5 Liquidity Event Mistakes That Will Make You Cry (#37)

Steve Wells: [00:00:05] I'm Steve Wells. 

Jeffrey Feldberg: [00:00:06] And I'm Jeffrey Feldberg. Welcome to the Sell My Business Podcast.

 Steve Wells: [00:00:11] This podcast is brought to you by the Deep Wealth Experience. When it comes to your liquidity event or exit, do you know how to maximize the value of your business? You have one chance to get it right, and you better make account.  Most business owners believe that business value is determined during the liquidity event.

Unfortunately, most business owners are wrong. Your enterprise value is a direct result of the depth and quality of your preparation. Who are we and, how do we know? We're the 9-figure exit guys. We said "no" to a 7-figure offer based on 3-times, EBITDA. Two years later, we said "yes" to a 9-figure offer based on 13-times E ITDA. Despite having the same people, the same company, the same services, we increased our business value 10 times. 

How did we do this? We spent millions of dollars and years of time to uncover strategies that level the playing field. The end result is the 12-week Deep Wealth Experience.

We've created a proprietary solution that is relentless, resilient, and gets results. Learn how to master the art and science of a liquidity event. We've leveraged the same strategies that took us from 7-figures to 9-figures.

The Deep Wealth Experience levels of playing field so you can dominate and win. 

Book your free call today to find out if you have what it takes for the Deep Wealth Experience.

Visit www.deepwealth.com/success to book your free call.

Jeffrey Feldberg: [00:01:40] Welcome to Episode 37 of the Sell My Business Podcast. This episode is the five costly liquidity events mistakes that will make you cry. All joking aside, the statistics really say it all depending on who you talk to anywhere from 75% to 90% of businesses that are listed for sale will not sell. So, what's going on here? Why are these businesses not selling? 

As it turns out, it's costly and expensive liquidity event mistakes. When it comes to your business, you have one chance to get it right, and you want to make it count. So, what are these five costly liquidity event mistakes that can prevent you from either crossing the finish line and getting the deal done altogether, or getting a deal where you leave the majority of the deal value on the table. 

And this is a polite way of saying that you're taking your hard-earned money and lining it in your buyer's pocket. 

So, for liquidity event, mistake number one, it's preparation or lack of it will either make or break your liquidity event. What do we mean by that? At Deep Wealth, we focus exclusively on the preparation. And we saw this with our own liquidity event where we said "no" to a seven-figure offer, dove into the mergers and acquisitions world, and two years later, we said "yes" to a different offer. That was nine figures. So, what was the difference? 

The difference was preparation. We were prepared. We had done things with our company, preparation wise, that weren't done before. And I'll share with you a secret that most business owners don't know, but they really should. The strategies and the tactics that you do to prepare your company for a liquidity event. These are the same strategies and tactics that will increase both your revenues and your profits. So, think about this for a second. You do the preparation, you grow your business. You can keep your thriving and profitable business forever, or you can sell it tomorrow. 

You choose, but either one is a terrific choice. What is the preparation or lack of preparation? What are some things that are going on here and what can you do about it? For starters, preparation is going to save you your health, your time, and your money. Now why is this? Because I know many business owners will say, you know what, Jeffrey, when I decide to have a liquidity event, at that point, that's what I'm going to prepare. But this is where things go off the rails and off track. When you're preparing for the liquidity event you have a lot of pressure on you. You're running your business on the one hand, you're looking to do this preparation on the other hand, you have deadlines that you're looking to meet. 

The stress goes through the roof. Your health is definitely going to suffer. And because everything is so compressed, you're trying to get it all done at once while running your business. Time is no longer your own.  A liquidity event in and of itself that takes up time and it has its own pressures. You don't need the pressure of preparing at that time. 

When you do it beforehand, you take the time off the table because you're doing it at your leisure, you and your team. You're going through it and doing what needs to be done. And so you're actually saving time. And you're also saving money because you're doing the preparation with your team. You're avoiding a situation where you're bringing in expensive outside consultants or advisors who are doing the preparation work for you. 

