Exit planning provides the road map to control your own destiny; to successfully sell your business and transition to the next stage of your life.

“If you don’t know where you are going, you will wind up somewhere else!”  Yogi Berra

An exit plan helps to establish realistic business, personal and financial goals with a path to achievement.  Your desires in these three aspects of your life must be consistent. Like a road map, you need to know where you are before you can determine where you are going.

A good exit plan begins with an assessment of your current financial situation, a baseline business valuation, and the value of other assets you own.  To establish longer-term goals such as how long you intend to own the business, what you intend to do after selling it and to whom you would like to sell the business (children, employees, third party).  This information lays the groundwork for that determines your future financial needs.

Here’s an article that further talks the need for an Exit Strategy for your business:

 


7 years ago, TVG represented a seller who was anxious to sell his business so he could enjoy the fruits of his labor.

Like most sellers he had a number in mind he wanted for the business and wasn’t too keen on the deal structure so long the purchase price matched the desired asking price. We were able to secure a buyer who offered the seller the number he wanted, however, it included a significant amount of seller financing. Despite our urging for the seller to consider slightly lower offers with more guaranteed upfront, the seller decided to take the higher offer with substantial seller financing.

Everything was going great for the first few months and about six payments in, the payments stop and the buyer was in default.TVG client spent eight months and over $100,000 in litigation costs to resume control of his business, which by then revenues were down 50%.

Solution
The TVG client worked hard to reestablish his business and slowly built the business back with revenue and cash flow stronger than before. TVG successfully helped the client sell the business again.

Key Takeaways

  • Strongly weigh the cons of a deal financed 100% by the seller
  • Trust your gut in judging the character of a potential buyer
  • Sometimes in life things don’t go well, it takes grit to survive

To ensure your business is healthy and ready to sell, it is important to reduce customer concentration by diversifying the client base.

It is a disadvantage when business owners focus all their energy on only their major customers.  To ensure a healthy mix of customers business owners should build relationships with current customers while seeking new customers. A general rule of customer mix is any customer over 10% of the business is too big.

A diversified client base is beneficial to scalability, valuation and maximizing cash received at closing.   Here’s an article that talks further about the mitigation of customer concentration:

 


You’ve made the decision to buy a business; now you must find the right deal.

The best business opportunities are found by using all or some of the resources listed below. 

Traditionally, buyers seek multiple business intermediaries to locate and handle a business purchase transaction. Business intermediaries have access to databases for buyer-directed searches and often to opportunities in advance of other buyers.

Questions to ask when interviewing prospective intermediaries:

  •  Are they in a brokerage network?
  •  Do they use this network to buy and sell deals with other intermediaries?
  •  Are there other intermediaries within the network covering the same geographic area?

The business section of local newspapers and national publication sources such as The Wall Street Journal are good sources for business opportunity listings. The Internet makes searching for business opportunities infinitely easier and is the closest source of a centralized information. Professional connections such as a bankers, CPAs and attorneys can augment the pursuit of viable businesses. Databases with powerful filtering options make direct mail campaigns a new resource for buyers. More importantly than resources, a buyer must be ready.  When the business type meets the requirements, do not waste time- act quickly and decisively.


The Vant Group represented the buyer in a Defense Contractor business acquisition.

The company recently secured a large new contract making it a perfect fit for the buyer. The seller accepted a purchase offer of $4.1MM.

Because the company financials did not reflect the revenue from the newly acquired contract, the bank returned a loan amount that was lower than the purchase price.  The original offer was fair, and the seller needed that price to dispose of their debt and fund their retirement.  Unfortunately, the buyer could not increase the down payment to fill the gap, so it looked like the deal was dead.

With 19 years and over 500 transactions, TVG had the experience to keep the deal alive. TVG structured a three-year term Consulting Agreement which provided payment to the seller for the difference of the sale price and the bank loan. In addition, the sellers were to share in any upside resulting from the new contract they secured before the sale.

 


The Vant Group represented a project based construction business for sale.   The business, in preparation for sale, created a forecast based on their upcoming projects. The report revealed that three of their largest projects were scheduled to start in the 4th quarter of the current year.   After the LOI was signed, a customer pushed their project to the next year.  The change affected projections and created a shortfall in the forecasted EBITDA.  Although a benefit to the buyer, he was uncertain that the gross profits would reflect the projected revenue.

