Tim Kinane


Posts Tagged "Exit planning"

Saturday, March 7th, 2020

The Five Years’ Fallacy: Exit Planning Facts vs Fiction

By: Patrick Ungashick


Much of the conventional wisdom suggests you should start serious planning no earlier than five years before you are ready to exit. This misperception is so common; we call it the Five Years’ Fallacy. This approach gets owners in more trouble than perhaps any other mistake.

There are four major flaws with this approach:

1. Many exit planning tactics require at least five years or more to implement fully or to see the full benefits of implementing that tactic. Therefore, if a business owner is less than five years away from exit, some exit tactics become unavailable, or their positive effects may be diluted. Consider the following examples:

  • Selecting the ideal business entity is an important consideration, especially in the event of a sale, because the type of business entity may greatly impact taxes. For example, owners of C corporations, in some cases, may reduce taxes upon a sale by converting to S corporation status prior to sale. However, the tax savings are reduced if the company is subsequently sold within a five-year holding period after conversion. In another example, the reverse may be true—owners of S corporations seeking to implement an ESOP as an exit strategy may secure tax-free proceeds from the sale if they convert to a regular C corporation. Matching up your exit plan with the appropriate business entity may require years to implement.
  • Business owners seeking to pass a business down to the next family generation often desire to make tax-free gifts of business interests to the successor generation. Congress limits the value of gifts that can be made without triggering gift or estate taxes, including annual gift limits. As a result, passing down a large family business can take many years to accomplish. Too little time inhibits the effectiveness of gifts and other family-business transfer strategies.
  • If you intend to sell to a third-party buyer, your business’s brand and intellectual property may be an important factor in driving value. US law sets timelines required to register, file, and protect your intellectual property. If you wait until five years or less to develop an intellectual property strategy, you may have forfeited many of the opportunities available to create brand value.
  • Owners seeking to sell their business to one or more employees need to hire, train, and groom a key employee or entire team prepared to run your business after your departure. Developing successor leadership may take many years.
  • Many exit tactics benefit from the “miracle of compound growth” on invested assets. For example, funding an income tax-deductible retirement plan creates potential future income outside the business. If you have only a few years to implement this tactic, your results likely will be significantly diminished.

2. Waiting until the last five years to prepare for exit, reduces your control over many factors that influence the business’s sale price.

Road market conditions, interest rates, capital markets, your industry’s health, and other external forces influence the availability of cash, the cost of capital, and the demand for businesses in your industry or market. Many economists note that these cycles can take as long as ten years to complete. If you are restricted to exiting within a specific time frame such as five years, you may choose a time when your business’s price is lower due to external conditions. Your investment advisor probably has been telling you, “Don’t try to time the market,” when investing in publicly traded stocks, bonds, and mutual funds. But when it comes to selling your business, you must carefully consider market conditions. Leaving only a few years’ preparations to sell may limit the ability to achieve the most favorable external climate.

3. Limiting your exit planning preparations to the last five years is you simply cannot predict the future.

A prospective buyer with a large checkbook may walk through your front door tomorrow. Your industry may go through an unexpected consolidation (often called a “rollup”,) which heats up your potential market price but only for a window of time. You may become seriously disabled and unable to work. You may die. Who guarantees how much time you have? Life happens.

4. The fourth and final reason why you cannot wait to start serious exit planning is that if you have not clearly defined where you want to end up, then you do not know if the decisions you are making today will get you there.

In Stephen Covey’s best-selling book, The 7 Habits of Highly Effective People, the second habit is to “Begin with the End in Mind.” His lesson applies here. To paraphrase Mr. Covey, the successful owner must be able to visualize the desired outcome and concentrate on activities that help achieve success in the end.

Align your business growth plan with your business exit plan. Every day, you are making decisions that in some small or big way will impact your success at exit. Making today’s important business decisions without considering the ultimate impact on your exit, causes great difficulties down the road.

The bottom line is that if you are a business owner telling yourself you want to exit (or have the option to exit) sometime within the next five years, then you are already in the homeward stretch. It’s now time to start serious and effective planning and preparation for your exit. To help, download our popular free ebook: Your Last Five Years: How the Final 60 Months Will Make or Break Your Exit Success. Then, contact us to schedule a free phone consultation to learn how we have helped hundreds of business owners plan for and achieve a happy exit.

