As changes are made, the viability of the transaction actually closes decrease. Do not sign and LOI without understanding what it means and have your consultant and attorney review the document prior to signing. Ask now for whatever you might want to ask for in future, as it gets increasingly difficult to make demands as the transaction moves ahead. If you do not know what that is, your consultant will help you.
2. Management in Place. Some will say you MUST have second tier management in place to sell your business. Yes, it helps. It also means you have grown a decent size business. But what about a smaller business that can not justify a full salaried general manager who runs the day to day? If your business does not command this position, do not hire one just for the purpose of selling. Do you have a key person beneath you (this may be a senior technician or an assistant). Not every business will have a general manager in place prior to a sale.
3. Multiple. Let’s stop talking about earnings of multiples and lets focus n the ENTIRE transaction. Far too many business brokers and would-be M&A experts lead off with discussing earnings or multiples. Stop it, there is a lot more to a business transaction than a single number.
4. Staying on and working after you sell. Its not easy and many business owners are NOT capable of working for someone else. If your plan comes together ONLY if you stay and work, reconsider. I advise clients who plan to work with the new owner to go in with eyes wide open and make the best of it, but have a back-up plan in event after a year or so you find yourself on the beach.
5. Do it on my own. I don’t need a tax CPA, attorney or consultant/broker. I know someone who did this in my alliance group and they gave me all the pointers needed. This is the LARGEST transaction of your life. MIILIONS of dollars are at stake. Professionals will pay for themselves over and over again. DO NO try this one your own.

Selling Your Business - The Journey

A friend recently asked me what I took away from my 2016 thru-hike of the Appalachian Trail. For those that don’t know, the Appalachian Trail is a 2,189-mile continuous footpath that winds its way over the mountains from Springer Mountain, Georgia, to Mt. Katahdin in Maine. From April 4th through September 28th, I hiked the entire distance, becoming what is referred to as an AT Thru-Hiker. Every year, hopeful hikers show up at Springer Mountain with plans to become an AT Thru-Hiker, and consistently, only 25% of those finish the task. When asked what I took away from my hike, my first reaction was the ability to understand what it meant to push myself. Later, as I revisited the conversation in my mind, I realized I learned a great deal more that could also be applied to a business owner who has the intention of one day selling his business. The following are my hiking takeaways as they relate to selling a business.

Declare your intentions – sounds silly at first, but if you do not make a declaration, there is a good chance you will never show up to the mountain, sell your business, or do anything that takes some dedication. The intentions will always exist, but there will always be an obstacle standing in your way, preventing you from actually doing anything about it. In the case of my hike, I was notifying family members, friends, and business acquaintances that I was going to be gone for six months. As a business owner, you may want to keep your declarations a bit more private, sharing only with family members, professionals, and mentors, but it’s important to put something "out there" in the Universe about your goals.

Set a time – Before you can declare your intentions, you have to set a time frame in which you plan to sell your business. This can be arbitrary (I want to sell before I am 65 years old) or it can be based on certain parameters, such as growing to a certain size or value. Regardless, before you are able to set an accurate time frame, you should assess your business and what needs to be done before the business can be sold.

Learn about the task – When I decided to hike the AT, I had very little long-distance hiking experience. It was a new world to me, and I had to seek out information on the right gear, when to start the hike, and what to expect. For many business owners, the sale of a business is a one-time affair, and there is a lot of new information to gather. Luckily, there are those who have gone ahead of you, and it is through their experiences that you can learn, whether through reading or seeking out advice from former business owners or consultants. At the end of any journey, you will look back in wonderment at what you have learned. The idea is not to make the learning experience a costly journey, but to learn from others and capitalize on that knowledge.

Plan – Have a plan. My hiking plan was to start hiking in early April and finish by October 1st. The reasoning for the timing was simple because it gets cold in Maine, and I only allotted 6 months for my hike, and then it was back to work. If you choose to sell your business by the time you are 65, and you are 62 today, you have three years to get your business in order and to find a buyer. A plan is required to achieve this goal. The plan will involve a valuation, identification of areas requiring attention, and action items to address these areas.

