RareBrain Radio

Buyers want to maximize their investment. The value of a company is generally a multiple of its earnings before income tax, depreciation, and amortization—or EBITDA. While the range of those multiples is set by the industry, there are aspects under your control that influence whether that multiple is at the upper or lower end of that range. For example, a buyer will look for any blemishes affecting your company’s position. In fact, smart buyers will use any weaknesses to drive down the purchase price. On the other hand, buyers will also pay a premium for various factors. In this podcast Gower Idrees, CEO of RareBrain, lists the top ten things business buyers look for in a business.

Finding the right balance of inventory is more than just having the right number of products in stock. It is predicting sales trends, analyzing costs, and obtaining contractual agreements with suppliers to lower overall costs. Inventory management can determine the health of the supply chain. It can also impact the financial health of the company. It is important for a business to maintain optimum inventory to meet its requirements and avoid over or under-stocked inventory issues. Optimizing inventory requires constant and careful evaluation of external and internal factors, especially when preparing a company for sale. In this podcast Gower Idrees, CEO of RareBrain, explains how optimizing inventory can improve business valuation in a business sale.

The best way to prepare your business for selling is to think like a buyer. Gower Idrees, CEO of RareBrain calls this process reverse due diligence, which is similar to getting your house ready for sale. You don’t put a home on the market with mold under the carpet, leaky ceilings, termites, and three years arrears in property taxes. The potential buyer will discover the problems as soon as the home inspector arrives. The same is true when selling your business. A potential buyer will look for any blemish to lower sale price. In this podcast Gower Idrees, CEO of RareBrain, outlines how reverse due diligence can help prepare you to sell your business.

Many business owners assume that valuing a private company should only be done when they are ready to sell or if a lender requires a valuation as part of its lending criteria. But valuations are important beyond selling and lending purposes; they can also be integral to business and effective exit planning. So business owners would be well served to get a baseline valuation of their company. But that’s where things can get complicated because there are a lot of ways to value a business. In this podcast Gower Idrees, CEO of RareBrain, offers his perspective about valuations and explains some important truths that every business owner should know.

You’ve worked hard to build your business and make it into a success. And now you’re ready to exit. It is human nature to be tempted to take your foot off the accelerator once it’s up for sale. Many business owners become mentally and emotionally removed once they decide to sell. But it can take a long time to sell a business and during that time, you need to stay engaged and dedicated to running the business or risk the company’s performance suffering, which in turn could reduce its value. In this podcast Gower Idrees, CEO of RareBrain, outlines the five key drivers of business value that you must keep on track to maximize business sale value.

The best way to prepare your business for selling is to act like a buyer. What a buyer wants is to minimize their risk and to feel confident that the company they are buying will continue to perform at a high level and sustain its growth and cash flow long after you have exited the company. The more risk a buyer perceives the more they will seek to reduce the sale price. A common way to improve valuation is to improve revenues and increase cash flow. But it can be equally important to reduce risk. In this podcast Gower Idrees, CEO of RareBrain, offers insight into the relationship of risk to your company’s valuation.

Capital expenditures, also known as capital outlays, relates to the acquisition of capital assets held over a period of time, usually more than a year. This can include expanding a plant facility, upgrading equipment such as company fleet cars, or installing a new computer system. Even though capital expenditures are used to improve the company, they are typically considered a liability as far as accounting is concerned. As a general rule, this type of expenditure is not directly tax deductible and is designed to be recouped over time through future performance and benefits. So when an owner is exiting the business, a large amount of recurring annual capital expenditures can complicate the sale. In this podcast Gower Idrees, CEO of RareBrain, explains how capital expenditures can impact valuation when trying to sell your company.

If you’re going to sell a business today, there’s a very high likelihood, depending on the type of business and the risks involved, that the buyer will want to pay some portion of the purchase price as an earn-out. An earn-out is essentially a portion of the purchase price, paid in the future, based on the performance of the company and determined using some previously agreed upon formula. Earn-outs are important to bridge the valuation gap between the buyer and the seller. In this podcast Gower Idrees, CEO of RareBrain, offers insights structuring earn-outs when selling a company.

When selling their companies, business owners take the letter of intent stage entirely too lightly. A letter of intent document beyond spelling out deal terms is really a method of allocating risk between buyer and seller and coming to a compromise to balance that risk. The time to negotiate key deal terms is before you sign the letter of intent. In this podcast, Gower Idrees, CEO of RareBrain, offers insights into structuring of intents in a business sale.