If you have a quick question coming out of this article or, if you want to discuss your situation in more detail, we can set up a confidential and complimentary phone consultation at your convenience contact Tim 772-221-4499,

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Thursday, December 12th, 2019

The Five Conversations You Must Have to Prepare for Exit

By: Patrick Ungashick

Team Pix


Five conversations can put you on the path to a happy and successful exit. These conversations need to be open and honest, revealing your desire to exit the business eventually. They need to be handled intentionally and carefully, with preparation and practice, because there is a real danger you may do more harm than good. Ideally, the conversations need to happen well before you exit (we suggest about five years,) when you still have time to take the right advice coming out of these conversations and put it to use. Waiting until just before you exit to have these conversations negates the opportunity for positive action arising out of them, and risks alienating people who care about you and the business, and feel disrespected for not being included much earlier.

The five conversations are with the following relationships:


2.Your spouse or partner

3.Your business co-owners (if applicable)

4.Your business co-leaders

5.Your advisors

These five relationships are critical for your exit success. How you approach these relationships—through the conversations you have with them—will go a long way to determine if you exit happily or not. As long as you have not disclosed your exit aspirations with these key relationships, you cannot be entirely honest with them for fear of creating potential problems for you and your company. Your ability to lead the business and work effectively with these relationships will be compromised. You will find yourself making critical exit-related decisions that impact the business, partners, employees, customers, key suppliers or advisors, and your family, keeping them in the dark about your intentions, and where you are trying to lead things. Misalignment, tension, friction, and frustration are nearly certain to ensue.

The longer you wait to have these conversations, the greater potential your exit success will be undermined, or you may even cause harm to your relationships with your business partners, employees, customers, and family members. The business may suffer. Millions of dollars may be lost. Consider the following real examples we have encountered, all of which occurred because of business owners who never had a productive exit conversation with these relationships:

  • The two business partners who, after 14 years of working together in friendship, found themselves unable to be in the same room out of anger and hurt, because they could not learn how to effectively talk about their future exit.
  • The business owner’s wife, sitting in a conference room in our offices, crying out of fear. After thirty years of owning their business, nearly all their wealth was still tied up in the company, and her husband was unwilling or unable to tell her when they would end their financial dependency on the business.
  • The three siblings who co-owned a second-generation family business, who prematurely sold the firm because they never learned how to have the exit conversation with each other.
  • The two key employees who left the company they cared about as much as the owner, feeling unappreciated and disrespected because they suspected the owner would sell the business one day, but had never confided in them nor approached them about potentially buying it.
  • The business owner who did not feel comfortable sharing his future exit intentions with his accountant, and without that information, the accountant failed to recommend a corporate structure that would have reduced taxes at exit by more than five million dollars.
  • The business owner who sold his business when a surprise buyer showed up and wrote a large check, even though the owner never had this conversation with himself about his exit goals and values. Only to watch the buyer subsequently treat his former employees and customers poorly to the point that for the rest of the owner’s life, he felt like he had failed those people.

Conversations with the five relationships will not guarantee you a happy and successful exit. However, if you fail to have the conversations with these five relationships, your exit likely will be more stressful, riskier, and costlier than if you have the conversations. To plan these communications takes a modest amount of time. In return, you may create thousands to millions of dollars in increased net business value, years of continued good relationships, and uncountable benefits in reduced stress and avoided problems. On a dollar-for-hour basis, these conversations may be the most valuable time you spend during your entire career as a business owner.

To get started, review this helpful information about the 14 most common exit planning questions. Then, contact us to discuss your specific situation.


If you have a quick question coming out of this article or, if you want to discuss your situation in more detail, we can set up a confidential and complimentary phone consultation at your convenience contact Tim 772-221-4499

Saturday, November 2nd, 2019

Cheat Sheet: 25 Ways to Make Your Company More Valuable

By: Patrick Ungashick




wo businesses are of the same size. One sells for twice the price of the other. Why does this happen? 

It happens all the time. Take two companies from the same industry and similar size, offer them for sale, and one sells for a premium price compared to the other.  

There are factors or conditions within any businesthat will increase (or decrease) its value at sale. If you are a business owner contemplating selling your company one day, it is essential to know what conditions enhance or detract from company value. These conditions take time to implement or fully realize—sometimes several years or longer. So, the sooner you get started, the better.  

Click here to download our “25 Value Drivers” cheat sheet, to see those factors and conditions which enhance (and detract) from value in your company. 

Then, contact us to see how we can help you make your company more valuable at exit.