Follow the plan, but be flexible – A plan is required, and I recommend sticking to a plan, but let’s face it, one must remain flexible. I recall meeting hikers who had planned their hike down to the day. This rigid plan does not work in long-distance hiking, and it certainly does not work in selling a business. Do not be too rigid in terms of timing. Preparing for and selling a business is a long journey, just like a hike. Along the way, you may have to stop, reexamine your progress, and reconsider expectations.

Forget the nay-sayers – The world is full of nay-sayers, and they will do everything possible to derail your plans. Naysayers come in a variety of flavors, including those that have either never had or somewhere along the way lost the ability to think big, and those that have tried and failed and now want you to fail along with them. It’s not easy selling a small business, but you can do it. If thousands of people do it every year, why can’t you be one of them? When I was hiking, I ran into nay-sayers. These were seldom other thru-hikers who were also pursuing a dream, but tourists, townspeople, and wannabe hikers. I remember a moment in the Smoky Mountains when a busload of tourists stood by a sign that read "Mt Katahdin 1,700 miles ahead". One of the tourists asked no one in particular, "Gee, I wonder if anyone has ever done that?". The tourist was not being negative, but he did not have the dream. The successful sale of your business may seem like a long way up the proverbial tail, but it absolutely can be done.

Understand there will be setbacks – Rain, cold, heat, bugs, rocks, and seemingly endless climbs. I walked through it all. There was never a day I thought about quitting, not for a second, because I went into it understanding there would be setbacks, and these setbacks would be challenging. Having a declared intention and a healthy dose of understanding that there will be periods of doubt will keep you on track when the sale of your business seems unlikely. It may come from a period of poor performance, the departure of key employees, or even a buyer walking from an all but complete sale. Setbacks will occur, and only those who are able to move ahead will reach their ultimate goal. Walking in the pouring rain in the pitch black of night? Don’t worry, there is something great around the corner, I promise.

Hike New Hampshire when in New Hampshire – I was surprised at how many people I met along the way (see nay-sayers) who liked to warn me about the rigors of hiking through the White Mountains of New Hampshire. The facts are, the Whites were brutal, but there was no sense worrying about them when I was still in Tennessee or Virginia. The actual phase of selling your business is the proverbial White Mountains of your journey. However, there is no sense worrying about this phase of the plan now if you still have work to do on your business before you can sell. This does not mean you should go into the actual phase of selling blind; instead, just focus on getting there in the right conditions today.

Track what is relevant – If your goal is to build your business to a certain size or a certain value prior to selling, you will have to track your progress. My tracking on the AT was simple: I simply divided the number of miles I had left by the number of days left before October 1st. This provided me with an indication of the approximate miles per day that I needed to hike. I did this calculation daily. Track key performance indicators (KPIs), and if you have a specific valuation in mind for your business, continually update the valuation so you always know how far you are from your goal.

Guides – Hiking the AT or selling a business is a journey, and although hiking the AT is a solo venture, behind the scenes is a significant amount of support. It is really no different from the journey of exit planning and ultimately selling a business. I relied upon family and friends for support, and so should a business owner. Don’t overlook the power of a mentor, consultant, or someone who has sold a business before, because that kind of perspective has value. Finally, a support team that you put together must include a good tax accountant (CPA), lawyer, and consultant who understands business valuations, negotiations, structuring transactions, and getting your transaction to close.

The Final Climb – Your journey starts today. Every day, you are making a small stride closer to the final climb when you actually sell your business. Like hiking Mt. Katahdin, MA, seemed to be incredibly far away when I started in Springer Mountain, GA. In fact, other than to know that is where my hike would end, I did not focus on the final climb (or even hiking through Maine for that matter) early on in my hike. As a business owner with a multi-year exit strategy, focus on preparing your business today and less on the actual selling process. If you set your goals on selling your business for a certain amount of money with a specific list of parameters, you will be surprised to discover you can actually achieve those goals and how quickly time will pass to the point you are ready for the final climb.