Business buyers do not like to see customer concentration issues in businesses. A customer concentration where an individual customer accounts for more than 20% of the gross sales can create substantial risk for the buyer. If there is a customer or supplier concentration, either buyers will not buy the business or they will expect a big discount and/or a substantial earn-out in the sale. In this podcast Gower Idrees, CEO of RareBrain, offers insights into dealing with customer concentration issues when selling your business.

A letter of intent (LOI) is sometimes also known as a term sheet or a memorandum of understanding. It generally gives a summary of the key terms of the sale transaction and is almost always non-binding except for confidentiality and an exclusivity period. A letter of intent, essentially allows for the major elements of the transaction to be documented. Do not take the Letter of Intent process lightly; how you negotiate the letter of intent will pretty much set the pace of how the sale transaction goes. In this podcast Gower Idrees, CEO of RareBrain, offers insights into letter of intents in a business sale.

When selling your company, don’t be fooled by the purchase price alone. There is a lot more to it. Look under the hood and look at the total consideration offered for the purchase of your business. Don’t just stop at consideration, you also need to look at transaction structure and the terms & conditions. In this podcast Gower Idrees, CEO of RareBrain, offers insights into purchase price and it’s components in a business sale.

When selling your company, it is best to negotiate many of the serious issues upfront. Some of these issues will need to be negotiated in the letter of intent itself and the rest in a purchase and sale agreement. Beyond price, the top issues include the transaction structure, consideration, terms & conditions and others. In this podcast Gower Idrees, CEO of RareBrain, offers insights into important structural issues when selling your business.

It is very rare that sell-side advisors will discuss “sharing synergies with buyers” with their clients in a business sale transaction. What do we mean? And what are synergies? In the case of strategic corporate acquirers, there are often various types of cost and revenue synergies realized by the buyer. Cost synergies would be something like eliminating redundant expenses, like back office expenses, consolidation of operations and increased purchasing power etc. Revenue synergies would include cross selling opportunities or new entry points in the market. In this podcast Gower Idrees, CEO of RareBrain, offers insights into how to increase the valuation and/or sale price in a business sale leveraging buyer synergies.

Capital Expenditures (CapEx) is essentially all the money spent on fixed assets for your business and/or improving existing fixed assets of your business. So, how is CapEx relevant to the sale valuation of your business? Any smart buyer will be concerned with growth CapEx versus maintenance CapEx. Maintenance CapEx is essentially the on-going capital expenditures for the maintenance of your existing fixed assets, like your equipment. Growth CapEx relates to new capital expenditures which will drive the future growth of the business. In this podcast Gower Idrees, CEO of RareBrain, offers insights into CapEx normalization during a business sale.

Often business owners significantly underestimate due diligence as well as the role of due diligence in the preservation of the purchase price. It is common for due diligence to be very disruptive to the business being bought. Many times there is a negative impact on the operations of the business due to distractions and significant emotional toll on the business owner. Often due diligence can take many months and sometimes can stretch out beyond that. In this podcast Gower Idrees, CEO of RareBrain, offers insights into due diligence during a business sale.

When selling your company, it’s important to lay out all deal aspects to determine the viability of an offer. These include price, consideration, structure, terms & conditions before closing and post-closing obligations. A classic example of this is that smart buyers often demand that a portion of the purchase price be held back or put in an escrow to minimize risk. The holdback escrow is governed by an agreement which has been negotiated between both buyer and seller. In this podcast Gower Idrees, CEO of RareBrain, offers insights into holdbacks and escrows when selling your business.

When selling your business, generally the purchase price is determined as a multiple of the earnings. However, before the transaction actually closes, the seller can manipulate various aspects of the company without any impact to the company’s underlying earnings. In essence, they can impact the purchase price by playing games with the buyers. As a result of this, most savvy buyers demand that there are some safeguards. These safeguards include something called a working capital hurdle. In this episode Gower Idrees, CEO of RareBrain, offers insights into working capital and other adjustments during a business sale.

When it comes to a business sale, outside of price and consideration, the only other main issue is risk. Often, buyers and sellers and their advisors will negotiate and allocate risk between the parties. From a seller’s point of view, they want to be able to walk away with their cash, 100% upfront, with no obligation to the buyer. From the buyer’s perspective, they want to make sure they have some recourse to misrepresentations and/or undisclosed liabilities of the seller. In this podcast, Gower Idrees, CEO of RareBrain Capital, offers insights into risk allocation during a business sale.