If you have a quick question coming out of this article or, if you want to discuss your situation in more detail, we can set up a confidential and complimentary phone consultation at your convenience contact Tim 772-221-4499

Thursday, October 17th, 2019

Why a Buyer’s Motives Determine Your Company’s Multiple

By: Patrick Ungashick

Biz People


“What will my company be worth at sale?” is perhaps one of the most common questions business owners ask when contemplating their exit. It’s not only owners who expect to sell their company to an outside buyer ask either. If you intend to sell your business to your employees, you still need to know the answer to this question. Even if you want to give your business to your kids, this question is essential to plan for taxes and other financial issues. Regardless of which of the four exit strategies you intend to implement, you need to know what your company is likely worth to an outside buyer.

That’s where the problem occurs. How do you know what a buyer might pay for your company when typically there are multiple potential buyers? You can and should research average company sale prices in your industry (usually expressed as a multiple of adjusted EBITDA (LINK) or in some cases revenue)—if you don’t know these benchmarks you are operating blindly. However, this information only tells you what other companies have been selling for. It does not specifically address what YOUR company may sell for. Even more frustratingly, you may have heard stories from other business owners (or your advisors) about how they got wildly different offers when their companies went up for sale. Why does that happen?

Different Buyers = Different Motives

When you go to sell your company, typically you and your advisors will follow a process that confidentially contacts many potential buyers (often dozens to even a few hundred) to solicit inquiries and offers to purchase the company. The one thing that all of these potential buyers have in common is they are seeking ways to grow their businesses, and perhaps an acquisition of your company will help them drive their growth. Also, while they share the same desire to drive growth, these buyers are different from each other. They are in different situations, have different needs, and face different internal and external challenges. These differences manifest into different motives from one potential buyer to the next. Furthermore, these different motives likely translate into different multiples one buyer may pay for your company compared to another.

For example, here are some of the common motives that cause different potential buyers to be more (or less) interested in buying a company:

  • Geographic expansion: the buyer lacks operations or presence in your location and sees acquiring your company as a means to launch in your territory.
  • Diversification and Cross-Selling: the buyer wants access to the products and services that your company has, to complement its existing products and services.
  • Market Share / Client Acquisition: the buyer seeks to increase its market share, scale, and/or profitability by acquiring your customers and clients and adding them to its platform.
  • Talent Acquisition: the buyer seeks to expand its team by acquiring your company and the proven talent that you have assembled.
  • Technology Acquisition: the buyer wants key technology that you have developed to leverage across its operations to open new markets, reduce its costs, embed in its services, etc.
  • Competition Elimination: the buyer wants to acquire your company to remove it as a competitor, or to prevent another competitor from buying your business.

While any buyer may have all of these motives to some degree, typically each buyer will have one or perhaps two over-riding reasons that drive its interest in acquiring your business—and the price it is willing to pay. Different buyer motives translate into different prices.

That is why if you and your advisors run an effective process which attracts multiple qualified buyers, you are likely to experience a diverse range of bids. In our experience, it is common that the range between the lowest and highest offers is two to three times more or greater.

For example, assume your company is doing $3 million adjusted EBITDA (link). After marketing your company to multiple potential buyers, you receive the following bids:

  • Buyer A – offers to pay $15 million for your company (5 times EBITDA)
  • Buyer B – offers to pay $30 million for your company (10 times EBITDA)
  • Buyer C – after initially seeming very interested, this buyer withdraws from the process without making an offer

On the surface, it would look like either Buyer A or Buyer B should go back to grade school to learn basic math, because how can one buyer offer five times EBITDA while another offers twice that amount? Furthermore, what’s wrong with Buyer C because it seems they think your company is worthless. While no buyer is perfect and all buyers make mistakes, the more likely explanation is these three buyers have different motives in mind while evaluating your company, and these mixed motives translate into different multiples they are willing to pay.

What’s Important for You and Your Company

If different potential buyers all valued a business solely based on that company’s multiples of adjusted EBITDA, then all offers would be relatively similar. However, in the real world, this does not happen. Different buyers have different motives and pay different multiples.

Don’t fall into the trap of trying to anticipate one buyer’s motives over another’s, because it is nearly impossible to know a buyer’s internal dynamics, and motives change with time. Instead, focus on getting your company ready for exit and then be prepared to experience different motives producing different multiples. To learn more, watch this helpful webinar with several real case studies, and suggested tactics for you to follow.


If you have a quick question coming out of this article or, if you want to discuss your situation in more detail, we can set up a confidential and complimentary phone consultation at your convenience contact Tim 772-221-4499


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Friday, September 20th, 2019

Seven Situations to Consider Bringing in an Outside Investor

By: Patrick Ungashick


business partners, partnership concept with two businessman handshake

You believe your business would grow faster, if you had more cash.

Or, perhaps you’d buy out that partner who’s not in sync with the company’s direction, if you had more cash.

