Planning for your Ultimate Exit

It may sound strange as you embark on your new venture, or perhaps as your sit down and review the business plan for your existing business to be thinking about how you are going to be exiting from your business in the years to come – but it could be the most critical thinking you ever do in terms of its effect on your future wealth.

Unlike property where you make your profits when you buy – if you are in business you make your wealth when you sell.  If you are not convinced of this perhaps a few examples:

1. Bill Gates (United States) -Most people assume that he became wealthy when Microsoft listed, what few people realise is that Bill through his advisors has a regimen where he sells of some of his shares on a regular (some months almost daily) basis irrespective of the share price on the day.

You can see this activity here.  I have summarised the sales since Jul 2008 below.

As you can see Bill has sold over US$3.9 billion worth of Microsoft stock in 3 years and he has been doing this for a lot longer.

2. John Kinghorn (Australia) – John founded a mortgage securitisation company in Australia call Rams Home Loans. In 2007 he took the company to IPO and sold 80% of his stake in the company to the public for A$650 million (source Smart Company).  Unlike Bill Gates and Microsoft, after the IPO John only retained a 20% stake in the company – he took the money.  Just as well because 2 weeks later RAMS failed to refinance a A$5.5 billion mortgage loan book and the companys stock price plummeted from A$2.50 to A$0.55 at one point.  Several months after the float Westpac purchased the business for A$140 million.

Both of these examples show that the money is made when you sell – but if you look closely at the timeframes it is not a short process.  Can it be done quicker?

Dr Tom McKaskill’s free ebook Ultimate Exits suggests that it can and I urge you to download a copy and commit his principles to action.

Dr. Tom McKaskill

Breakthrough Publications, 2010, (286 Pages, 1.4MB)

Download (right click on the link as choose Save As)

This book provides a detailed examination of the exit preparation process in financial and strategic ventures. Underpinning the creation of value in both of these ventures are the drivers of high growth potential. In the case of a financial venture, the business itself must create the business model to exploit the growth opportunity. A financial business must build an organization which is capable of delivering a robust business to the buyer which enables the buyer to exploit its revenue growth potential.

Businesses which create value by developing an asset or capability which could be exploited by a large corporation achieve an exit through a trade sale to a strategic buyer. Strategic value is created through intellectual property or deep expertise which creates a sustainable competitive advantage in the hands of the strategic buyer. It is the strategic buyer who exploits the growth potential through an extensive distribution network.

The major recommendation in the book is that entrepreneurs need to prepare the business for sale by focusing on the manner in which the buyer extracts value for it. Understanding how value is created, how buyers perceive risks inn the business and how buyers will exploit its potential are the drivers of a preparation program for selling the business.

Business owners, entrepreneurs and investors are locked into an old paradigm about value creation being based on proven profitability. But this is not what acquirers are evaluating. They are looking to the future and assessing what return they will achieve on their investment. Thus it is the future potential of the business which is much more important than its past. As soon as we accept this view, we can be proactive about creating a future which can deliver a much higher value to the buyer than what can be shown from past results.

Business which are valued on inherent profitability should focus attention on taking risks out of the business, improving their sustainable profitability, increasing their growth rate and identifying ways in which the buyer can harness new potential. Those businesses which can deliver high growth potential through intellectual property or deep expertise should focus on the strategic value in their business. This type of business can achieve staggering exit values by selling to a large corporation which has the capability and capacity to fully exploit its strategic value.

The book has 17 chapters covering the following:

1. Forget the multiple

2. Strategic v.s financial exits

Financial Exits

3. Leveraging the financial model

4. Increasing sustainable profits

5. Build a platform for growth

6. Finding financial buyers

Strategic Exits

7. Threats and opportunities

8. Identifying strategic value

9. Finding strategic buyers

Sale Preparation

10. Sustainable competitive advantage

11. Enabling the opportunity

12. Reducing risks to the buyer

13. The acquisition process

14. Deal structure

15. Selecting professional advisors

16. Other considerations

17. Conclusion

Testimonials:

‘To get the ultimate deal you must put yourself in the buyer’s shoes and seek to reduce business risk and increase growth potential. In the current market the benefit of this approach cannot be overestimated. Tom has set out a practical step-by-step process to extract maximum value from the sale of the business.’