As a final antidote, I recall a sign that hung in a hiking hostel somewhere in Connecticut or Massachusetts. The sign read "Today I did not make it to Maine, but I got closer". This quote made an impact on me not only as it related to my hike, but from a life in general standpoint. As a business owner, set a goal for your business, and every day, get a little closer.

Follow These Five Golden Rules to Ensure You Cash in on Your Claim!

Nothing is for certain. However, one certain fact is all contractors will one day be faced with the question about what to do with his or her business. You have created substantial value If you have grown and operated your business to maximize profits by keeping up with best practices and by reinvesting in both assets and your employees.. Think of the value of your business like the millions of gold flakes at the bottom of an Alaskan river. The gold is there alright, and the only way to get it is to actively attempt to mine for it. As a business owner, one must mine for the value within your business by planning today for the inevitable future and the time comes to transition out.

The value that you have created within your business is no different than those loose gold flakes, and you must make a concerted effort to retrieve it. A proven way to secure the value of your business is by formulating an exit strategy. An exit strategy is a plan on how to transfer a business to a new owner, regardless as to who that new owner may be. Often times the business owner has no idea who the new owner will be, and the course of action is to prepare the business as time goes by for the right opportunity. An exit strategy has many steps and can be very detailed. Regardless to how detailed your exit strategy may be, there are five golden rules specific to the air contracting trades that all business owners should understand regarding a successful exit strategy.

The Five Golden Rules to a successful exit strategy are:

1. Obtaining a fair and accurate value or valuation for your company will significantly increase your odds of a successful exit strategy and transition.
2. Your company’s ability to demonstrate consistent profitability is crucial to buyers and to the valuation of the company.
3. Finding a willing and qualified buyer for your company is not easy.
4. An opportunity to sell your company to a willing and qualified buyer will be lost if you and your company are not prepared when opportunity knocks.
5. Entering into discussions unprepared can result in monumental time loss that leads to distractions that will be crippling to your business.

Valuation:

It is impossible to sell (or even give away) anything for which you do not know the value, including contracting businesses. Without an understanding of value, a business owner has no idea as to how long his exit strategy should be and does not have a goal to work towards. Assuming you are dreaming of selling your plumbing business for a $1M, how will you know when you have created $1M of value if you do not invest in a business valuation now? For a minimal cost, A Benchmark Valuation provides contractors with a sound understanding of what their business is worth today and takes into consideration not only the earnings potential of your business, but the assets and liabilities that exist on and off of your balance sheet.

A Benchmark Valuation should be updated at least once a year and sooner if you are in the final stages of preparing your business for sale. Businesses owners that are actively seeking investors or in the process of selling might go as far as updating their valuation semi-annually or even monthly. In addition to helping a business owner gain an initial understanding of his business’s fair market value a Benchmark Valuation will:

• Highlight areas that limit the business’s value (weaknesses)
• Highlight areas that increase the business’s value (strengths)
• Help business owner set expectations
• Help the owner in understanding the difference between personal expectations and reality
• Help business owner budget and plan
• Help business owner determine the length of his exit straetgy

Value Creation:

What exactly increases the value of your contracting business can be confusing as there are many factors that contribute to value. The most important value driver is your business’s ability to consistently generate and report profits. Without the ability to generate profits, the value of any business is minimal. In fact, if your business has been unprofitable for multiple years, a valuation analyst would conclude that there is no goodwill, and the value of your business is basically that of your fixed assets (less related debt). For most contracting businesses, that is not a lot of money!

Measured in EBITDA (earnings before interest, tax, depreciation, and amortization), your historical profits are key. Equally important is your ability to demonstrate these historical earnings after taking into consideration extraordinary and discretionary expenses that may have occurred in the recent operating periods. The good news is that as you build value in your business for tomorrow, you get to enjoy the profits today.