Or, perhaps you’d take some cash home to diversify your wealth and sleep better at night—if only you had more cash.

Whatever your specific need, perhaps you’d do it—if you had more cash. That’s just the thing though. How do you get more cash to accomplish your business needs, without giving up too much in return, or taking on more risk than you should? Most business owners, at some point, will struggle with this question.

If a need for additional capital is identified, often owners automatically turn to debt to meet the need. Debt avoids dilution. In many cases securing outside debt is easier—one phone call to your commercial banker, and shortly thereafter you have a term sheet in your hand. Finally, owners know that with debt they are not sharing leadership and decision-making control with outsiders.

Yet, there are situations where investigating bringing in outside equity, either as an alternative to debt or as part of combined debt and equity approach, may make sense. We see seven common situations where raising outside equity may be a good fit to meet the needs of the business and its owners:

1.You can bring in outside equity without giving up control. It’s more myth than fact that if you bring in outside investors, you must give up control over your business. While some investors want control, many will consider minority investment situations, and some even prefer it. Most investors will require certain protections, often called “super-majority rights,” that require unanimous consent for the most critical decisions, such as selling the entire company, raising additional debt, or bringing in other investors. But the day-to-day operations and decisions can remain yours entirely in many situations.

2.You have a proven business model with no serious limitations to scalability. If this is accurate, then the more fuel into your company engine, the faster and farther it may go.

3.You have one or more co-owners who are not on the same page with regards to your company’s plans and direction, and buying them out will remove this obstacle and source of friction. With outside capital, you may be able to put cash on the table and buy them out quickly and at an attractive price.

4.You are racing against the competition, and speed to market and/or rapid gain of market share will define success or failure. If this is the case, then you may need to secure sufficient cash to win the race.

5.Your equity partners bring more than just cash to the table. If your investors can bring you market experience, leadership skills, transaction knowledge, industry contacts, or growth opportunities, then you may be getting a bargain. For example, many investors will require a certain number of seats on the Board of Directors. You cannot underestimate the value of having a formal board to help with financing, recruiting, financial and market analysis, project feasibility analysis, legal issues, and exit timing.

6.You desire to “take some chips off the table,” and outside money will allow you to diversify your personal net worth and gain liquidity outside the company. Many owners spend years and sometimes decades highly illiquid. Eventually, this causes most owners personal stress and anxiety—for a good reason. Bringing in outside investors may create personal liquidity, which not only reduces risk but for some owners infuses them with new excitement about taking the company to the next level, given their improved financial security. Bringing in outside investors often eliminates the need for personal guarantees, further reducing the owners’ risk.

7.You have a strong leadership or management team, some of whom want an equity stake in the company. Usually, these leaders and managers lack personal capital to buy into the business. Outside investors can help the management team to buy in, again without requiring taking control. Often we see this done with the current owner maintaining some ownership in the business, allowing him or her to gain liquidity while remaining involved in the company going forward.

There can be additional benefits to bringing in outside equity. One is the potential of increased credibility at your exit. If, after raising outside equity, you later decide to sell the entire company, many buyers have a perception that the business is more “buttoned-up” because outside equity investors have been involved.

While there are other reasons to consider bringing in outside equity, these seven are perhaps the most common situations where outside equity could be a game-changer for you and your company. If you face any of these situations, take an objective, comprehensive review of your company’s capital needs, and then determine the most effective capital strategy—including outside equity when advantageous.

To learn more, watch this webinar on how to “Cash Out Without Walking Out” or contact us with your questions.

If you have a quick question coming out of this article or, if you want to discuss your situation in more detail, we can set up a confidential and complimentary phone consultation at your convenience contact Tim 772-221-4499.

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Monday, July 1st, 2019

What Game of Thrones Teaches Business Owners About Preparing for Exit


By: Patrick Ungashick

Thoughts from a Game of Throne fan…

Whether you were a die-hard fan of HBO’s Game of Thrones, or you never saw an episode, likely you are aware that the most popular fictional series in television history recently ended in a manner that left millions of fans disappointed. (I am one of those disappointed die-hard fans.) In one crucial way, the Game of Thrones (GOT) ending offers an important insight for business owners getting ready to exit. Here’s how.