Let's face it. You are the world's expert on your business, you and your team. Nobody knows your business better than you and your team. So, who better than to do the preparation then you and your team. It just makes so much sense to do it when you plan well in advance to get that done. Now here's the other gem that happens when you prepare well in advance. 

You will learn things about your business and the market that you're in. Now many business owners say Jeffrey, come on, I'm already in the business. I've been running it for many years. How much more can I learn? The truth of the matter is a lot. You're busy dealing with the day-to-day that most business owners are working in the business instead of on the business. 

And when you take the time to prepare, this is where you're asking the questions. We like to say a Deep Wealth. You already have all the answers for your business. What you don't have. And this is one of the things that we focus on in the 90-day Deep Wealth Experience, you don't have the questions. 

Through the preparation, this is where you find out what those questions are, so that you can answer them. And again, when you put this together, you're going to learn new things about your business. This gives you the opportunity to try different things. Your business is going to grow. You're going to go into different areas, perhaps where you weren't before. 

You may exit certain areas that you shouldn't have been in, in the first place. And the combination of those things is going to increase your reach. It's going to increase your revenue. And it's going to increase your profits. So, you're actually growing your company, what you want to do anyways, while you're preparing for a future liquidity event. 

Now I know many business owners will say Jeffrey, I hear you, but why would I want to do the diligence in advance? I mean after all the buyer is going to have a list of diligence questions and that should be enough.  The truth is due diligence from the buyer is not enough. When it comes to the world of mergers and acquisitions, you are always guilty and you're never innocent. So, what do I mean by that? Let me go to a different example. 

Let's suppose you're looking to buy a house. And you show up to the house and the house has holes in the wall. It isn't painted, it has all kinds of deficiencies. You're going to lower the offer that you're going to put on the house of what you're willing to pay. 

Even if the homeowner says after the fact I can fix those things. It's not a big deal. In your mind. The damage is already done. You've seen what you've seen and you're not going to forget that. It's the same thing with a buyer. In fact, buyers hope that you don't do all the diligence that you should be doing. 

Why? When the buyer goes through his or her diligence and they see the areas, the mistakes that you're doing, they see the areas that you're deficient in. They will happily put an adjustment onto the business. And even though those mistakes can be fixed during the liquidity event process or after the liquidity event process, it's too late. In the buyer's mind, the damage is already done. 

You're not going to be able to restore that. So, why not get ahead of that? And do the due diligence on your own, correct the issues and then move forward from a position of strength. And as we like to say, one of the things that we do in the Deep Wealth Experience in the 9-step roadmap. Each step builds upon the other. 

And when you do all of the steps effectively, what you've done are two things that I'm going to talk about one of these things a little later on in the podcast, but the two things that you're doing is number one, you found the skeletons in the closet. You got ahead of it and you fix those skeletons, you removed it. So, now you're showing up with a clean slate or as clean a slate as possible, and you're putting your best foot forward. 

The second thing that you're doing is you're finding those hidden Rembrandts in the attic. And I'll talk more about that a little later on, but ultimately the preparation puts you in the ideal position so that you can move forward with confidence, with strength, and putting yourself in a situation where you're increasing the value of your business or the enterprise value. 

Okay, so let's talk about liquidity event mistake number two. And this is all too common and you know what, whether you're having a liquidity event or not, you shouldn't even have this mistake on the radar. And this mistake is this. Does your business run with you or without you? Now most business owners will say my business doesn't run without me. 

It's a big mistake and this liquidity event mistake is one of the mistakes that stops most deals dead in their tracks. Or if you do move forward with your deal, you're going to do so with a significant adjustment in your value. Your value will go down. 

So, why do you want your business to run without you? And I know for many business owners the thinking is listen, I am the business and the business's me. I can't imagine life without the business. I can't imagine me not being involved in the business. But I'll let you in on a little secret. When your business runs without you, you'll actually have more fun. You'll have a more profitable and thriving business, and you'll get the lifestyle back that you've always wanted and probably never had. When your business runs without you, the first thing that happens, you lose the golden handcuffs. You're now having a team of talented people who are running your business. 