Most business owners do their utmost to minimize their taxes. As a result, the tax returns show the lowest amount of tax payable. But this depresses the true earnings of the company. When it comes time to sell the company, the financial statements that are presented to the buyer need to show the real profitability of the company. To make matters worse, many business owners run lifestyle businesses and run a lot of personal expenses through the business. In this podcast Gower Idrees, CEO of RareBrain, offers insights into how to recast your company financials when selling your company to increase sale price.

Selling a business is usually a good-news, not-so-good news scenario. The good news for the business owner is that with careful planning they have just sold their company for maximum sale price. The downside is that if the business owner has not planned properly, they could face a massive tax bill. It is not unheard of for a business owner to wind up with less than half of the purchase price after taxes. Complicating the issue further is that what is good tax-wise for the seller is often bad for the buyer and vice versa. In this podcast Gower Idrees, CEO of RareBrain, offers suggestions on how to minimize taxes on a business sale.

Generally speaking, buyers prefer asset sales while sellers prefer stock sales. In an asset sale, the seller keeps possession of the legal entity and the buyer purchases individual assets of the company such as equipment, fixtures, and inventory. Asset sales are usually cash-free, debt-free transactions—they typically do not include cash and the seller normally retains the long-term debt obligations. With a stock sale, the buyer is purchasing the stock in the company and likely assumes responsibility for all of the business’ liabilities. In this podcast Gower Idrees, CEO of RareBrain, explains the reasons why buyers tend to prefer buying assets in a business sale as opposed to stock.

One of the more common mistakes business owners make is failing to optimize taxes before the sale of their companies happens. The result can be an unexpected, and often painfully large, tax liability. And don’t expect help from the buyer because savvy buyers will work to structure the transaction so that it is as beneficial as possible for them and their tax interests. Don’t wait until after you have agreed to a letter of intent. The key for business owners is to be prepared and proactive. In this podcast Gower Idrees, CEO of RareBrain, outlines what he considers the top tax considerations when selling your business.

There are a number of reasons buyers prefer asset sales when buying a business. In an asset sale, the seller keeps legal possession of the company while the buyer picks and chooses among the various company assets from equipment, fixtures, and inventory to clients lists and even good-will. Asset sales are typically cash-free, debt-free transactions—all of which is very beneficial to the buyer. However, structuring such a sale is not always so beneficial to the seller. In this podcast Gower Idrees, CEO of RareBrain, outlines the negative aspects of asset sales when selling your business.

It is critical for business owners to align their personal and family goals with their financial and business goals. That means business owners need to sync their financial planning with their exit strategy. It is not unusual for a business owner to have a significant majority of their net worth tied up in their company, which can lead to a variety of financial, legal, and legacy issues. In this podcast Gower Idrees, CEO of RareBrain, explains what some of those issues are and offers insight into how a business sale could materially, and potentially negatively, impact your current financial picture and future retirement plans.

A buyer will look long and hard at your team to determine if they are capable of advancing the company, so it is important for a business owner to ensure that their management team is held accountable for the successes and failures of their efforts. A stable well rounded management team connotes depth and strength and sustainability. Having just one or two critical managers could make the company vulnerable should they want to leave once the company comes up for sale or soon after your exit. In this podcast Gower Idrees, CEO of RareBrain, explains how key employees can undermine your company’s valuation and offers strategies that can help you prepare against key employee loss during your exit.

In family and closely held businesses, there are management gaps as company grows or the owner prepares to exit. Family business shareholders are often very leary of sharing company equity with outsiders. The situation becomes detrimental when the next generation isn’t prepared or willing to take over the reins, which can negatively impact the company and threaten its future. In this podcast Gower Idrees, CEO of RareBrain, explains the strategy of giving non-family key employees artificial, synthetic or phantom equity and how the strategy mirrors stock ownership without actually giving up equity in the family business.

No two business transition plans are exactly alike. But all transition plans need proper preparation and forethought to both secure the company’s future sustainability and to ensure that the transition will be seamlessly implemented. Many business owners do not realize that a transition plan is more than simply naming a replacement; it offers a roadmap for moving the company forward in such a way that protects its value and profitability. It also lays the foundation for growth and stability. In this episode Gower Idrees, CEO of RareBrain, offers suggestions that will help prepare you to do an honest assessment of your company and your transition plan and answer some tough questions.