To explain the connection between GOT and your business exit, you must understand how sharply fans disliked the program’s ending compared to the entirety of the show. GOT consisted of 73 total episodes that aired over eight seasons. IMDB.com, a leading website for rating movies and television series, ranks the overall GOT program a lofty 9.4 out of 10. A quick review of the individual episode rankings reveals that episodes aired during the first seven seasons earned IMDB scores between 8.5 and 9.5, and several episodes even received a nearly impossible score of 9.9. However, during the eighth and final season, the scores fell dramatically. The highest rated episode from the final season received a pedestrian 7.9. The show’s climactic finale was the absolute all-time lowest scoring GOT episode, bottoming out with a dismal 4.2. How and why the show lost its way is not essential for our purposes. What is relevant is that after seven seasons of record-setting viewership and heaps of critical acclaim, at the very end the show blew it.

At this point, nobody knows how history will treat GOT. Years from now it may be regarded as one of television’s all-time great productions. But, what seems clear is there will always be an asterisk next to its name—a notation that despite all the show’s greatness, what happened (or did not happen) at the end tarnished its unparalleled accomplishments.

This is the lesson for business owners. What you do (or fail to do) at your exit will impact your company and personal legacy to a disproportionately large degree. In GOT’s case, the final few episodes overshadowed nearly ten prior years of artistic and narrative greatness. In your company’s case, if at the very end, your exit somehow fails or falls short, it may cast a dark cloud over your company’s previous years or decades of accomplishments.

An owner’s exit impacts practically every area of one’s business and personal life. Consequently, you cannot afford to have your exit be anything less than a big hit. Consider the following three examples of how a disappointing exit can have a disproportionately large negative impact on you and/or your company:

1.Failing to Reach Financial Security

Likely your hard work and business success have created for you a desirable standard of living that has benefited you and your family for many years. You also likely seek to preserve your financial security for you and your family for the rest of your life after you exit. However, if you fall short of achieving your personal financial goals at exit, you may quickly find yourself deeply disappointed and having to worry about money, perhaps for the rest of your life.

2.Employees are Treated Unfairly

Most business owners are deservedly proud of the careers and jobs they have created for their employees and strive to treat their people fairly. If, after years or decades of providing a stable and respectful workplace, your exit causes valued employees to lose their jobs unexpectedly, or thrusts employees into hostile work culture, that can quickly sour how people feel about your company even after years or decades of good relationships with employees.

3.Customers Left Unhappy

Businesses growth starts by taking care of the customer, and likely your company has done this well for years or decades. But if after you exit customers experience a noticeable decline in the quality of what your company provides, that too can quickly and perhaps permanently taint a previously sterling business brand and reputation. Few business owners will be happy after they exit if they realize that when they left the company, the company’s positive reputation rapidly turned sour.

The End Zone

My first book, Dance in the End Zone, opens with a quote from Elmo Wright, the former professional football wide receiver who is credited with inventing the end zone dance. After his career, Mr. Wright accurately observed: “I’ve accomplished a lot in my life, but what happened in the end zone is what defines my career.” This statement was true for Mr. Wright, and have been reaffirmed by what happened with HBO’s Game of Thrones. It will also define you and your company when you exit. Therefore, it is imperative that business owners start planning their exit as early as possible because what you do in the end zone will define your career, legacy, and post-exit happiness.

If you have a quick question coming out of this article or, if you want to discuss your situation in more detail, we can set up a confidential and complimentary phone consultation at your convenience contact Tim 772-221-4499.

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Monday, June 10th, 2019

Five Criteria for Selecting an Investment Banker

Five Criteria for Selecting an Investment Banker Image

By: Patrick Ungashick


A common question we hear from business owners anticipating selling their company is, “How do I select an investment banker?” As exit planners, part of our role includes helping business owner clients field a team of advisors that can achieve a successful exit. If you intend to sell your company to an outside buyer, an investment banker (or M&A advisor, business broker, etc.) likely plays an important role. Because many business owners have never been through a transaction, knowing what to look for in an investment banker may be new and unfamiliar territory. But selecting the right banker is essential because the wrong choice can cost you thousands to perhaps millions of lost dollars, and/or consume up to a year or more of lost time.

In exit planning and our experience, business owners should apply these five criteria to their search for an investment banking relationship that best fits their situation, needs, and goals:

1. The Banker’s Typical Deal Size = Your Company Value

Select an investment banker that routinely works with companies of similar value to your business. A banker who typically works with companies around $10-20 million in value may not be the best choice if your business is worth $200 million, and the reverse. If your business is significantly larger than the banker’s typical deal size, that professional may lack the experience and resources to represent your company effectively during the sale process. If your business is significantly smaller than the banker’s typical deal size, you may not get the attention and effort required to be successful.

To discern if the size is a good match, ask the investment banker to list the five to ten most recent transactions that he or she directly represented, including company size, industry, and other relevant data. If the banker you are considering is part of a larger team or firm, be sure that the list includes transactions that your investment banker directly worked on, and not a list of deals done by that banker’s colleagues.


