dont perfume the pig ebook

7/27/2019 Dont Perfume the Pig eBook

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Don’t Perfume The Pig

And 12 Other Lessons Learned For Selling Your Businesse Right Way.

Howard Mann

© 2011 - Howard Mann

is work is licensed under the Creative Commons Attribution-

NoDerivs 3.0 Unported License. To view a copy of this license, visit

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to Creative Commons, 171 Second Street, Suite 300, San

Francisco, California, 94105, USA.

Cover design and illustration by Kevin Cornell

www.bearskinrug.co.uk

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Follow Howard on Twitter: @howardmann

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Contents

Foreword p.3

Introduction p.4

Get Your Mind Right p.6

Know Your Number p.7

Reverse Engineer It p.8

What Do Your Buyers Care About? p.9

Norm Is Not Your Friend p.10

I Have To Makeis Movie! p.11

Word Will Get Out p.12

Date Around p.13

Don’t Negotiate Against Yourself p.14

Don’t Neglect Your Business p.15

Earnouts Are Fantasy p.16

Don’t Perfume e Pig p.18

Never Too Soon To Start p.19

Aboute Author p.20

About Brickyard Partners Inc. p.20

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Foreword

When's the best time to learn to swim?

When you're a toddler long before you ever intend on hitting a

pool? Or when you fall in one day by accident?

e answer is a no-brainer - you learn when you don't need to, so

that you can act when you do.

at's how you need to treat the sale of a business - teach it to

swim early, because if you wait until a buyer comes-a-knocking -

you're going to drown.

It's safe to say that selling your business will probably never be

easy, but it's a lot easier if you understand the game you're playing

before you begin. Having spent the last six months of my life

working my way through the often frustrating 'game' (it really

starts to feel like one) of selling one of my businesses, I can't begin

to tell you how invaluable Howard's wisdom and advice has been.

is short book sums up much of what he has been telling me foryears, and I'm so grateful that I listened, because when the buyer

did knock - my business was ready - even if I wasn't.

e good news is that the attributes that a buyer looks for are

rarely diff erent from those that you'd want from a business you

intended on keeping; healthy, profitable, diff erentiated, and

independent.is book sets out to help you sell your business one

day, but I can guarantee that it will help you run your businesstoday. As I always say to entrepreneurs looking for 'e Big Sale':

set up your business as if you want to sell it tomorrow, then run it

as if you want to keep it forever.

Enjoy the swim...!

Richard Mulholland

International speaker and author of the soon to be released book: Legacide.Founder of presentation strategy company Missing Link and co-founder of unk!

,a perspective lab.

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Introduction

I loved my freight business. I couldn’t define where it began and I

ended. And yet, like every business owner, I always had a small

portion of my brain swirling away about what it would be like tosell it some day. Inevitably, so much of my time was consumed

with running, growing, fixing and evolving the business that the

little dream got little, if any, attention.at turned out to be a

critical mistake.

If you are building a business, you know how the building never

really stops. You also know that at some point you would like to,at the very least, consider selling it.e process of doing so

requires far more up front thinking than you might think, which

can be a major distraction from the day-to-day running of your

business.inking about selling your business is filled with

learning as you go. For us entrepreneurs, that might sound

exciting. However, unlike most of the entrepreneurial experience,

selling a business is not the best time to learn as you go because itis often a one-time deal. Aiming to get it perfect on the first try

should be the goal.

I sold my freight and logistics business on January 1, 2000. It took

me six months to decide to sell it and another six months to get

the deal done. I wish I knew then what I know now.is eBook is

meant to share some of the lessons learned the hard way. It is not

meant to be a comprehensive guide to selling your business, but

rather to get you to start thinking about these lessons sooner

rather than later.

Most articles I read about selling a business focus on figuring out

the right multiple or valuation for your business and finding a

buyer. Unfortunately, like too much business advice, the articles

on selling a business miss the human element. Yet, the human

element is critical for the business owner to grapple with, from the

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people who work for him/her to the humans who will be sitting

across the negotiating table.

Financial numbers are very black and white. But you are not selling

something that is black and white. Your business, particularly if itis a service business, is hugely reliant on people, their talents and

how they collectively run a business that is unique. If you do not

get the human element of this right, especially in terms of what

you want to personally get out of it and how you want to live after

it is done, then the deal will fail on many levels and cost you far

more than your business.

Keep in mind these truisms about selling a business:

• Selling your business will probably be the largest transaction

you will ever do.