A buy-sell agreement is a contract that outlines terms for the future sale of your business interest, whether the result of death, disability, or one of the owners opting to exit from the company. Buy-sell agreements are also sometimes called business continuation agreements and buyout agreements. Ideally, buy-sell agreements are fully funded in the event of death, and life insurance is frequently used for this purpose. The best time to do a buy-sell agreement is before you start your business and/or when you are the best of friends with your partners. In this podcast Gower Idrees, CEO of RareBrain, goes over key elements of a successful buy-sell agreement.

Family succession planning, better thought of as transition planning, is the most important thing you can do to help your company last through the generations but it is also the hardest challenge a business owner faces. Many put transition planning off because they are so consumed with running their company and keeping it successful. But if you only focus on today you will set your company up for future failure when it is time to relinquish control. Many successful businesses stumble and destroy wealth by not properly planning for intercompany transition. In this podcast Gower Idrees, CEO of RareBrain, discusses some of the transition issues you may encounter in family succession planning.

For many entrepreneurs with ambitions to establish a startup, venture capital is the Holy Grail of investment money. But venture capital can come with certain strings that could impact futureexit plans. In many cases, the entrepreneurs desire and timing for exit conflicts with the venture capital partners. In this episode Gower Idrees, CEO of RareBrain, briefly details how venture capital companies work, what they may want in return for their investment, and the involvement they will typically seek to have in the future exit of your company. Idrees also explains why it is crucial to negotiate control covenants and board control as part of your negotiation—instead of waiting until after securing investment.

Acquiring another company to drive growth can be a complicated transaction in the best of circumstances. But it can become an expensive lesson of “buyer beware”, if the seller uses various devious means to reduce the working capital in the business. Too often, an acquirer will discover their new acquisition has fewer assets on its balance sheet than they expected and even worse, the acquirer ends up having to provide more working capital than they anticipated. In this video Gower Idrees, CEO of RareBrain, offers insight into the ways a seller can change the existing assets and liabilities of their company without impacting the EBITDA, and offers would-be acquirers some strategies that can protect them against sellers’ financial games.

In the eyes of lenders, not all financing is created equal. As a general rule, many businesses discover it is easier to secure financing for an acquisition than it is to raise necessary capital to organically grow the business. Even so, lenders will conduct careful due diligence on any acquisition financing request, so companies need to take the process seriously and be properly prepared. In this podcast Gower Idrees, CEO of RareBrain, offers insight on what lenders are likely to look for in an acquisition financing and how businesses can best prepare for the process.

When assessing the financial health of a company, its EBITDA (earnings before interest, taxes, depreciation and amortization) is often the focus of buyers, especially those buying a company to grow by acquisition. In this episode Gower Idrees, CEO of RareBrain, explains why it is wiser to focus on free cash flow vs. EBITDA when acquiring a target company, and provides an example of how EBITDA can create a misperception of how much cash is actually available to service debt obligations.

Getting any kind of business financing is a complicated and difficult process. For business owners looking to grow their company internally, raising capital to finance that organic growth requires more than just presenting a proposal on how they plan to achieve that growth; they must defend that proposal to the lender and convince them of its viability. In this episode Gower Idrees, CEO of RareBrain explains why it can be easier to secure financing for an acquisition than to raise the capital needed to grow your company through natural expansion. He also offers insight on what to expect from lenders when requesting acquisition financing.

There are a number of reasons for a business owner to grow their company through an acquisition. Rather than having to go through growing pains to establish new operations for a new product or service, an acquisition can let a company hit the ground running, enabling it to grow faster, quicker, and cheaper than traditional growth methods. In this podcast Gower Idrees, CEO of RareBrain, outlines several other synergistic advantages provided through an acquisition.

Acquisitions can help companies drive growth, market share, reduce R&D time & costs, improve time to market and create economies of scale among a plethora of other reasons. However, despite all the advantages and benefits, acquisitions are not automatic pots of business gold; they can also have significant risks and often fail. In this podcast Gower Idrees, CEO of RareBrain, explains some of the more common reasons an acquisition can fail, so businesses considering growth through acquisition are better prepared for the potential pitfalls.

Historically, acquisitions have been a popular growth strategy to increase top line revenues and market share. But it needs to be the right acquisition targeted for the right business reasons. If not done correctly, it can wreak havoc on the company’s growth plan and momentum. In order to make an acquisition successful, you need a strong strategic rationale for pursuing the target company. Moreover, this rationale must create value and have cultural alignment. In this episode Gower Idrees, CEO of RareBrain, outlines the most successful acquisition models.