2. The Investment Banker Has Experience in Your Industry

Choose an investment banker who has relevant and recent experience in your industry or sector. If your banker has experience in your industry, he or she may need less ramp-up time, bring a more nuanced and sophisticated understanding of industry factors determining value, know relevant industry trends, and have existing relationships with potential buyers. An investment banker lacking experience in your industry cannot match these advantages.

To discern the banker’s industry experience, ask for a sample list of transactions in your space, the banker was directly involved with, and then discuss the particulars. Measure the depth of industry knowledge the banker possesses, especially around market-specific factors such as regulatory issues, competition, key strategic players, or technology trends. The banker might not have to be a guru in your industry, but knowing the landscape and key players goes a long way to successfully representing your company through the sale process.

3. You Understand and Like the Way They Get Paid

In the past, most investment bankers were paid the same way: they charged a monthly retainer fee (designed to help cover their costs and give evidence that the business owner was serious about selling) and then received a success fee in the form of a commission tied to the sale of the company. The success fee represented the lion’s share of the banker’s income and motivated the banker to make the deal happen. The fee was most commonly expressed as a percentage of the deal value and decreased as the deal size increased. In this manner, the total fee percentage went down as the deal size went up. The most common version of this approach was developed in the 1960s by Wall Street firm Lehman Brothers and is called the Lehman Scale or Lehman Formula.

Modifications and adaptations of the Lehman Scale are still in use today. But, in recent years, a greater variety of compensation methods and models have entered the marketplace. This development creates a challenge for the business owner because you now have to sift through a wider range of models. But, you gain the opportunity to select a compensation philosophy that is consistent with your situation and preferences. For example, some investment bankers completely inverse the declining percentages found in the Lehman Scale, replacing it with a fee schedule where above certain thresholds the applicable percentage actually increases. The logic is that the increasing percentages incent the investment banker to drive the sale price up as high as possible, generating a greater net amount for the seller. Another approach is to charge a flat fee, with little to no variability tied to the sale price. To further complicate matters, monthly retainers can greatly vary in amount from one banker to the next, and some bankers credit the retainer against the success fee, while others do not.

On this issue, meet with multiple bankers to get a feel for which compensation method you prefer. Ask the bankers you interview to explain their method and its justifications. Model the banker’s compensation method in a spreadsheet that calculates the fees at various potential sale prices. Ask your other advisors to evaluate the proposed fees, to be sure they are consistent with market rates.

4. Your Other Advisors Support Your Choice

Selling a company is a team sport. An investment banker plays the lead role in the sale process but needs help and support from the business owners’ other advisors at numerous steps along the way. You should rely on your other advisors to screen and select which investment banker you intend to use, not just to protect your interests but also to make sure that you end up with a team of advisors who work together effectively.

Perhaps the two most important advisors to lean on as you research investment bankers are your exit planner and your deal attorney. Your exit planner should be able to do all the following for you: recommend candidate bankers, research their backgrounds and qualifications, accompany you during interviews, and review their proposals. The exit planner should help you determine which banker is qualified to represent your company and at a fair price.

Your deal attorney plays a critical role in reviewing the services agreement that will govern the contractual and financial relationship between you and the investment banker. Too many business owners sign a services agreement prior to engaging a lawyer with M&A experience—that is a deal attorney. Picking your investment banker before engaging a deal attorney is backward. Select the attorney first, and have him or her review the banker’s agreement before signing it. An attorney experienced in these transactions will know how to limit your risks, protect your interests, hold down fees, and avoid contractual provisions that are not consistent with market norms.

5. You are Comfortable with and Trust the Investment Banker

This last criterion may be subjective, but it is no less important. You will be working regularly and closely with your investment banker for many months during the sale process. This person (or team) will be your constant companion, potentially through difficult and emotional matters. Achieving a successful sale will be considerably more difficult and stressful if you are not comfortable with your banker, and all but impossible if you cannot trust this professional.

Spend time carefully choosing your banker. Interview multiple choices—even if you already have a preferred banker in mind, to have different options to compare and contrast. Ask for and follow up on references. If the investment banker is part of a firm or team, verify who on the team you will be working with during the process. Get to know the person or team well, as they will be “in your foxhole.” You must have confidence and comfort in working with them.


Choosing an investment banker takes care and time. Expect the process of selecting your banker to take several months, starting from when you conduct your first interviews up to signing their services agreement (after your deal lawyer has reviewed it.) Then, the real work begins. Making the right choice puts you on the path to a successful sale and exit. Selecting a banker that is not a good fit for your situation can set you back immeasurably.