• Unlike other big transactions, you will probably do this one

only once. Because of this, you rarely have the experience (and

extra time) needed to do it right.• Lawyers, accountants and bankers are focused on completing

the transaction and advising you on only that part of a much

larger whole.

• Business is human.erefore, so is selling one.

If the last two years have taught us anything, they made clear that

you never know when the floor may drop out from under your feet. You need to be prepared. If you thought that the climate for selling

your business was predictable and stable, now you know better.

e question is: how do you sell a business in the world of today?

A note about the title: If you did not take the time to ready the

business for sale, you will be in a mess and your only choice is to

“perfume the pig.” I am an advocate for preparing to sell your

business long before you need to, and even if you never want to. If

you follow my suggestions, when you do decide to sell, there will be

no perfume required. Let’s get started...

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Get Your Mind Right

e media likes to report on the “big exits,” such as theentrepreneur who built an empire and cashed out for a lottery-size

amount.e rest of us are tempted to dream about what we would

do if we have the same windfall. en we take a look at our

business and reality sets in. Can I sell this thing? Who would buy

it? Why would someone want to pay me top dollar for it? How will

my team react? Will our clients stick around?e money would be

great, but would I be bored without a business to run?

All great questions.e problem is that too few business owners

take the time to wrestle with the answers the way they should,

which leaves them ill prepared when a buyer approaches them –

advantage buyer; owner is left scrambling.

Your questions and concerns may be diff erent or there may be

many more of them. What I am urging here is that you need to

carve out the time to uncover them and, more importantly, answer

them. If you have built the business, it is likely a part of you.

Selling it will feel like a loss in many real and tangible ways. You

need to digest and accept that. Also, the people that helped you

build the business may feel abandoned and afraid of what is next.

ey trust you, but may not know the buyer. ey may worry

about the horror stories they have heard about new buyers

destroying companies after the deal is done.

Start sharing and discussing these ideas with trusted friends and

advisors. Speak to people that have sold businesses similar to

yours so you both understand the transaction as well as how they

felt after it was done. Would they do it again? What did they wish

they knew?

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Know Your Number

Financial planners all talk about having a number as it relates to

your retirement, meaning the amount you need to have in the

bank the day you retire so you can live out your dreams in comfort.If you are a business owner getting ready to sell, you also need to

set a number. Your personal number, the business debt that needs

to be paid off , partnership agreements, and ways you want to

reward your team will determine your business number.

e first question is: For what amount would you need to sell your

business so that the transaction is truly worthwhile? What needs

to be sitting in your bank account when the ink dries, the dust

settles and everything (and everyone) is paid so you can live your

dream, float from island to island, stare at the mountains, or start

your next venture.

Your number will vary greatly based on the type of business you

have and the multiples of profit that a buyer is willing to pay.

Setting a number will help you begin to visualize your end result in

a real and measurable way. It will quickly expose how far your

business is from that magic number and help you begin to plan the

ways to get from here to there.

ere are many formulas you can use to calculate your business’s

price, and just as many variations to determine who the buyer

should be.is eBook is not meant to deal with the financial

aspects of the transaction. For now, just work on figuring out what

you want your bank account statement to read the day after the

deal is closed.

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Reverse Engineer It

An M&A Today survey showed that 65% of business owners don't

know the value of their company and 85% don't have an exit plan.

Once you set your number, you need to work backwards to build a

specific action plan that will make it real in the time frame that

works for you. Describe what your company does the week before

you sell it. What lines of business is it in and how much revenue

and profit does each business deliver? Be specific and measurable.

What is your business famous for? Who would want to buy it and

why? What is the realistic future date when this vision can be

called true (be honest with yourself)?

Many of these pieces may be lacking or missing. So don’t avoid the

work because you think it will show weakness. Hard questions and

their answers are powerful motivators. Do the hard work.

Now, and only now, can you work backwards to make this vision a

reality. Following the Goaljumping concept from my book, Your

Business Brickyard :

• What does your business need to look like 1 year from now to

have you on track to realizing your vision?

• What new business lines will (or must) be started by then?

• What are the sales numbers in those new business lines?

• Who have you hired (or fired)?

• What has to happen in the next 90 days so you are one-

quarter of the way to that one-year goal?

• Who is responsible for each action and when will they have it

done?

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What Do Your Buyers Care About?