Ian Knight, Partner KPMG, Corporate ?Finance Practice, Australia

“Ultimate Exits is the ultimate book for entrepreneurs – don’t even think about selling your business without reading it.”

Tony Featherstone ?Tony Featherstone is a former managing director of BRW magazine

“A compelling read with lots of practical examples.  This book turns conventional valuation methodologies upside down.”

Martin Checketts – Partner, Mills Oakley Lawyers ?Melbourne, Australia

“Tom McKaskill takes years of detailed research coupled with real world experience and boils it down to fundamental approaches which are actionable and effective for any business. For anyone who dreams of selling a business at more than fair market value, Tom McKaskill offers proven strategies to do so. While exit advisors are on every corner, Ultimate Exits shows you how to get there at values of which you never dreamed. In my 35 years in business, I have never met a more wise and incisive exit strategist than Tom McKaskill.  Tom is the real deal.”

Philip T. Miner ?CEO ?The Miner Corporation ?New Braunfels, Texas, USA

“Tom McKaskill has a profound understanding of entrepreneurial companies and what entrepreneurs need to do to maximise the value of their businesses on exit.  I’ve used Tom’s principles on exits over many years to the great benefit of numerous clients.  His book is a must read for entrepreneurs wanting to sell their business for the highest possible price.”

Geoff Green ?Partner ?BSG Legal ?Melbourne, Australia

“Tom McKaskill’s latest e-book, Ultimate Exits, is his best to date, providing a one stop shop for any business person or investor. Much of the earlier material is focused on business improvement and driving business growth. But then Tom turns to his forte, the theory and practice of driving valuable strategic exits. This should be essential reading for any CEO or investor, not just as a single read, but as a “bible” worthy of regular re-visits to ensure that the key messages are always top of mind.”

Ergad Gold ?Momentum Funds Management Pty Ltd ?Caulfield, Melbourne, Australia

“Tom McKaskill helped me build a strategy for my small sports travel agency which resulted in a staggering outcome. The business broker told me I would be lucky to receive 4 x EBIT for my business, however, with Tom as my mentor I obtained 40 x EBIT. Tom helped me see how a large corporation could maximise the value in my business and how I should prepare it for sale and engage the potential buyers. The end result is a testimony to the rare insights Tom has to value creation and exit strategy.”

Rob Cecconi ?Executive Chairman and Founder ?Sportsnet Holidays ?Melbourne, Australia

“Ultimate Exits is a MUST OWN for any business owner, prospective buyer, stakeholder or anyone involved in the sale of a business. As a strategic planner for high growth businesses, a business owner and business broker who has been involved in hundreds of deals, I have never read a more comprehensive book on selling a business. ?I was blown away with Tom’s vision and brilliance. I have recommended the book to all my clients whether they were interested in selling in the future or not. There are at least 10 MUST DO things that I have asked my clients to implement which will be invaluable both in how they run their business and how they create value for the future. ?I sincerely believe that this is the best book I have ever seen on selling your business. The context is right-on and the organization makes it easy to read, follow and understand. ?An outstanding piece of work.”

Richard Russakoff, ?CEO Coach, Consultant/Speaker ?Bottom Line Consultants, New York, NY, USA

“The key and critical distinguishing characteristic of Tom McKaskill’s books has been the transformation of an exit strategy which quite often is a passive affair for the seller and is frequently left to the whims of the potential buyers or business brokers, into a Proactive Exit Strategy. His new book offers the definitive systematic process for this proactive exit strategy that can dramatically revolutionize and transform passive exits based on sometimes subjective multiples, into proactive strategic exits through the creation of an objective, undisputable and sustainable platform for growth. This book is a must for the harvesting entrepreneur or a family firm that has reached a succession or an internal family conflict impasse…”

George S Vozikis, Ph.D. ?Edward Reighard Chair of Management Director, Institute for Family Business ?California State University, Fresno, CA, USA

“Tom’s book is a ‘must read’ for entrepreneurs wishing to maximize the proceeds from the sale of their business. Where the business has strategic value, a proactive sales strategy focused on acquirers with the largest opportunities and most urgent threats will extract the most value.”

