Mergers

Head Start

The entrepreneurial lifestyle resists definition.

Business owners paint with strokes of curiosity, determination, and innovation. When people build with creative ambition, experience is valuable, but the symphony of desire and attitude plays an equally important role. It takes heart to start and resilience to execute early moves, manage focus, build teams, maintain sales, and provide lasting customer service to maintain momentum.

The best part about an entrepreneurial lifestyle is that it’s accessible to everyone. This can be seen as students explore projects that transcend the classroom. It’s intrapreneurs fueling positive change in existing companies. It’s startup founders achieving product-market fit with new ideas and others who acquire an established business.

EXTRA SHOT

This contribution was written by Sheldon Ohringer. Along with helping us buy a business, Sheldon is an investor and board member who led large sales teams, developed acquisition programs, and as CEO took a technology company public.

Starting a brand new business is one way to explore the entrepreneurial lifestyle, but buying an existing business is also an interesting way to write your own story.

While there may be a higher cost for the head start, acquiring an existing business presents an interesting side door to the entrepreneurial lifestyle.

Organic growth is important, but there are added benefits in augmenting internal development with external acquisitions as well. As you consider a business to buy, avoid future headaches by understanding industry requirements, such as licenses, permits, zoning, and environmental requirements. As you work with existing ownership to determine a purchase price, a valuation based on capitalized earnings, excess earnings, cash flow, and tangible assets are all methods to guide fair negotiations. In the end, the right price is one that delights the seller and excites the buyer.

As details come together, partner with legal and accounting experts who focus on mergers and acquisitions (M&A) to document the transaction. A letter of intent, confidentiality agreement, contracts, leasing documents, financial statements, tax returns, and sales agreements are all important documents to talk with your M&A team about. Many transactions include a vesting schedule as well, so stay in tune with these details to avoid unwanted surprises.

There are a variety of strategic ways to acquire a business, but once the transition takes place, new owners are given keys to a kingdom that hails an established team, customer base, and operating procedures. As we see in the Exit section of the Results chapter in YDNTB, there will be challenges during these transitory times, but in the end, virtuous leaders listen to keep the culture balanced.

All the good that comes with a business is important to maintain, but an audit of negative aspects is important too. This focus on areas that need improvement is stressful, and concerned employees may exaggerate issues to make their own contribution seem important. To stay proportionate, talk with everyone for context, invite resolutions that may solve issues, get hands-on, and stay optimistic to keep your assessment honest and weighted against the big picture.

Searching and finding undervalued, cash-flow businesses may take time, but it serves as a viable alternative to growing a business from scratch. Intentional candor with areas to improve allows new owners to build on past success while charting a renewed vision for lasting prosperity.

By Ben McDougal, ago

Landing

The energy of anything new is easy to like. Along the way, while momentum creates ease, attention can slip.

Arriving at our destination took work, but the task is not complete until we stick the landing. To see this in nature, watch how birds take off quickly and fly around with ease. As they land, a final moment of attention is required. Another example is how climbers most often get injured on the way down a mountain. Fatigue and reduced focus make an impact, but beyond physical factors, accomplishments invite complacency. Whether it’s a tiny task or epic exit, a strong finish may take more than everything leading to it.

Extra Shot

Every moment is the end of something.

When it’s time to finish, make no assumptions. Stay detail-oriented to complete the sequence. Once the landing is executed, let the experience inspire renewed vitality as we shift gears and remain open to next.

By Ben McDougal, ago

Breakout Valuation

Breakout valuations are achieved when a business is valued based on how it makes people feel and its future potential, not just on what it’s done in the past.

The nine components of a breakout valuation are confidence, vision, curiosity, people, communications, cash management, financial forecasting, capital strategy, and business design. Whether or not you sell your company, owners who optimize in these areas position themselves for a breakout valuation.

Extra Shot

This is an adaptation of Breakout Valuation by Patrick E. Donohue. Patrick is the Breakout Growth Investor—a founder, valuation expert, and capital strategist who helps us build magnetic vision, unlock financial clarity, and create lasting value.

While you’re running a company, breakout valuations make everything easier. It attracts talented employees and quality customers. This expands your market position, makes financial capital less expensive, and invites vendors to extend better terms based on your surging trajectory.

Knowing what your ownership of the business is worth helps you make important financial decisions and becomes increasingly important as a business matures.

If a business grows to the point where it becomes valuable to acquire, academic and finance professionals attempt to make valuation objective, but the complexity of each transaction makes valuation subjective in the end.

Along with all the objective data, valuation is highly influenced by the environment, relationship, and personal views of the participants in a transaction.

Knowing how investors and lenders use objective valuation tactics is crucial. But understanding the potential value of the business, articulating it to potential partners, and having them buy into the vision will arm you with an advantage to get what  you want: a breakout valuation.

 

Extra Shot

What are we doing today to support our goals for tomorrow?

Breakout valuations are not aspirational.
They emerge from what you are doing right now.

Be clear with your mission and vision. Know your numbers and how everything comes together through a shared mindset, communication, and workflow. 

The pursuit toward a breakout-valuation compounds, requiring attention today and every day moving forward. This steady focus aggregates a deep level of understanding and builds confidence. When the day comes to part with some or all of your business, the assurance from a breakout valuation will maximize the payout or support the poise to walk away.

Alright, grab the gondola.
Let’s head back up the mountain.

By Ben McDougal, ago