To address the buyers’ uncertainty, the sales terms were restructured to include a portion of the purchase price as an ‘earn out’, tied to a gross profit percentage.   The owner’s note was converted into an ‘earn-out’ tied to a targeted gross profit.

The seller agreed to the conversion because he was 1) staying on with the company for 12 months to help with the transition and would continue to have an influence on the sales of the company and 2) had the backlog to support the targeted gross profit.  The seller felt confident that if the projects were again pushed back, he would still be able to win projects from other bids he had out.

The purchase price remained the same, and the buyer and seller agreed to the new deal terms.

 

 


The Vant group is excited to announce that Bill Massie has joined the firm.  He brings a wealth of experience in many facets of investment banking.

Bill has worked with entrepreneurs and high-growth companies for over 20 years. His experience ranges from venture capital raises to IPOs. He is highly skilled at sourcing early to intermediate stage equity and debt capital, structuring and placing mezzanine debt and selling privately-held companies.

Bill owned a Broker-Dealer firm for 15 years which specialized in private placements for high-growth entrepreneurs.  His understanding of the needs and opportunities of these businesses will be invaluable to The Vant Group as we expand our investment banking operations.

2018 looks to be a significant year for The Vant Group.  We have several large projects underway which will require significant capital raise expertise with market rollup opportunities for our clients as well as value creation for our investors.  Here are a few examples:

  • The Vant Group (TVG)is partnering with a firm to exploit opportunities in the cannabis business in Colorado and several other states this next year. Our efforts will include providing roll-up capital to consolidate and integrate disparate business operations, expand dispensary and production facilities, and develop new pharmaceutical products.  We believe that there is enormous profit potential as the cannabis industry grows and becomes more sophisticated. The Vant Group intends to play a leading role in providing financing, advisory, and investment banking services to this space;
  • TVG will spearhead a real estate development project in Broken Bow Oklahoma designed to meet the increasing demand of vacationers traveling to the area. Resort cabin rentals, purchases, and a corporate conference center will be among the offerings;
  • TVG, along with one of our partners, has engaged with an exceptional operating group to purchase and grow a well-known local restaurant chain with attending real estate assets in Uptown.

This sampling of 2018 projects is part of the exciting times at The Vant Group.  We are looking forward to working with our investment banking clients and capital sources as we seek to add value and make money for our partners.

 


A verifiable cash flow can determine the price of a business acquisition.

Buyers and business brokers go as far as stating that cash flow is a major deciding factor in a business purchase decision. For buyers, an owner’s discretionary cash flow, secured through a business purchase, is important in determining the value of a company.

Owner’s Discretionary Cash Flow (ODCF) is the amount of money a new owner can take annually from the business.  TVG, as a professional business broker, can assist in analyzing the business’ income statement to determine the ODCF. There are common tax strategies that comprise the ODCF; net income, owner’s equity withdrawal and perks, depreciation and amortization, interest expense, and non-reoccurring expenses.

Your federal tax rate is determined by your net income. A common tax strategy is to offset the business profit with allowable expenses, therefore keeping your taxable income low.  With this tax strategy in mind, a small net income does not necessarily reflect an unprofitable business. 

The owner’s salary is a large component of ODCF. Again, there are tax incentives for paying less employer and employee tax, based on a lower income level.  To decrease tax liabilities, business owners will often pay themselves a small salary and make up the difference with owner perks. 

An owner perk is when the business pays for personal expenses, a benefit of owning a business. Although a good tax strategy, business paid personal expenses, lowers the net profit.  To appropriately value a business for sale, an itemized perk list can be added to the income statement, increasing the value of the business on paper.

Both non-cash expenses, depreciation, and amortization are components of ODCF and used to reduce taxes. Depreciation decreases taxable income but does not reduce cash. It is acceptable to include depreciation and amortization in cash flow calculations.

Interest is a component of ODCF and can be attributable to bank loans, personal loans, equipment leases, and other debt instruments that may go away after the sale. One-time or non-recurring expenses are also considered components of ODCF. Extraordinary litigation expense is a good example unless litigation is an annual occurrence. 

Calculating ODCF is an important component when preparing your business exit strategy.  Contact The Vant Group today for help with your ODCF and exit strategy plan.


The professionals at TVG have some difficult and disappointing conversations with business owners when valuing their business for a sale.

Business owners spend their entire life building a business with the hopes of selling and realizing that big payday. Most sales are the result of health, fatigue or customer issues and when business owners decide to sell, they likely don’t have a proper plan in place to execute a successful sale.