Jim McElwain,Director, ?McElwain Consulting ?Auckland, New Zealand

“In 2005 I attended Tom’s class on selling your business for a premium and also read his earlier edition of Ultimate Exits.   The additional material in this latest version of Ultimate Exits has further strengthened Tom’s proven methodology for unlocking the value of your business.  In less than a year after taking the course and reading the book I had sold my company, c360 Solutions, to a public company for roughly three times trailing twelve month revenues.  Without positioning my business in terms of the value it could deliver to its new owner (as opposed to strictly the financial metrics) I might not have achieved as attractive an exit.  The book and the course helped me to understand and properly position the value of my company as well as prepare the company so the due diligence and sales process were quick and easy.  Ultimately, Tom’s methodology  brought more value to both buyer and seller.”

John Gravely ?Vice President, Marketing and Product Marketing Scribe Software ?Bedford, NH, USA

“As an entrepreneur who has bought and sold businesses, I would definitely recommend this book to fellow entrepreneurs. This book contains many tips and pitfalls when selling your business and by just following a few simple but often forgotten steps will help you through the sale and will make you a great deal more money.”

David Southwick ?Managing Director ?David James Investments Pty Ltd ?Melbourne, Australia

Attract Venture Capital With the Right Business Plan

Executive Summary Explained © Paul Wetton

By now you should know the importance of using a copywriter for the written materials for your business and also during the stage when you are seeking venture capital.  Let’s look at how a copywriter can help you with the Executive Summary.

The Executive Summary is a summary of the main points of your business plan.  This is your introductory document and you will use it to get your foot in the door with the venture capital firms.  Therefore it is important that it is written properly because it is the written equivalent of the “elevator speech,” when you have only a couple of minutes to summarize who you are and what you do.

If you are a new entrepreneur without a proven track record the executive summary should focus on the benefits of your business and not highlight the risks.  This document is 7-10 pages.  The first page should, in six paragraphs, summarize the basic facts about your business, such as the product, the technology, the stage of development, etc.   After the one page summary, you should explain your plan for growth and describe corporate goals. Why should the venture capitalist invest in your company?  Be sure to address that question.

The Executive Summary should also contain the following:

• Describe your product or service. Show how it will generate revenues and profits. If you have copyrights or patents that are pending be sure to note this.
• Contact information. Make it easy for the venture firm to reach you and provide e-mail addresses, phone numbers and fax number.
• Describe your sales strategy and provide an overview of the marketplace and the competition. Everyone has competition so rather than deny this be bold and identify your competitors.
• Management team. If you can’t hire an experienced CEO then you must show the other ways your business is prepared to face the challenges of your startup. Describe your management team. If you can’t hire people until you get funding you should state that but at least name the people who will be hired.
• Non-management personnel. Name or describe key employees. Include brief bios of board members and directors.
• Financials. Projections should be realistic, yet don’t be afraid to show some optimism.
• Internet marketing strategy. Only a fool would ignore the Internet when it comes to promoting your business.

The Executive Summary should not discuss the terms you expect from the investment or how you want the venture capitalist to structure the deal because that can be off-putting and squelch the deal.   Let the VC firm make the first move.

The best way to get an audience for your Executive Summary is through networking because the average venture capitalist receives 1000 proposals a year.  Without a strong, convincing Executive Summary, your business plan won’t be read. It’s worth hiring a copywriter to write it for you.

The business plan and personal recommendations are the most important things the venture capitalist considers, but only after first reviewing your Executive Summary.

Corporate Venture © Paul Wetton

Corporate Venturing is the practice of a large company making an investment in a smaller company in a related field.  It’s a way larger businesses can grow their company without actually going through all the hoops and investing all the resources in acquiring another company.

Corporate Venturing provides an alternative method for growing a company. A company can invest in a new product by funding businesses that sell that product without having to hire a management team or create a new product; it’s like creating a business within the venture capital firm.

The company/entrepreneur benefits by gaining increased distrubution of their product through the large corporation.

Reasons for venture capitalists to consider corporate venturing:

• Gives you the chance to diversity.
• Can create relationships with companies that will help the venture firm grow.
• Get access to new technology, customers and research.

There are four ways of doing Corporate Venturing:
• Take a passive position in other businesses (i.e. corporate venture capital)
• Take an active interest in another business.
• Build a new business from scratch.
• Build a new business within the firm with independent managers.

Corporate venture managers must have clear objectives and carefully screen new companies.  They should create a team and have a system for keeping track of the venture.