When you are building your company, your focus is on what your

customers want (or at least I hope it is). But when your goal is to

eventually sell your business, you need to be equally focused onwhat potential buyers are looking for. You need to start thinking

about types of potential buyers and the value you could bring to

them.

inking about what your buyers want is a more macro view than

what you are used to taking and it requires you to make some key

changes. You are now thinking of your business as the product or

service instead of the product or services your business provides.

What need do you fill for a buyer vs. the need you fill for your

client or customers?

What can you do to make sure you are building a business that

another organization would pay top dollar for instead of trying to

build it themselves or want to look at your competitors?

at vision should form a key component of your goals and inform

your strategic planning (and, more importantly, your actions) in

the near and longer term.

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Norm Is Not Your Friend

Whether you have codified it or not, there is a unique way that you

deliver your services to your clients —and your clients value you

for it. More often than not, your unique way is buried within “justthe way we do it/always have done it.” It is time to set it free and

make it replicable. Service businesses have the unique challenge of

not having a high percentage of recurring revenue, or, as a buyer

may see it, reliable revenue. But there are ways to begin to change

that and you need to take on the challenge sooner rather than

later.

If your approach is to be all things to all people, a buyer will not be

likely to see you as any diff erent from your competition – and that

makes it difficult to set a price for your business beyond the

industry norm. My freight business looked like all of the others

until we moved into niche markets that generated three times the

revenue than the norm for general cargo. All of a sudden, we added

more than clients to an acquirer’s business. We added expertise

and new lines of business that improved their overall story and

platform.

e end result was that we had something that was cheaper for

someone to buy and add to their business than to build from

scratch on their own. A big shift.

Another great strategy: Challenge the status quo on how your

industry handles pricing by focusing on greater value in how to

price based on what your clients want.

Are there ways your clients could be paying you on a monthly,

quarterly, or annual basis? Are there ways for you to charge your

fees in advance? Forget how your industry does it -- if you want to

realize a price higher than the norm, your business better do

things far better (and diff erently) than the norm. Remember, your

industry does not know what is best for you, you do.

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I Have To Makeis Movie!

Ever read a typical off ering document prepared by a seller (or by

their traditional investment banker) all the way through? Only slightly more engaging than a tax return. Why not take the

opportunity to tell your story in a way that is truly memorable,

that creates excitement and urgency by the reader? As I will say

again and again, this is a sales process, and likely the largest one

you will ever manage. Wow your potential customer with a story

that makes them say: “We have to buy this company!” Just like you

want to stand out from the crowd when trying to win new clients,

you want to get creative and stand out when you are selling your

business. Sure, there are some standards to how you present

financial information. But, based on my experience, everything

else should be open to your creativity, innovation and marketing

savvy.

To do that, first you need to understand your purpose, your

history and the stories that have likely been trapped inside your

business. Identify the unique people and processes that have

developed but never been made part of your standard procedures.

e financials are the financials, but a buyer can find those types of

numbers with many of your competitors. What a buyer cannot find

everywhere is the unique culture you built, the innovations that

your competitors do not have, the loyalty your clients have to your

business (beyond just working with you - yes, that point again).

When I was selling my freight business, we tried hiring a respected

investment bank to represent us. But after they had a junior

person write our “book,” it became clear that the typical market

research-focused story did not properly capture the value of our

business. It did not separate us from our competitors and only

served to lump us in with them.

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Word Will Get Out

It will happen. If it happens to a company as secretive as Apple

Computer, it will happen to you. e best way to be prepared for

the rumor mill is to be proactive.

For me, I’m still not sure how and when word started to spread. All

I know is it caught me off -guard.e rumors were accurate and the

panic was quite real. Luckily, I didn’t shy away from dealing with

things head-on.e next morning I held a town meeting at our

local offices and then phone calls with offices across the country. I

told them the truth: Why we were looking to sell, why we thought

it made sense, and, if the transaction actually happened, what it

would mean for them. We had talked to the buyer about our staff

and it was important to us that everyone had a place with the new

company. Whether employees kept their jobs would be based on

how well they did their work, just like when working for us. But the

opportunities would be greater and the benefits package better for

them with the new buyer. Finally, I told them that anyone who

was worried or had questions should feel free to call me or meet

with me at anytime day or night.

In retrospect, I wish I’d had a plan in place to talk with our

employees as a matter of course, rather than being at the mercy of

the rumor mill.

We did have foresight in one arena. Long before word leaked out,

we took our executive team for a quiet dinner to tell them what

was going on. We did it for them at the time, but it turned out to

be invaluable to us as well.ey started to field the rumors, bring

issues to my attention and keep everyone calm.