Lacking an exit plan, the financials usually don’t support the sales value that the business owners have in mind. In the words of Stephen Convey, sellers should “Begin with the End in Mind”. The day a business is opened, an exit plan should be created as a roadmap toward that big payday.

Here’s an article that emphasizes the importance of creating an exit strategy: The Vant Group is here to help guide you through the steps of buying or selling a business.


Achieving the desired goal takes preparation and organization.  There are four key elements to the business buying process.

  1. Business identification
  2. Organized search process
  3. Collection of date
  4. Due diligence.

Business Plan

If you set out towards a destination without a map, you will get lost. Likewise, statistics show that without a business plan, the rate of success diminishes dramatically.

Items to include in your business plan.

  1. Financing- Acquisition time, a year of living expenses, acquisition-related costs (CAP, Attorney, etc.) down payment, working capital.
  2. Risk/Reward- analyze your risk to reward ratio. A buyer should assess how much he is willing to risk before he even begins the search. 
  3. Self-assessment-In evaluating a specific business, determine your skill sets. Self-assessment should include why business ownership is for you.
  4. Location-The organization phase should include an assessment of how far a buyer is willing to travel or commute and what geographic areas the buyer will not consider. Narrowing down the geographic parameters can facilitate the process.
  5. Timing-To include due diligence, industry projections, and is it the right time to buy?
  6. Ability to Act-Does the buyer have the means to act quickly when the right acquisition target becomes available?
  7. Confidentiality Agreement, Buyer Resume, and Profile- A business intermediary will qualify the buyer. Nondisclosure or confidentiality agreements are involved in almost all business transfers. A buyer profile, personal financial statements, financial  capability and liquidity
  8. What Type of Business Should I Buy?-Understanding your target Company: manufacturing, distribution, service or retail.
  9. Manufacturing-Manufacturing companies require a significant investment in capital assets: machinery, floor space, workforce, and capital needs such as cash for operations and capital for funding receivables and payables.
  10. Ideal Buyer Candidate: The ideal buyer is financially capable of funding with personal assets. Prior ownership experience in the manufacturing arena is a needed attribute.

PROS

  1. Market protection – proprietary product
  2. Loyal customer base for specific products with contracts
  3. Legitimate business operation
  4. Ability to expand

CONS

  1. Large capital investment for equipment
  2. Significant working capital levels and payroll expenses
  3. Large workforce requirement
  4. Significant plant / real estate implications
  5. Government regulation
  6. Distribution-In addition to inventory costs, the distribution also implies high accounts payable and receivable levels, drivers, and a sales team. Profitable distribution companies should be examined by buyers that have a keen feel for the capital requirements and the ability to sustain capital levels.

Ideal Buyer Candidate-The ideal buyer can fund or raise additional capital with personal assets and is well-connected in the industry being acquired.

PROS

  1. Ability to expand by increasing market penetration
  2. Having product lines with name recognition
  3. Highly collateralized business with significant inventory and accounts receivable levels

CONS

  1. Lack of market protection from manufacturer suppliers
  2. Large working capital requirements for funding significant inventory and accounts receivable levels
  3. Required distribution apparatus with rolling stock issues
  4. Government regulations
  5. Service-Service businesses are the safest investment for a first-time business buyer.

Ideal Buyer Candidate: The ideal buyer is a first-time business owner with average business skill sets; he can be a generalist with no technical skill sets needed.

PROS

  1. Many simple business formats requiring limited owner training
  2. Easier to staff
  3. Smaller fixed asset and working capital requirements

CONS

  1. Lack of market protection
  2. Competitors with similar services
  3. Unsophisticated workforce
  4. Possible licensing requirements
  5. Retail-Retail is the least sought-after business type. The negative view on retail businesses overlooks the relative ease in which retail establishments can be duplicated by setting up chain-type operations

Ideal Buyer Candidate: The ideal buyer is a first-time business owner with average business skill sets and people oriented.

PROS:

  1. Very little capital equipment investment necessary
  2. Leasehold improvements don’t need continued maintenance
  3. All-cash endeavor, no liquidity needed to fund accounts receivable
  4. Can reduce cost by landlord paying a portion of leasehold improvements

CONS:

  1. Limited clientele geography
  2. Continuous marketing and advertising usually required
  3. Extended hours of operation
  4. Large cash infusion necessary for initial inventory and continued inventory maintenance
  5. Difficulty finding and retaining workers