For valuation purposes, the most recent historical periods typically considered are the last three full years. Analyzing the most recent three years takes into consideration a good sample to demonstrate your business’s abilty to generate future profits. Some analysts may go back further if the information is readily available and relevant. In addition, the most recent years may be given greater credence when a valuation is calculated.

Characteristics such as the condition of your fleet, age of the business, number of service agreements, quality of customers, warranties offered, etc. are all factored into determining the value, but are all contributing factors to your earnings potential. Because these characteristics are contributing factors to your earnings potential, individual values for each are not applied.

The Challenge:

Going back to the Alaskan gold example, its one thing to look into a river and declare there is gold and another to actually retrieve it. Unlike mining for gold, selling a well prepared contracting business takes a real effort and is not easy. Selling an unprepared contracting business is virtually impossible. Years ago our industry celebrated a wave of buyers who were actively purchasing businesses. This Consolidation Period went on for a few short years. This gold rush is long over and today’s buyers of contracting business are smarter, expect more and want to pay you less! Today, the only way to secure the value from within your business is by preparing an exit strategy and have your business ready to go when the right buyer comes along. By being a member of a contracting group, a wise contractor is already positioning his business and taking advantage of the best practice ideas and networking that all is part of a properly prepared business.

Timing:

As mentioned above, this is not going to be easy. That is okay, as there is no such thing as easy money. The business owner will have to execute perfect timing. Timing can only be perfected if your business is 100% ready to go when opportunity knocks. What exactly does this mean? Chances are that over the course of your business’s lifetime, only a small handful of willing and capable buyers will approach you. These buyers will have other opportunities to invest in and will not wait around as you and your bookkeeper scramble to pull together historical financial statements or have a value calculated. Today’s investors want information, and if this information is presented in a slow and haphazard way, your opportunity will be gone. Execute perfect timing and continually prepare your business to be ready and able to demonstrate its value and then prove the value to a would-be investor.

Risks:

Initial conversations with a potential investor about selling your business are typically light and do not take a tremendous amount of time. As discussions proceed, and a transaction gets closer to reality, more and more of your time will be invested into seeing your sale go through. Emotions will start playing a factor and at some point, all owners reach a point of prematurely concluding that his business is sold. This is dangerous because navigating through a buyer’s due diligence can be stressful and distracting. If a buyer discovers some bad news and walks away from your transaction, you as an owner are now faced with the repercussion of distractions and lost time (and money usually). Add into the equation the fact that you may have already emotionally “checked out”, the risks of haphazardly entering into the sale of your business are obvious. Attempting to sell your business without being prepared can be disastrous especially when a transaction falls through.

Conclusion:

It is unlikely that the contracting industry will enjoy another gold rush of consolidators in the near future. However, the fact remains that each and every business has value, and in order to hit paydirt, a business owner must start by understanding the five golden rules to a successful exit strategy.

Glossary:

• Fair Market Value: The price in which the property (business) would exchange hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the late is not under any compulsion to sell and both parties have reasonable knowledge of the facts.
• Tangible Assets: Assets that have a physical form. Tangible assets include both fixed assets, such as service vehicles, machinery, equipment, computers buildings and land, and current assets, such as inventory.
• Intangible Assets: Nonphysical assets, such as customer lists, patents, trademarks, copyrights, goodwill, brand recognition, service agreement programs, advertising slogans and operating history are all examples of intangible assets.
• Goodwill: the established reputation of a business regarded as a quantifiable asset, e.g., as represented by the excess of the price paid at a takeover for a company over its fair market value.
• Due Diligence: An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to a sale.
• EBITDA: earnings before interest, taxes, depreciation and amortization. It measures a company’s financial performance by computing earnings from core business operations, without including the effects of the capital structure, tax rates and depreciation charges. EBITDA is an accurate measurement of a company’s cash flow.