For most businesses, and especially if you have a service business,

your people are the business. Lose them and you have little to sell.

Ignore them at your peril.

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Date Around

Too often we want the easy way out. Know what I mean? Many

business owners will get approached by a friendly competitor or

will reach out to a company that is being acquisitive in theirindustry. While this may feel like the easy, fast and comfortable

approach, you leave yourself without any real leverage in the

process.

It is what we did, and while it certainly was easier (and perhaps

faster), I no longer think it was smarter. Having at least one other

buyer in the mix would have made a big diff erence. e work we

needed to do to answer the questions and needs of one buyer

would have been similar if we were talking to two (or even three).

If your business is ready to sell, your “book” is done and your

financial statements are all in place, then the additional work

dealing with multiple suitors are just conversations and

negotiations.

Every deal can fall apart at the proverbial “11th hour.” You may

reach an impasse with a buyer that becomes a deal killer. So after

many months of work, angst and stress across your company the

deal is dead. If you are only talking to one buyer, there is nothing

left to do but start over from the beginning.

More importantly, when two (or more) people bid on anything, the

price rises along with its perceived value. And so does your

leverage. Unless you are the hottest tech company of the moment,

the buyer is usually in the better position. Your job is to move

yourself to a better or equal space.

Some buyers may not want to spend the money to do due diligence

unless you agree to deal exclusively with them. But having another

suitor will allow you to better negotiate the terms under which you

will agree to move forward with only one.

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Don’t Negotiate Against Yourself

Large companies have investment banks playing good cop and bad

cop for them. Many have people who are totally focused onmanaging acquisitions and manipulating inexperienced buyers.

I said it earlier: very few small and medium sized business owners

will sell their business more than once. Selling a business is simply

not an area of expertise you can expect yourself to have. You need

someone to be your dispassionate sounding board, to carry the

load with you and be focused on you during the transaction and

not just focused on getting the transaction done. For many

reasons, some deals are best not done. You need to be in a position

to say no, if need be.

I did it alone and I will never do that again even though I have the

experience. Someone needed to help me find other buyers. We

needed to understand the risks associated with an earn-out. We

needed someone to show us our options if we did not do this

particular deal. We needed someone to find out how other deals

the buyer had completed had turned out.

We did our best to do as much of this as possible but, as should be

painfully clear now, running your business is going to suff er if you

take on these tasks that are as much of a full time job as your

business is for you now.

A recent survey commissioned by the M&A Source and the IBBA

revealed that 60% of business sellers said they received an

increased price of over 40% by using a business intermediary. Ten

percent said they received 90% more money for their business. e

same study reported that 90% of business sellers using a business

intermediary said it resulted in a more confidential sales process.

14



Don’t Neglect Your Business

If you have someone experienced representing you, then they can

do much of the “heavy lifting” and allow you to stay focused on

your business. And you must. We did everything ourselves, whichwas an enormous distraction. It forced us to focus on the

transaction to such a degree that business opportunities suff ered.

Human nature may tempt you to want to close the deal even if it is

not a great deal. Your mind has started to envision the money in

the bank and your life after the sale. As soon as that happens, the

buyer has won.

Instead, keep your eyes on the prize and stay true to your goals.

e best way to do that is to keep ensuring that the day-to-day of

your business is running strongly. Now is the time to show off how

well run your businesses by keeping everyone focused on hitting

your projections and keep the buyer “hot and bothered.” is

ensures that the first quarter and year after you are acquired will

deliver everything (or more) than what you promised.

15



Earnouts Are Fantasy

Here is something nobody likes to say, but I wish someone had

told me: When it comes to earnouts (where the total purchase

price is paid out over a number of years and is based on the sellerreaching specific performance targets), buyers only want you as

long as it takes to make the transition smooth and have all of your

people and clients. I also wish someone had told me how stifling

working for a large company was going to feel to someone who had

been involved in every decision, every day.

While the total possible amount of an earnout may make you all

excited (and that part works to the buyers advantage), it is

important to focus on the initial payment that is made when you

sign the deal. Why? You will have less control over how you grow

your business once it is sold. e buyer will often have diff erent

strategies that do not match up with your earnout. I am willing to

wager that the later payments of an earnout are actually paid out

in only a very small fraction of long-term deals. And, in those cases

when it is not, much money from the initial purchase price goes off

to lawyers battling for your earnout. ere are simply too many

reasons for it not to work out. Be honest with yourself about it

and be straight about it with the buyer up front so you are not left

disappointed or, worse, in court fighting over their numbers vs.

yours.

