EBITDA+ After the Event.
Congratulations… you’ve sold your business!
And joined an exclusive club, as less than 1,000 businesses are successfully sold in Australia each year.
Welcome to the final post in our series outlining Morgan Shaw Advisory’s, EBITDA+ SIX STEPS TO SUCCESS™. Our proven methodology for successfully selling a business and enabling business owners to engineer their own $30 million exit.
Whilst EBITDA is a well-established financial term and used as the multiplier to value businesses, in this context EBITDA+ SIX STEPS TO SUCCESS™ stands for:
After the event.
Selling a business is a huge achievement, as only a few of the businesses marketed for sale actually sell. You’ve done very well to get this far…but what happens next?
When the sale and purchase agreement has been signed, it’s legally binding. Completion will follow, though it is not always immediate and there are many things that need to occur, including:
Transfer of the business including employees, customers, assets, liabilities etc.
Handing over of keys
Transfer of motor vehicles
Working Capital valuation
Changing of bank account details
Change of company name (sometimes) and or rebranding
Changeover of insurances
External announcements – Marketing
Novate agreements, etc.
In addition to the legal requirements, there are many commercial aspects to deal with.
Deferred payment
Often there’s an element of the purchase price linked to the future performance of the business, which could run over a couple of years. Therefore, to realise the maximum value of the sale, a business owner must be completely across the terms, conditions and metrics of any performance related payment, and ideally, to ensure they play a key role in the tracking and delivery against these targets. Where there is a performance based deferred element, its usual that the owner continues to play an integral role in the business. If there is no desire or requirement for the owner to work in the business post-sale, then I would strongly advise against including a performance related element.
A common example of a deferred payment would be linked to the revenue from clients. This sounds simple enough, but what if post-sale a key client stops buying? Under the terms of the agreement, is the seller allowed to replace that lost revenue with a new client? If they can, does the seller have a new client pipeline, and will the sales cycle and revenue be generated within the agreed timeframe? We have seen ex-owners fall out with the buyer and become disheartened and disengaged during an earn-out period. This can add strain during an already emotionally charged period. Having the agreement clearly defined and communicated is key to avoiding this scenario.
Variations in the deed
There can be times when either party may need to renegotiate or reframe part of an earn-out. For example, the buyer might want your skills in another part of the business or a special project. Whatever the reason, any variation to the original deed can only be made with the consent of both parties. This needs to be negotiated just like the original sale of your business. So make sure you understand what is being requested and that you are happy with any variations.
Deed of Restraint
Almost always (and understandably), a buyer will insist on a minimum period (typically more than 3 years), where the original owner is unable to work (including not setting up another business) in the same industry as the business he or she has just sold. The law will usually come down hard on someone who has profited from the sale of their business and then actively competes against that business.
EBITDA+ SIX STEPS TO SUCCESS™ conclusion
Selling a business is complex so having a guide is useful…if you want to get this series in an easy eBook, giving you all the steps and more… just click here.
Morgan Shaw, keeps sales and value adding processes effective and efficient, whilst keeping everyone involved safe and sane. Working with a professional advisor can add significant value to your business and will ultimately result in more favourable transaction terms, a more efficient process and a higher purchase price.
If you are considering selling or buying a business and want to understand how you can engineer your own $30 million-dollar exit or to find out more about the EBITDA+ SIX STEPS TO SUCCESS™ process, connect with the Morgan Shaw Advisory team here.