When and How to Exit Your Business Gracefully
If you are a founder and your dream has always been to sell your business and walk away with a big check, keep reading.
Mike has sold five businesses, and his friend and client for ten years, Joey Osborne, just had a successful exit a few months ago.
After being acquired by a private equity firm, he walked away with an eight-figure paycheck.
In this post, they will share all the mistakes and life lessons learned from selling businesses, so that if you go down that exciting path you can be prepared.
All of these are non-obvious things. They are not what's on the spreadsheet but more about the right mindset, core lessons, and values.
Joey’s Backstory: “The Big Reward Was Worth the Grind”
Joey started this business, Mosquito Authority, 15 years ago.
It was one of those businesses that sort of came out of a necessity.
He transitioned from being a contractor specializing in marine construction, into the pest control space almost accidentally, since pest control was an industry he knew nothing about at that time.
But as he puts it, “it was all about timing”.
Starting the right business at the right time, sticking to it for the right time, and then getting to the end.
“The big payday, the big reward…It was worth the grind”.
Joey’s construction business was a super cash flow business. But as we know, in 2008-2009, cash stopped flowing in that industry, and he was a victim of that.
He was left with contracts that weren't paid and with some financial commitments.
Joey had a two-year-old daughter at the time, and mosquitoes were really bad where they lived, so they couldn't even put her out in the backyard to play without doing citronella or smothering her with one of those typical spray solutions. Things that Joey knew didn't work.
He started looking for options to better protect his daughter from these mosquitoes and stumbled onto a little niche, that literally had just gotten started: the backyard mosquito space.
Nowadays, this is a 16 to 18-year-old industry, but at that time only one company owned the market.
Joey decided to take further action. He did some background research, figured out what they were doing, went online, and ordered what he thought would be the necessary stuff to create the chemical, sprayed his yard and voilá, zero mosquitoes.
The rest is history. Mosquito Authority grew from servicing Joey’s neighbor into a 450-location franchise in 38 states and a $60 million-per-year revenue business.
Why Did Joey Start to Consider Selling His Business?
After 15 years running Mosquito Authority, Joey lost sight of where he started, and where he wanted to get, besides making sure the company grew year after year.
He really didn't know that he had a valuable business because, like most entrepreneurs, founder-led companies, Joey was just investing money back into the company and trying to pay as few taxes as he could.
He didn’t think of selling as an option.
A year or so before the sale, Joey started getting occasional calls or emails from people saying “Are you interested in selling your business?” His assumption was that they were just trying to sell him a product or service so he ignored a ton of them.
Until one day he decided to listen to a guy, who he actually liked and turned out to be a headhunter that had owned businesses before and had exits, now trusted by a big private equity company. They started discussing the option of selling Mosquito Authority.
This man became a great mentor for Joey and started guiding him towards his first offer.
The 5 Most Important Principles in Preparation for an Acquisition
Even though Joey’s first offer didn’t go as he expected, it was definitely worth the time and effort because great lessons were learned.
When the time came for a second offer, Joey understood a lot more about the process and was able to work towards his desired monetary outcome, and even retained some equity in the business.
The following are five principles that both Joey and Mike consider to be crucial for a successful exit.
1. Having the Right Mindset
Having the right MINDSET is the most important thing when selling a business.
If the mindset part is not right, it's REALLY HARD to get all the other pieces in place.
You, as the seller need to be on the same page as everyone in your supportive circle, as well as with the buyer.
In Joey’s case, he had a very supportive spouse. She was ready for him to be out of the business, so things flowed properly.
2. “Sizzle or Steak”
Let’s talk about the sizzle on the steak.
Your potential buyers are humans and they have emotions.
You need to make them feel confident and that they are getting higher value by polishing your brand, company, and assets in all of the aspects that may be seen as weak and that do not demand huge investment.
For example, let’s say you have a $100 million company and a $200 website. If the website is something that could take down the value of your company, why not improve it?
The same applies to other things that exist in your business and that could easily be improved, giving you chances of a better deal.
3. Don’t Be Perfect
This is related to the previous point and has to do with credibility and believability.
Don’t skip talking about the negative parts of your business that are going to come up anyway.
There’s almost a reverse psychology piece to that with the buyer.
If you know your business and share some of these weak points with potential investors, with an informed and proactive approach, they will see that as being a multiplier.
They are looking for these points anyway, so you have to be ready to defend the value of your business in spite of things like this, and don’t be surprised.
4. How to Save a Ton of Time Beforehand
This one is fairly simple.
Don’t wait until the last minute to start documenting your business processes.
The better you are at it, the easier everything will be.
Also, having the right people on your team way before the acquisition starts will make your life less stressful.
In most cases, a lack of documentation and having the wrong people will make it a super difficult transition.
5. Choose Your Buyer
There’s a bit of subjectivity in this area because we all have different views, however, there are some non-negotiable aspects to it.
If you were to advise and work with a business owner, right now, how would you want them to be?
If you were going to enter into such a serious relationship with someone, how would you want them to be?
Think of an ideal personality, values, and mindset, and try to find someone that you like.
You are not selling a car or a phone, but an asset whose transition may have you involved for months. So do yourself a favor and choose your buyer!
Selling a business is an exciting stage of every entrepreneur’s journey.
You’ve worked so hard to build this, so you deserve it to be a great experience.
During the interview, Mike asked Joey, “When you looked at your bank account and saw you owned eight figures, how did that feel and what happened inside your head at that moment?”
Joey said that he remembered the teachings of one of his mentors, Jim Rohn.
From him, he acquired the idea that one of the objectives in his life needed to be BUILDING a financial fortress around his family that NO ONE could ever tear down.
When Joey got the paycheck he thought, “THIS IS IT”.
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