If you have a quick question coming out of this article or, if you want to discuss your situation in more detail, we can set up a confidential and complimentary phone consultation at your convenience contact Tim 772-221-4499.



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Friday, March 29th, 2019

What’s More Important When Selling Your Company: Price or Terms?

Guys in car


Imagine a potential buyer — let’s call them Buyer A — has just offered  $20 million all-cash to acquire your company. Another potential buyer — let’s call them Buyer B — also offers $20 million, but their offer is paid out in equal installments over a period of 10 years.

If nothing else differed between the two offers, which would you choose? Most would take the $20 million paid up front from Buyer A, rather than wait to get paid by Buyer B and take the risk that some of those future payments might never occur.

That much is pretty clear. But what if Buyer B increased their offer to $25 million, still payable over 10 years? Would the $5 million increase in total price outweigh the need and risk to wait to be fully paid? If you would still choose Buyer A’s $20 million all-cash offer, then what if Buyer B upped the offer to $30 million? Then which would you choose?

Different Buyers Will Offer Different Prices and Terms

This hypothetical exercise may seem over simplistic, but it’s quite relevant in the real world. When selling your company at exit, different buyers will not only offer different prices, but they will also offer different terms.

There are a wide variety of potential differences in terms. In the example above, Buyer B offered a different payment schedule — time was the difference between the two offers.

But buyers can use a complex array of different terms. They can vary the currency they use in their offer: cash, stock, notes, etc.

Buyers can also vary the deal requirements, such as whether or not they require you to stay involved with the company for some period of time post-sale and/or if you must sign a non-compete agreement.

Put all these pieces together and the picture can get complicated very quickly. Comparing different prices from different buyers is easy; comparing different sets of terms can be arbitrary and difficult.

If you eventually sell your business at exit, don’t be surprised if you find yourself more concerned about the deal’s terms than about the total purchase price. In other words, the highest-priced offer to buy your company might not be the winning bid. Many owners who have the opportunity to choose from multiple offers select the buyer with the most attractive terms, rather than the buyer paying the highest total price.

Strengthen Your Company Before You’re Ready to Sell

This issue is important now, even if you are not planning on selling your company for a while. Buyers often use deal terms to address a perceived weakness in the target company. Knowing the reasons for these deal terms gives you the information you need to rectify any potential such perceived weaknesses and set yourself up for favorable terms when you do finally sell.

Here are a few common examples:

  • A buyer might hold back cash and require an earnout in the offer price when the buyer is not convinced that the company future growth’s will be as robust as the seller forecasts. The buyer’s doubts might be created by inconsistent or subpar growth rates or by a business plan that is unclear or unconvincing.
  • A buyer might insist as part of its terms that you must remain with the company for a designated period of time post-sale if that buyer has concerns about the company’s leadership team performing well without you. (Ask us how to overcome this.)
  • A buyer might hold back cash in an escrow account if your company has a small number of large customers, any one of which could leave as a result of the company sale.

To minimize the risk that you will be forced to accept burdensome terms when you sell your company, it is important to work on strengthening the company’s value well before you are ready to sell.

It can take several years to address the issues within a company that lead to less than favorable deal terms at sale. Getting started now puts you in the driver’s seat, driving toward the best of both worlds — the highest price AND the most attractive terms.


Your last five years

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To learn more about the steps necessary for a successful exit, contact Tim for a complimentary consultation: 772-221-4499 or email.


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Friday, March 8th, 2019

Tax Update for Business Owners: IRS Proposes No “Clawback” on Gift Taxes

The IRS has recently proposed new regulations to resolve one of the lingering questions raised by the sweeping Tax Cuts and Jobs Act (TCJA), signed into law slightly more than a year ago.

TCJA presented business owners with a number of important tax changes that impact how you do tax planning today and how you design and implement your future exit plans. (Read more on these new tax provisions, including a helpful infographic.)



TCJA Creates Questions

Like many extensive tax legislative packages, TCJA created a few questions along the way, leaving it to the IRS and other agencies to interpret and clarify the laws where needed.

One of those questions was, “How would gifts and estates be taxed after 2026 for taxpayers who have taken advantage of the temporarily increased gift limits under TCJA?” Here’s the issue. Before TCJA, U.S. taxpayers could gift about $5 million of assets ($10 million for married couples filing jointly) before potentially triggering gift or estate taxes.