It frees up your time. What you do with your time? That's really up to you.

What a lot of business owners will do when they lose the golden handcuffs is they now have the opportunity to work. On the business. I want you to think back to when you started your business. Before you had a business before you had revenue before you had customers, you looked for and you found a painful problem that you were passionate about solving. 

Well, when your business runs without you, you get to do that again and let's face it in the minds of your customers you are only as good for what you've done with them today. You may have solved a painful problem for them in the past, but now they're going to move beyond that. They're going to have other painful problems and if you're not addressing those painful problems, your competition will happily address it for them. 

And take your customers away. So, when you lose a golden handcuff, when your business runs without you. You're now in a situation where you're finding new problems. And you're solving them. And you're passionate about solving these problems. Perhaps you're going into different marketplaces. Perhaps you're adding a new product or service. 

If you do it right, something wonderful happens. And that something is called a market disruption. And with a market disruption, that's a wonderful thing. You will get new customers. You're going to own a different subset of the marketplace. Your revenues, go through the roof, your profits go through the roof. And a market disruption. It's a wonderful way of significantly increasing your enterprise value. 

And speaking of value. The value of your business will increase market disruption or not, when you don't need to be there to run your business. So, I want you to think of it from your buyer's perspective. Your buyer is looking to buy your company and in your buyer's mind, they know that there's going to be a time when you're no longer going to be in the company. 

And I know what you're saying. Impossible. When I sell my company, I'm still going to be there. Or maybe you're saying, you know what? I don't want to be there. I want to sell the company today and I don't want to be in tomorrow. Your buyer is looking to have some kind of insurance. 

When you're no longer in the business, your buyer wants to know that not only is the business going to be there, but the business is going to run as good or even better than before you were there. So, when your business runs without you, and you can demonstrate that with a track record of success that goes over years of having your management team successfully run your company without you, your buyer gets confidence. And from that confidence is an increase in your enterprise value. So, many buyers that I speak to tell me, I found a terrific company, a wonderful idea, a great service or product. I didn't want to buy it though, because the business was so dependent on the owner that when the owner rides off into the sunset with my money and is no longer there, I'm not going to have a business left. So, at all costs ensure that your business runs without you. 

And yes, this means that you're going to be spending some time to hire a CEO or president to run your company. And it's going to take some effort and concentration to do that, but it's well worth the while. Don't fall into the trap that so many business owners fall into and they say why should I hire somebody to run the company for me when my competition's going to buy me? And they already have the people to run my company. 

 The fact is you have no idea who's going to buy your company. Maybe it's your competitor, but maybe it isn't. What if your future buyer doesn't have somebody to run the company? You want to show that you already have somebody in place who can run the company and take it to the next level with the new buyer. So, whatever money that you spend, whatever time that you spend on putting your management team in place it's a rounding error compared to the increase in value that you're going to get when you have that management team going, because your buyer will put an increase in the value of your business. So, again, when your business runs without you, you can keep a thriving and profitable business forever. You sell it tomorrow. It doesn't really matter. They're both wonderful situations to be in and you choose. 

 With the second liquidity event mistake out of the way. What's the third one. The third one is your advisory team. And there's a saying that really sums it up best. I love this saying. And the saying is that when your advisory team works, your dream works. Now, I'm not just talking about any advisory team I'm talking about your liquidity event advisory team. 

Step four of the nine step roadmap in the 90-day Deep Wealth Experience is all about the advisory team. Now, here is one classic mistake that too many business owners make. I often hear, you know what, Jeffrey, I have a world-class business lawyer. And this lawyer is not only my lawyer, but he's also a terrific friend of mine. He knows my business. He's been there since day one, and he's really helped me grow the business. I'm going to use that same lawyer for my liquidity event. 