You can be sure the buyer will entice you with promises of a giant

earnout and how much time you will now have to grow the

business since you will not be burdened with running the business.

In my experience, that is a fantasy. You will now be spending a lot

of time navigating and dealing with all the new processes and

politics of being part of a larger company where you do not get to

make the final decision. You will have bosses, and for anyone who

has been the boss, that is an enormous change. If the buyer makes

a decision that is great for their business and lousy for your

earnout, guess who wins?

16



It is impossible to know where a buyer’s business will be in two or

three years, or if you will even be reporting to same people. Yet

many sellers stake the bulk of their business’s value on the years

that will no longer be under their control.

For what it is worth, I lasted just under six months with the

company that acquired us. It is simply oppressive for anyone with

an entrepreneurial spirit to be trapped inside the politics and

bureaucracy of a big company. It’s best to know up front that it is a

rare company that can make an entrepreneur still feel like one

inside a larger organization. Structure your deal accordingly. Youhave been warned.

17



Don’t Perfume the Pig

Such a descriptive saying! e odd part is that is has been said to

me in such a positive way. Investment bankers, financial wizards

and business owners like to pat themselves on the back for theirability to make a bad company look good on paper.

In the real world, “perfuming the pig” fools no one. You need to

have an honest conversation about what your business actually is,

why it is valuable, what it is worth and what you can do to turn it

into a business that can be sold for an amount that makes you

smile. Or in cases where the business is in trouble, an amount that

allows you and those you care about to move on. Trying to dress it

up or sell a sexy story may get you a bunch of meetings, but the

truth will come out at some point and all that precious time, and

possibly your business, will be lost.

18



Never Too Soon To Start

ere is nothing worse than trying to sell your business when you

are not ready. I have been there. Financial reports had to be put

together on the fly. Answers to key questions about how thebusiness performs had to be prepared as we went along. is will

cause you to lose your focus on the business that, one way or the

other, you will need to keep its momentum whether the deal is

closed or not.

If you are running a business that is poised for the perfect sale it

will, by default, be a business that is growing, innovating and

totally in control of its destiny. Not a bad place to be even if you

never sell it. It is a great way to focus your growth and business

strategy. And it always leaves you with options.

ere is nothing worse than feeling that you are not in control of

what happens next with your business. Doing the right things to

ready it for sale solves that problem.

According to the PricewaterhouseCoopers study, "Whose Business

Is It Anyway? Smart Strategies for Ownership Succession," failure

to do pre-sale planning is the #1 reason why deals fail.

If there is nothing else you remember from this eBook, treat the

sale of your business with the urgency you should treat retirement

planning (and who does not wish they started that process

sooner?). Start early and keep adjusting. For any business owner or

entrepreneur, the fuel for that retirement will be your business.

Ignoring it until the last minute will only cause you to get out your

pig perfume.

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About the Author

Howard Mann is the president of Brickyard Partners Inc., strategic

advisors that solve tough business problems and make businessmore fun to run.

Prior to founding Brickyard Partners in 2001, Mann was the

president of an international logistics company with six U.S.

offices and a network of over 35 agents worldwide. After

completing 6 acquisitions in 4 years, the business was then sold in

January 2000.

He is also the author of the acclaimed book, Your Business

Brickyard: Getting back to basics to make your business more fun

to run. Mann speaks and writes frequently about the importance

of the basics and of reconnecting to the passion that too often gets

lost as businesses mature.

About Brickyard Partners Inc.

Don’t lie about who you are.Find the awesome in what you do.Be relentless in building momentum around it.

We work with business owners to identify and achieve their

biggest dreams. Is your business living up to your expectations?

Maybe you want to grow by acquisition, expand the client roster,

launch into new markets, or grow the company to be sold.

Whatever your version of the perfect result, we battle test the goal,

figure out the best approach to make it come true, and then fight

like hell to make it real.

Learn more and contact us at: www.brickyardpartners.com

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What you can do with this eBook

You are given the unlimited right to print this electronic book and

to distribute it electronically (via email, your website, or any other

means). Please share it with a business owner you care about.

You must give proper attribution. You may not alter this book in

any way and you may not charge for it.

Please tip your waiter, be nice to your mother and always wait 30

minutes after a meal to go swimming.

Connect!Sign up for our strategy letters at: brickyardpartners.com

Follow Howard on Twitter: @howardmann





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