Understand the pitfalls of stock deals in business sales, including risk management, earn-outs, and maximizing cash up front for a smoother exit.
Weekly Pilot Briefing
There are a couple of good takeaways from this week’s Built to Sell podcast. First, at 4:30, Pete talks about the value of industry associations and how much he learned from peers about running his own business. He mentions how much mentorship was available to help with processes, best practices, software, legal agreements, etc. Similarly, at 8:00 he mentions that working with a coach was instrumental in understanding his business, determining an accurate valuation, and preparing his business for sale. At 30:00, there is a good discussion around the importance of deal terms and not just price when selling your business., and at 32:30 Pete makes some recommendations about how he would recommend structuring the sale of your business. Below are his four recommendations:
Get all the cash up front. Even consider taking a lower multiple for cash in hand at closing.
Don’t take a job with the buyer (i.e., an earn out). You don’t want to watch someone tear up your business.
Avoid taking stock/rolling equity in the deal. There may not be adequate risk/reward in the exchange.
Know what you are going to do next. Pete didn’t have a plan and became depressed for an extended period.
I would agree with all of Pete’s recommendations, as I have seen clients suffer through all these realities. Especially number 4, since it has been shown that 75% of business owners who have sold their business reported experiencing “profound regret” one year after selling. Aligning your personal readiness with your business and financial readiness is essential to ensuring a successful Second Act.
Flight Plan has several excellent tools available to assist you with this planning. Feel free to take one of our four assessments available on our home page https://www.flightplanstrategies.com/ and start your planning today.
About this Episode
Pete Neubig started his entrepreneurial journey buying $35,000 houses with small down payments. After amassing 60 homes, he realized there was more money in managing properties for others.
Pete shifted focus to building a property management company, handling maintenance and rent collection for over 1,000 homes, and eventually sold the business for $4.6 million or 1.75 times recurring revenue to an industry giant. In this episode, you discover how to:
Create SOPs even if you hate processes.
Cap your downside in an earn-out.
Get more cash up front when selling your business.
Avoid the pitfalls of accepting stock as payment.
About Our Guest
Pete Neubig
Pete Neubig, CEO of VPM Solutions, brings a passion for solving the housing industry’s toughest challenges. Under his leadership, VPM Solutions has become the #1 platform for connecting businesses with remote team members tailored specifically for the property management industry.
With years of hands-on experience in property management, Pete understands the unique obstacles that businesses face. Known for his honest approach and commitment to delivering exceptional results, he is a problem solver at heart—always ready to go above and beyond for his clients.
In addition to his professional achievements, Pete is also an ironman triathlete. He draws parallels between his endurance training and the dedication required to overcome complex challenges in the property management space.
His unwavering drive helps him navigate both athletic competitions and business hurdles with resilience and focus.
Definitions
Due-Diligence: This is a comprehensive appraisal of a business or investment undertaken before a merger, acquisition, or investment. It seeks to validate the information provided and uncover any potential risks or liabilities.
Earn-out: This is a financing arrangement for the purchase of a business, where the seller must meet certain performance goals before receiving the full purchase price. It reduces the buyer’s risk and aligns the interests of both parties post-acquisition.
Letter of Intent (LOI): This document outlines the basic terms and conditions of a deal before a formal agreement is drawn up. It serves as a mutual commitment between the buyer and the seller to move forward with the transaction on the agreed-upon terms.
Re-Trading: This occurs when a buyer attempts to renegotiate the purchase price of a deal after initially agreeing to one. It is often seen unfavorably as it occurs after due diligence, seemingly exploiting newly discovered information.
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