On paper, it sounds reasonable. It's the last thing that you want to do. Because a liquidity event in and of itself is such a specialized experience. You don't just want any liquidity event advisor. All of your advisors need to specialize in mergers and acquisitions. They need to have a track record of success, and as important, they need to have experience in your industry with your kind of business and with your size of deal. So, let's talk about who composes or who makes up the members of your liquidity event advisory team. Most business owners will have an investment banker. A tax advisor. A mergers and acquisitions lawyer. Accountants key management and customers. Yes, customers need to be part of your advisory team. Your future buyer is going to speak to your customers anyways. So, you might as well get ahead of this and ensure that your customers are saying the same thing of your narrative, of your story and supporting you on that. 

But do you know the one position that most business owners don't have on their advisory team at their own expense? This position is what we at Deep Wealth called a Chief Exit Advisor. So, what does a Chief Exit Advisor? We'll achieve exit advisor is somebody who has a successful track record in liquidity events. It could be another investment banker. 

It could be an M&A lawyer.  It doesn't really matter. It's someone who has a successful track record, but here's the difference. The Chief Exit Advisor reports exclusively to you. Think of your Chief Exit Advisor as a board advisor of one to you and you alone. 

They have your agenda first and foremost. In fact, your Chief Exit Advisor won't even sit at the deal table. Your Chief Exit Advisor is there behind the scenes to help you navigate your way through the liquidity event process. Because the truth of the matter is, and most business owners don't realize this, your advisors probably don't have the same agenda as you believe it or not. And they're going to be making two key mistakes. The first key mistake, no matter how good they are, most advisors want to get the deal done, but they want to get any deal done as opposed to what the best deal is. And the second mistake that most advisors make is they're not looking at the big picture. There are so focused on their one area that they lose sight of what's going on. 

 Now there's not anything necessarily wrong when this happens, but what makes it wrong is when you let it happen and you're not taking any actions to prevent this. This is where your Chief Exit Advisor comes in. 

When it comes to your liquidity event, you don't know what you don't know. But you guessed it. Your Chief Exit Advisor does know what you don't know. So, your Chief Exit Advisor keeps the big picture in mind. And at the same time wants to ensure that you have the best deal, not any deal. And let me give you an example of that. 

 Let's suppose that you could do a $60 million deal that was a sure thing. But you may have an opportunity to have an $80 million deal, but it's not a sure thing and it's going to be a little bit of a stretch. 

While your investment banker, whose currency is time and not money as well as with the rest of your advisors. They're going to want to have the $60 million deal. For them the $20 million difference. Doesn't add a lot of money to their pockets. After you pay the commissions, but that additional $20 million is huge for you. 

So, any deal isn't necessarily the best deal for you. And your Chief Exit Advisor by having the big picture in mind, knowing what you don't know, having that track record of success and all that experience. Helps you navigate through the process successfully to make sure that you cross the finish line in the best way possible. 

Now most investment bankers are going to object to having a Chief Exit Advisor in the process. You're going to hear things like there's too many cooks in the kitchen. It's going to interfere with what I'm doing. The fact of the matter is absolutely not. Don't buy into that for a minute. And what we recommend at Deep Wealth is that for your Chief Exit Advisor that you bring this person on board first, and then you go and you hire your advisory team. Now you may be asking, and this is where the Chief Exit Advisor also plays a large role. How do I know where to find my advisory team and what kind of questions can I ask? 

In the Deep Wealth Experience, we go into a lot of detail of the types of questions that you should be asking every one of your advisors. Because every advisor's not the same. The right advisor for you might be different than an advisor for somebody else. Your Chief Exit Advisor can help you through that. 

In addition to what you'll learn in the 90-day Deep Wealth Experience of the questions to ask your Chief Exit Advisor will also have contacts and suggestions and help you through that process. So, just to recap with your Chief Exit Advisor, because this individual report directly to you and since the Chief Exit Advisor has only one goal, and that's the best outcome for you, you do not want to start a liquidity event or your preparation for that matter without a Chief Exit Advisor. 

So, we've talked about three very costly liquidity event mistakes that can cause the deal. But what's the fourth one? The fourth one, and unfortunately, it's all too common. This is where a seller thinks like a seller instead of a buyer. Now you may be seeing Jeffery, wait a minute. 

