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The Importance of Experienced Exit Planning Advice

By Generational Equity

11/15/2021

We are often asked by business owners: Why do I need to hire an M&A advisor?

The answer is easy – if you want to obtain a premium for your company, you need an experienced M&A team by your side like Generational.

Why?

For several reasons. 

First, any experienced M&A firm will determine if your business is buyer ready once you hire them. This process identifies key areas that you may need to work on over time, both tactical and strategic, to prep your business for an exit in the future. 

The Generational process is unique in the M&A world because we have a team, Generational Consulting Group (GCG), that was created to work with business owners to do just that: Build a buyer ready business.

Now the interesting thing we have found is that our team often helps the business owner fall in love with their company all over again, and see hope for growth beyond what they could imagine. This often takes an exit off the table for years to come!

This is what a few of our GCG clients have said about our consulting work with them:

Once your business is buyer ready, and you are personally ready to move on, the second step any experienced firm will take will be a full evaluation of your company including recasting of your financials. This critical process is so vital that if you don’t do it, you will be selling your company at a substantial discount.

Recasting allows your advisor to show the true historic and projected profitability of the company using a baseline that eliminates all items that you expensed through your business that will not be done so by a new owner (relatives salaries, vacation homes, autos, non-business-related perks, etc.) 

It is critical to get the evaluation phase right, for it to be accurate, and for it to be documented. Because when you get to due diligence, buyers will naturally try to determine if the financials are valid. Many will do a Quality of Earnings analysis. So having an experienced team of M&A advisors working with you can ensure that this process goes more smoothly.

Once the evaluation is completed you will then have an idea of what the economic value of your business is. Typically this will be a range of values, and the key thing to remember is that ultimately the market will determine the true value of your company. But the economic value gives you at least a starting point to know which offers are valid and which are being discounted.

And this is where the art of deal making comes into play and where you really will see the benefit of having a team like Generational by your side: Creating an optimal buyer list – one that has targets that will see the true value of your company.

Generational has over 34K registered buyers in its buyer database, and each has given us information on what they are specifically looking for in acquisition targets. This allows us to create buyer lists that are both targeted and broad enough to capture the premium buyers for your business.

Finally, when it comes to due diligence and negotiating a final deal, you will see the ultimate value in hiring solid M&A advice. Due diligence can be grueling and in many cases business owners question why a buyer is asking so many questions about the business. Don’t they trust me?

An experienced M&A team can help guide you through the purpose behind the 300+ questions often on a due diligence checklist, and help you understand (and answer) them.

Negotiations with buyers are never easy. If you go at this alone, you will be sitting across the table from folks that have acquired companies for a living for decades. They will NOT look after your best interests. That is why having a team like Generational with you at that table will help you obtain a deal that meets your short- and long-range financial goals.

Often business owners assume an all-cash deal is the best deal. However, in some cases it is wise to structure a deal where the owner is compensated in stock and other forms of payment, and even in contingent payments if the owner has some control over those items in an earn-out scenario.

Other options such as employment agreements can also be lucrative. Maybe ultimately you are not ready to sell 100% of the business, but want to remain and help it grow with new capital from a private equity firm. The variations are really endless, but you will need good M&A advisors to help you understand them all.

So, these are some of the reasons why you should hire an experienced, talented exit planning firm like Generational for your future plans. Don’t just take my word for it – listen to what a few of our clients have to say about our process:

If you would like to partner with us to develop a plan for your company, call us at 972-232-1121 or visit our website and provide us with your contact info and we will be in touch.

Carl Doerksen is the Director of Corporate Development at Generational Equity.

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