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Exit Planning Mistake 1 - Losing Focus

By Generational Equity

One of the first things we emphasize to our clients when they begin the process of looking for optimal buyers is this: Do not lose focus on running your company!

This may sound simplistic. However, we often meet business owners at our exit planning conferences who share with us their lamentation about losing a deal with a great buyer because at the 11th hour of negotiations it became apparent that the company was significantly off its projected earnings due to the owner being distraction while trying to find a buyer.

This is something that we hear all the time from our clients who have successfully completed the Generational Equity (part of the Generational Group) 15-step M&A program:

I could not have completed my transaction without Generational Equity’s help because their diligence helped me to focus on the most important issues during the lengthy, time-consuming process of finding a buyer: Keeping my business achieving its base year goals.

You can listen to their thoughts on the importance with our featured video. 

The common thread in all of these is the same: I had no idea how complicated finding a buyer/investor for my business would be, and if I had been doing so without professional help, there would have been no way I could have focused on running the company effectively.

How Are Your Company’s Numbers YTD?

One of the key questions that most buyers will ask you throughout the 3-4 months of intense due diligence and deal negotiations is this: How are your numbers tracking? And they will ask you this repeatedly because the base year, the fiscal year you are in while trying to close your transaction, is key; it is the jumping off point for your five years of projected revenue and earnings.

If you are trending at 10% or more while in negotiations, most buyers will be concerned. Will this typically kill a deal? Often, it will not; however, it will definitely impact your deal structure. In many cases like this, the buyer will require some holdback in the form of an escrow for a year or more to ensure your targets are eventually hit.

In some situations, you may even be tied to the company’s future performance in the form of an earnout, which can often be structured for a year or more. This is where future payments to you are contingent upon the company hitting pre-determined earnings targets and usually require you to remain in a management role for a specified timeframe. This structure does not meet the needs of the CEO looking for a quick retirement post close.

Other forms of structure are also possible if your business is not hitting its targets during the base year. So by all means, focus on running your business while your M&A advisor concentrates on closing an optimal deal for you.

And if you make exit planning mistake No. 2 and are acting as your own M&A counselor, be sure to have a very strong management team in place who can run the business during the year or more (and 1,000 hours of your time) it often takes to close a deal with an ideal buyer.

In addition, be aware that it will be increasingly difficult to maintain confidentiality of your exit process if you are not using a professional firm to aid you. Most likely you will need to confide in your leadership group at a minimum since you will be missing quite a few hours of work and will be increasingly relying on them as the process gets closer to completion.

What about Important Decisions?

Bottom line: Under either scenario (with professional M&A guidance or not) it is vital that you continue to focus on the successful operation of your company while marketing the business. For example, do not delay or shelve vital decisions. Clients often ask us, should I hire a replacement for my operations manager or should I allow the new buyer to hire who he/she wants? Should I delay the planned capital expenditure next month that is needed to expand my product line? My lease is up for renewal soon, should I re-sign or delay?

The answer to all these questions is nearly always the same. Even though we are actively looking for buyers for your company, you need to continue to run it as if you are NOT planning to sell/exit. Delaying key strategic decisions can negatively impact your valuation since buyers are acquiring your company’s future growth, and key decisions that are postponed can potentially impact their valuation models, especially items that directly impact the bottom line (which nearly every decision does).

There are other exit planning mistakes that you should also avoid. To learn more about them, please download and review our complimentary whitepaper on the topic.

In addition, you can also attend one of our exit planning conferences, which will provide you with a wealth of information about how to successfully close a deal with an optimal buyer.

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The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.
Andy Graham, Vice President, Modern Heating & Plumbing
I need to say an immense thank you to Don Ho for his stellar work ethic, attention to detail, and tireless effort. Also thank you to the whole crew at GE! Without you, Don could not do such a phenomenal job. We were shooting for closing and funding before the end of 2020, due to the uncertainty of the political landscape and taxes. I am happy to report we closed last week and will be funding tomorrow.
Dr. Caty J. Catron PhD, RN, VA-BC – Owner, Vic The Picc, LLC
T.D., thank you so much! You are a great leader! I love how you are using your gifts and talents to better others. You are clearly a GREAT COACH! This 3 day session undoubtedly changed the future of our business, and very well may have been the sole catalyst to save my company, my health and my marriage! A genuine “thank you” from the bottom of my heart.
Bryan D. Horn, Owner, Over Under Clothing
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Terry D. Wickman, President, Keytroller
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.
Larry Moore, Owner, A Company Portable Restrooms
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.
Pete L.
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.
Jay Dinnison, Owner of Sharpe Mixers
We thank you Eric and Generational Equity making our dream come true.
Larry Moore, Owner, A Company Portable Restrooms
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.
Michael J Polarek, President, Paragon Packaging
I am pleased that I was able to work with Andrew Byrd throughout this experience. From the first meeting we had in Minneapolis I felt that I was in good hands. His knowledge and expertise is second to none. He guided the process consistently throughout. I feel lucky that I was pared with Andrew and could not be happier that I chose Generational Equity to handle this major life event. Thank you Andrew and GenEq for everything!
Eric Erlandson, Owner, Action Fastenings, Inc.
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.
Jay Dinnison, Owner of Sharpe Mixers
Dear Chris and Andre, I just wanted to say thanks for all your help. Even though this process was not an easy one, it was comforting to know that I had a capable team standing beside me. You made me feel like we were almost your only client or at least the most important one. Thanks again, and I will recommend your service in the future.
Shenille Engelhart, Owner – CLS Technology
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.
Terry D. Wickman, President, Keytroller
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”
Karen S. Williams, CFO, BW Manufacturing
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.
Bil MacLeslie, CEO, ipHouse
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.
Robert Evans, President and CEO of Mealtracker Dietary Software
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.
Michael J Polarek, President, Paragon Packaging
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).
Bil MacLeslie, CEO, ipHouse
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!
Andy Graham, Vice President, Modern Heating & Plumbing
Generational Equity’s assistance was invaluable in compiling and marketing our business.
Bil MacLeslie, CEO, ipHouse
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.
Ralph Noblin, President of Noblin & Associates
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.
Robert Evans, President and CEO of Mealtracker Dietary Software
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.
Karen S. Williams, CFO, BW Manufacturing