What do you mean by that? What do you mean? I need to be thinking like a buyer, but I'm a seller.  Not a buyer. Why would I want to think like a buyer? Let me take you back to the time when you started your business. You didn't think like you. To become successful, you put yourself in the shoes of your future clients, you ask yourself all kinds of questions. What's the pain point of my client? What should I be thinking of? How should it be saying things? How can I make the life of my future client easier? And you did that. 

And because you did that you turned your customers into raving fans. Step number three of the nine step roadmap in the Deep Wealth Experience is how you can think like a buyer. You need to know everything about your future buyer. The reality is your buyer knows everything about you. But most business owners, all they care about is will the check clear from the buyer? 

And this is one of the biggest mistakes as a business owner that you can make for your liquidity event. You got to get beyond is the check going to clear? So, for starters, let's talk about buyers. There’re all different types of buyers. And I want you to get out of your mind for your entire liquidity event process that you know who your buyer is going to be. 

You really don't. And when you do the preparation properly. And one of the things that we are big proponents on at Deep Wealth and in the Deep Wealth Experience is that you run an auction. Because an auction will assemble all different types of buyers. It keeps the buyers in line they're competing with themselves and it helps ensure that you get the highest value for your business. 

So, generally speaking, there are three types of buyers. You have your financial buyers. You have your strategic buyers and you have your family offices. And each of these buyers, they have a different viewpoint of what they need for themselves and each of your buyers, even if they're in the same category, they have a different set of problems. 

Your mission is to find out what the pain point is for your top list of three to five buyers. Find out what that painful problem is for each of the buyers. And then demonstrate how you're going to solve that problem for each of the buyers. And yes, your communication and your marketing to these buyers and your presentations are going to be different so that you can clearly demonstrate how you're going to solve that painful problem. 

So, knowing what your buyer wants is the first step. But the next step is to determine which buyer has the best cultural fit. Believe it or not, the highest offer may not be the best offer for you. Particularly if you're going to be staying on in the company for a period of time. One of the things that we do in the Deep Wealth Experience is we run the Richter reverse RFP process. Yes, you are going to run, when you go through the Deep Wealth Experience, you will have the tools and the knowledge to run a reverse RFP. 

Now you're an investment banker is going to say, you're nuts. You're going to mess up the deal. Nobody's going to want to do it. But believe me, when I tell you when you've done the right kind of preparation and you take your company to the world. There are going to be buyers who want your company. 

And when you go through these 18 powerful questions for this Richter reverse RFP. You're going to do something very important. Every buyer is going to put their best foot forward. They're going to tell you all kinds of things. And if you drink their Kool-Aid, you may even believe them, but you need to know that what they're saying is actually true. And the only way you're going to be able to do that is through this reverse RFP process where you get to ask these specific questions. You'll have the buyers present to you and then you and your team will decide who is the best buyer for having the right cultural fit. 

So, again, just to recap. The offer that is the highest offer may not be the best offer. So, when you know what the pain points are for each of your buyers. You've communicated clearly how you can solve their problems. And you've given your buyers a sense of hope. You've done a reverse RFP, which shows you, who the cultural fit or who the buyer with the best cultural fit is. You've now put yourself in a position of strength. 

And remember because you've prepared, you can run your company forever, a thriving profitable company forever, or you can sell it in the liquidity event process. The choice is yours. You know that and your buyers know that, and it puts you in a position of strength. So, you must know your buyer better than the buyers know themselves. 

So, that would be the fourth liquidity event mistakes that too many business owners make. That's going to either kill their deal. Or significantly lower their enterprise value. What's the last and final liquidity event mistakes that too many business owners make?

In the    step number eight of the nine step roadmap is finding the Rembrandts in your attic. And you remember earlier that I said each step in our 9-step roadmap builds upon the other. While the hidden Rembrandts in your attic, why that's one of the last steps in the process is now that you've done the preparation and you remember earlier, I referenced that you found the skeletons in your closet, and you remove them. At the same time, because you've done your preparation, you can now look and find your hidden Rembrandts in the attic. So, what's a hidden Rembrandt in the attic? Well your business is a world-class in at least one area and probably more areas, but you don't realize it. Most business owners believe that what they're doing is what everybody does. That what they're doing is the same as what the competition is doing. 