Under TCJA, this amount doubled, allowing taxpayers to gift about $10 million of assets (about $20 million for married couples filing jointly). Gifting more assets without triggering a tax is better — especially if you contemplate transferring some or all of your business to your children as part of your exit planning. Under the TCJA, however, this ability to gift twice as much without triggering taxes will expire (or “sunset”) in 2026.

This sunset raises a big question — what happens to taxpayers who take advantage of the new and higher gift limits before the end of 2025 but then die in the year 2026 or later when the limits are lower again? Would these taxpayers or their heirs have to pay additional taxes under the restored lower limits in what is colloquially known as a “clawback”? Experts have been debating this question since TCJA was passed.

How Does TCJA Impact Exit Planning?

Here’s an example of why this question impacts exit planning. Assume a married couple named Oliver and Orphelia Owner gift their company, ABC Co., to their son. The company is worth $20 million. Under the higher gift limits now available courtesy of TCJA, it is likely that no gift taxes would be owed.

Now assume Oliver and Orphelia die in 2026 or later when the higher gift limits have fallen back to only $5 million per person ($10 million for married couples). At their death, Oliver and Orphelia’s estate and heirs could face taxes on the amount they gifted in excess of $10 million under this clawback approach.

The risk of a clawback complicates exit planning for business owners, especially within family businesses. Therefore, the IRS had to take action. The IRS’s proposed solution involves creating a “use-it-or-lose-it” approach, where taxpayers are not at risk of a clawback in 2026 and beyond but must take advantage of the higher gift limits before they expire in 2026.

The IRS’s proposed regulations are being reviewed and should be finalized shortly. If implemented as proposed, this development reduces uncertainty for business owners and creates a need to act to avoid missing out on a tax-saving opportunity.

Review These Issues with Your Tax and Legal Advisors

Many family business owners hesitate to transfer ownership to their next generation for fear of losing control of the company or out of a need to preserve the income stream they enjoy from the company. However, it is possible to make large tax-free gifts of your company without surrendering control or cutting into your income. Ask us how to do this.

Any opportunity to implement business exit plans at potentially lower tax rates is good news. But, if the IRS’s proposed regulations are enacted, business owners cannot afford to miss this opportunity as it will expire. It is important to review these issues with your tax and legal advisors to determine the best course of action for you.


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Contact Tim for a complimentary consultation: 772-221-4499 or email.

Thursday, January 31st, 2019

Need to Buy Out a Partner? The SBA Just Made This Easier

A recent technical change in the Small Business Administration’s (SBA) lending policies could make it easier to finance buying out a business partner. Prior to this change, borrowing money to buy out a partner through an SBA loan guarantee program could often be difficult or impossible.


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In the past, the fact that the partner buyout process left many businesses with negative equity made it extremely difficult to use SBA 7(a) loans for partner buyouts without needing to contribute a large amount of cash into the company.

Passed last year, the new SBA rules state that the borrower does not need to put down any equity as long as the business has a debt-to-net-worth ratio below 9:1. If the ratio is greater, the borrower will have to contribute 10% equity to qualify for the loan. (For a detailed example, consider this helpful article.)

Keep in mind that the SBA does not actually make loans — it offers to guarantee a portion of loans made by lenders that qualify under its various programs. Under the SBA 7(a) program, the maximum permitted loan is $5 million, of which the SBA may guarantee up to 75%.

Restrictions and Rules

Like most governmental programs, SBA loan programs come with many restrictions and rules. When buying out a partner, some of the most important things to know include:

  • Partial buyouts cannot be financed by SBA loans — the buyer is required to purchase 100% of the business. This requirement also applies if existing partner(s) are buying out other partner(s) of the business.
  • The seller may not remain involved with the company as an owner, officer, director, or employee.
  • If a transitional period is needed after the sale, the seller may serve as a paid consultant for up to 12 months, but not for longer.

There are many other rules to consider — talk with your banking and financial advisors.

What If the SBA Is Not for You?

There are many situations where the SBA is not a solution if seeking to buy out a business partner. The following conditions likely preclude you from using an SBA program:

  • The selling owner(s) want(s) to keep some equity in the company, or stay involved in the company post-sale, such as serving on the board.
  • You need to borrow more than the SBA 7(a) program maximum of $5 million.
  • You are concerned about overloading the company with debt.
  • You are concerned about personally guaranteeing the debt, which is usually required.

Many business owners are unaware of other methods to finance buying out a business partner, including bringing in non-controlling equity investors. It is important to carefully explore and weigh all of the options, and therefore work with advisors experienced in situations like yours.


To learn more about the steps necessary for a successful exit, contact Tim for a complimentary consultation: 772-221-4499 or email.