  Upheaval caused by hostile minority shareholders is never good for a company. At the very least it can affect morale and create work disturbances. At the worst, it can end up in court. And if your planned exit is imminent, such a situation can be potentially devastating because it can derail your plans to leave. No matter how appealing your company or how glowing its valuation, potential buyers generally don’t want to purchase a company with any significant ongoing litigation—especially minority shareholder litigation that can last for years. In this podcast Gower Idrees, CEO of RareBrain, provides a number of possible scenarios for handling hostile minority shareholders and explains how they may impact your company sale.

In order to maximize the full value of your business, it is mission critical to secure an experienced, knowledgeable, and business savvy merger and acquisition advisor to explain the various factors that can promote, or hinder, a company’s performance. A good M&A adviser will also help protect business owners against shrewd buyers looking to take advantage at any sign of unpreparedness. In this podcast Gower Idrees, CEO of RareBrain, outlines the steps a smart M&A advisor will take to increase your sale value before entering the market and preserve the purchase price during due diligence.

Often times business owners assume that the sale price of their company reflects the amount of money they will walk away with when they exit. That assumption can lead to a nasty financial surprise. So rather than focusing solely on sale price (gross sale proceeds), it is critical for the business owner to understand the concept of net sale proceeds. This is the amount the seller receives after all purchase price adjustments, holdback escrows, contingent payments, taxes, expenses and liabilities are deducted from the sale price. In this podcast Gower Idrees, CEO of RareBrain, explains how conducting a net proceeds analysis before you list your company for sale, can maximize your takeaway in a business sale.

On the visible surface, venture capital and private equity investing can often appear to be the same. Moreover, increased competition in recent years among investors has forced both venture capital and private equity investors to expand their respective horizons in order to secure new opportunities. The result is that the lines between venture capital and private equity are often blurred, especially to the public eye. Because the two groups may overlap in practice, it can be confusing for business owners to understand the distinction between them. In this podcast Gower Idrees, CEO of RareBrain, explains the fundamentally different investment targets and business models that distinguish venture capital from private equity.

Regardless of how much you believe your business should sell for, in the end it is worth whatever someone is willing to pay for it. Not all business buyers are created equal—one buyer’s bargain is another’s overpayment. How much you get for the sale of your business will truly depend on who is buying the business and their underlying motivation for buying that business. In this podcast Gower Idrees, CEO of RareBrain, explains the different types of business buyers you may encounter and how their motivations—which may include everything from a strategic acquisition to financial engineering—may impact your company’s sale value.

Determining the best time to sell your business requires knowing yourself, knowing the market, and knowing your company’s stage. In this episode Gower Idrees, CEO of RareBrain, outlines four of the most important timing factors that can impact whether or not you get the maximum price when selling your company. There may never be a perfect time to sell but you can improve your chances of getting top dollar by knowing these critical timing factors.

Nearly every business owner wants to know how much their company is worth on the open market. But there is no one-size-fits-all answer to that question. The valuation will depend on the personal, family, financial, and business objectives of the business owner as well as the exit option implemented to meet those goals. In this episode Gower Idrees, CEO of RareBrain outlines the eight exit channels—four internal, four external—available to business owners. Whether you have already implemented an exit plan or are just getting started, Idrees offers perspective on how the business exit option you select may impact the valuation of your company.

Over the years nearly every industry has seen a rise in specialty services and the financial sector has followed that trend. Today many successful companies seek the input of business brokers, merger and acquisition advisers, investment bankers, and exit planners. But it can be difficult for a business owner to differentiate their roles in a business sale. To clear the confusion, in this episode Gower Idrees, CEO of RareBrain explains the spaces in which each of these specialists operate and also provides their general compensation structure.

Three out of four business owners admit they are too busy running their company to devise and implement an exit plan. That can be a dangerous gamble with your financial future. 80% of small businesses listed for sale in the United States do not sell and only 30% of family businesses successfully transition to the next generation. An exit plan is more than simply circling a retirement date on the calendar; it is creating a strategic plan that helps a business owner successfully exit their company. In this episode Gower Idrees, CEO of RareBrain, explains the elements that comprise the most effective exit plans, how exit plans differ from estate planning, and the top benefits of establishing an exit plan.