And it couldn't be further from the truth. Just as your culture is unique and all the money in the world cannot buy culture. There’re things that you're doing that are unique. 

Let me give you an example. So, in the e-learning company that I started, which I later sold for nine figures in my exit, one of the Rembrandts that I discovered was our contracts. The contracts that I had with our clients. We're 10 years on length. 

Now at that time, I knew that was a nice contract with 10 years, but I wasn't quite aware of how special that was. When I did my preparation, I realized that a 10-year contract that's where my business was world-class. And I took that and I broadcast that to the world. I told that to potential customers, my prospects of how our customers trust us so much that we have 10-year contracts with them, and that gave them a sense of wellbeing and a sense of trust with us. 

But I also took that to the world and I spoke about that to every one of the buyers that was interested in the company. Now, remember your buyer is looking at not what you did yesterday, not what you did today, but what you're going to do tomorrow and, in the years, ahead. And so that one Rembrandt alone significantly increased the value of my business because the buyers realized that when they took over the business, they had a lot of runway left on the contracts. And because I knew that was a Rembrandt in my attic, which was no longer hidden, I made a point of renewing as many contracts as possible before the liquidity event to make sure that the contracts themselves, were as long as possible. So, the buyers absolutely love that. They took a lot of comfort in that. And this is something that you're going to want to do through your preparation is when you find out what those Rembrandt's are, you take those Rembrandt's, you build upon them and you make them even better. 

So, remember the Rembrandts give you the leverage in your deal. And at the same time, the Rembrandts they're going to benefit your future buyer. And I always like to create a win-win in every situation. So, when you find out what your Rembrandt's are, you've created a win for you and your company. Because again, those Rembrandt's are going to increase your revenues are going to increase your profits and increase your growth. It gives a win for the buyer who has a sense of assurance that there is a bright future ahead. 

And it's also a win for your community for your customers, because when the buyer comes in, they're going to be able to bring additional resources. They're going to be able to do different things in your company that you perhaps weren't able to do. And so, a win is created. 

So, there you go. Those are the five liquidity event mistakes that are going to make you cry unless you get ahead of it and solve it. So, let's do a quick recap. 

So, the first of the liquidity event mistakes is preparation or lack of it will either make or break your liquidity event. 

The second liquidity event mistake is your business running without you? 

The third liquidity event, mistake is when your advisory team doesn't work there's no way your dream is going to work. So, you want to make sure that your advisory team works so that your dream works. 

And coming in at number four, you have to, you want to, and you must think like a buyer instead of thinking like a seller. 

And coming in at number five for liquidity event mistakes is not finding the hidden Rembrandts in your attic. 

So, there you go. Those are the five liquidity event, mistakes that can cost you the deal and that if you don't get ahead of it, they're to make you cry.  Let's have you cry tears of joy from a wonderful and successful liquidity event because you've done the preparation in advance. And again, these are many of the things that we talk about in the 9-step roadmap in the Deep Wealth Experience. 

And speaking of experience, when I was creating the preparation for my company's exit, these are the same nine steps that really took the company from zero to hero from a liquidity event side of things. So, whatever you do know that the best time to prepare was five years ago. The next best time to prepare is right now today. 

Start it. You'll save your health. You'll save your time. You'll save your money. 

Most importantly, I'd like to thank you for your time. Time and not money is your currency. You can always make more money, but we can never get time back. Thank you. Thank you so much for spending part of your day with me. I would really appreciate it that if you found this podcast to be a value for you that you can take a moment and go to Apple podcasts and give a review of the Sell My Business Podcast. Let's get the word out there. Let's let our fellow business owners, founders, and entrepreneurs know that there's a better way for them to realize the full value of the business, that they can actually realize their goals and dreams when it comes to their liquidity event through preparation. So, once again, thank you so much for your time. 

Wishing that you all say healthy and safe and looking forward to being in touch with you through the next podcast. 

Take care and God bless.