7 Secrets Your Business Broker Forgot to Tell You (c) Paul Wetton

If you are an Australian business owner with expansion plans and need to raise some venture capital for your company, there are a few specific things you need to be aware of.

For a start, today’s switched on venture capital investor wants to make certain they are placing their hard-earned funds into a winning proposition.

So you need to stop and ask yourself; “How attractive is my business to a potential investor? And what can I do to make it as attractive as possible?”

Here Are 7 Things Every venture Capital Investor Wants to See in A Business

1. A Valid Business Plan: If you do not have a valid business plan a potential investor will just walk away. Having a good business plan is vital to getting the investment you need for your business. You should have a professional business plan completed that is easy to read with charts and figures. You can easily hire someone who specializes in writing business plans to help you put one together.  But you need to have a thorough and complete understanding of it and it needs to reflect reality.

2. A Marketing Strategy: No matter how great your idea is, no matter how awesome your products and services are, without marketing you’ll end up with no money. If no one knows your products and services are available, how are you going to get any sales? You need to create a marketing plan and strategy to get to your target market to make the most out of your marketing efforts. Getting to your target market can help you create sales and keep them coming.

3. A Succession Plan: What will happen if you lose a key business partner? Before they’ll invest a cent in your dreams astute venture capital investors will want to see a contingency plan in place to cope with the death or departure of key team players, managers or partners. Put together a succession plan to show investors that you know what to do if any of these situations poses themselves on you and your business.

4. An Accountant, Financial Controller and Bookkeeper: It is absolutely vital that you have the right financial systems in place before you have a right to ask anyone to invest in your business. They will want to see the numbers. They will want to see your systems. The numbers and the systems can help investors see patterns in your cash flow and know exactly what they are getting into.

5. Internet Marketing Strategy: Only a fool would ignore the staggering implications the Internet has on a business. If you are just ‘hoping the net will go away’ you need to wake up and take action now before it’s too late. The Internet is your gateway to the entire world. Why keep your business in just one area when you can market your products and services to the world?

6. Systems: Investors look for business owners that understand the fact that they need systems to run their business and people to run their systems. Your business plan should clearly demonstrate that you understand this.

7. Accountability: Investors want to know that you will be held accountable to someone for reaching sales targets and key objectives. One good idea is to hire a business coach that will use graphical weekly and monthly reports to measure and track every aspect of your business.

Bonus 8. The Exit Plan: Investors are keen to know how they are going to see the return on their original money as well as how they are going to see it multiply.  Options for this are an IPO (less than 5% of VC funded companies achieve a successful IPO) or a Trade Sale (selling to a larger company).  The key to making your business attractive to a larger company is found in the post Planning for Your Ultimate Exit.

These eight things are by no means exhaustive but trust me, without them you’ll have little to no chance of attracting the venture capital investment you seek. Simply follow the above seven steps to success in getting interest from an investor

Minimizing The Risk In Venture Capital © Paul Wetton

According to the online  encyclopedia, wikipedia Venture Capital Investments Are Usually ‘High Risk’

But is this really the case?

Obviously there are risks involved in any business but IF you as an investor do your due diligence you should be able to minimise the risks considerably.

The key is to look at a potential investment opportunity from a completely non-emotional perspective.

• Go over the businesses strategy with a fine tooth comb.
• Ask to see their marketing plan.
• Ask for market research to indicate the market demand and  viability of the opportunity.

Blanket statements like:  “Venture capital investments are usually high risk” are about as accurate as saying “All Irish people love playing marbles”

Raising Second Round of Capital © Paul Wetton

You should begin raising your second round of financing before you need it.  Desperation will not help your cause.

You should raise more money than you actually need to help meet any unexpected expenses in the future.

It helps to connect the fundraising with an anniversary milestone or other special event.  It gives the investors a sense of accomplishment.

Research to find the best investors.  Find out if deals similar to yours are being put together and study the numbers and find out what management teams are being put in place.

Venture capital is the obvious option for second round financing.  Venture capitalists bring experience and partnership to the table along with the money.  If all you need is money then mezzanine funds are an option.

Keys to securing second round financing:

1. Strong team.
2. Hot market and growth potential.
3. Quality customers.
4. Technological edge over other companies.
5. Image.  Do others perceive you as a hot company?

Keys to Effective Goal Setting