Lordstown Motors’ Ability to Stay in Business Hinges on Raising Capital, Valuation, CFO Says

Preparing Yourself And Your Business For A Sale

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Specializes in governance, strategy, finance, and M&A. Author & Experienced Outside Director. Kona Advisors LLC.

Recently, a networking group asked me to present advice on how to help their clients prepare to exit their businesses. Most private company owners are rarely involved in a transaction. For most, the only transaction they pursue is their final exit. That means they have no experience when it comes to what might be the most important decision of their career.

After I thought about the successful—and unsuccessful—exits I have seen, here is what I shared with the group:

1. Have clear goals. What defines success?

Success is usually defined by a combination of time and money. If the goal is to retire with financial security, what, precisely, does that mean? The better scenarios are when the owner knows their “walk away” number, the after-tax proceeds that will be in their bank account when the dust settles. This usually requires some financial planning, which is the first of several professional services needed for a successful exit.

The money is the easy part; planning the next stage of life is a bit harder. How do you want to spend your time? Do you want to stay active in the business but to a lesser degree? If not, how do you intend to fill your days and have a purpose?

As with many things in business and life, it is often best to start with the answer and work backward to the present to chart a course forward.

2. Understand the different types of buyers.

The universe of potential buyers is large and complex. Each has their own investment criteria and parameters for managing their acquired assets. In my experience, while strategic buyers are thought to pay more, they don’t have to put capital to work via acquisitions. Financial buyers are exactly that: people who frequently discount the legacy priorities of the seller. Things will be different if you are the platform versus if you are merely a bolt-on acquisition.

Smart sellers take the time to get educated, so they are fully informed before making irreversible decisions.

3. Get your house in order, including books and records, staffing and business processes.

The general rule is that if there is a problem to be fixed, you can fix it yourself and get paid for it, or the buyer will discount the price to offset having to fix it themselves. The two biggest discounts are often due to having an incomplete management team or no defined growth plan. These are the riskiest problems for a buyer to fix. Due to the increased uncertainty of both, the discounts are likely to be greater.

4. Deliver a full management team.

Even if you have a complete management team, you need to motivate them to help get the deal done. The first question everyone asks once the rumor mill starts is, “Will I still have a job?” The leadership needs to be proactive to secure the talent needed to get through the transaction, as well as have a communication plan ready for when the rumor mill needs to get shut down.

A “stay bonus” is an effective way to keep your management team focused on running the business and executing the transaction. Simply put, carve out some small percentage of the proceeds to allocate to the people you must have to get it done. It should translate into a meaningful percentage of their annual compensation to keep them focused.

5. Have no regrets.

Most people make a change in their lifestyle after monetizing their business. After six months, they might have bought a new house, car, jewelry or whatever other material possession they desired. The big overseas trips may continue through the first year. But eventually, all of that settles down, and life goes back to normal, but with more “stuff.”

Then reality sets in. Over time, you tend to forget the details of the deal or how much money you actually received. Then you start to focus on what happened to important relationships and how life has changed.

This is no time to have regrets. A big pile of money usually does not make up for losing critical relationships, bearing a blemished legacy or experiencing unhappiness due to a lack of purpose and fulfillment. Plan ahead. It often takes three to five years to build a new life. Start early in case you need a redo or two along the way.

The sale process is exhilarating, challenging and always exhausting. It feels like running an ultramarathon, with a 440-yard sprint at the end. Most sellers assume that once the ink dries, they can catch their breath. But that never happens. It is the start of another marathon and sprint process, but someone else is setting the pace.

The deal team will become your second family. While it might start with a financial planner, the sale process will be driven by the investment bank or broker, and it will then be centered around the lawyers. Consultants might be needed for financial, market, regulatory or environmental diligence. The chemistry of this team matters as much as the rest of your management team.

While some of these suggestions might appear daunting, being forewarned is the key to being prepared for the uncertainty of the process. Above all else, understanding what is going to happen before it does and having the right team around you is the best way to get the result you set out to achieve when selling your business in the first place.


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