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Last Update: Friday December 15, 2017

Key Idea: Deliver the Numbers

Marketing spin can get you attention, but numbers are the way the "big boys" keep score.

Key Question:

A: 

Your numbers.  You'll want to have five years of audited financial statements when the time comes to sell your business. This doesn't mean that you have to have annual audits beginning with your first year of business. It doesn't even mean that you have to have annual audits done when you think you might be within 5 years of selling, it does mean that your books need to be "auditable" for that period.

Q:
When I do decide to sell my business, how do I make sure that I have the necessary books and records to satisfy the buyer?

A: 
When the buyer or his/her representatives comes in to evaluate your company, that process is called "due diligence." You want to pass due diligence with flying colors. The single most important thing you can do to ensure this is to keep great books. What do we mean by great books? We mean annual financial statements and the underlying records that support those financial statements.

It is only with the bottom line results of your company that the buyer can calculate EBITDA and his or her return on the purchase price. Nothing makes your numbers more credible than if they are certified and attested to by your CPA. And most buyers want a five year track record of audited financial statements.

If you are in the service business, and you maintain good records, the auditors can come in at any time and audit ancient books. If you have a significant what auditors call "material," investment in inventory, then as soon as you know that you might be within five years of selling your business, you should have your CPA observe your annual physical inventory. CPAs call this an "agreed-upon procedures engagement." They verify the counts/quantities now, and the costs later. This is far less expensive than an audit but does mean that you can procure audited financial statements at a later date if desired.

Think about it

What kind of records do you keep now? How long would it take for you to be ready to open up your books to a potential buyer?

Clip from: Sell To A Public Company

La Jolla and Dallas: Every day the press reports, especially The Wall Street Journal and Forbes, about how big business acquires small businesses in order to grow.

If you are running a good business and have market share in your industry segment, you should consider preparing for that call or knock on the door, "Can I buy your business?"   In most every episode of this show we explore how and why the founder of a business gets started and how they get over the hurdles. This week we look at how they received a very large check for the fruits of their labor.

Today, we spend time with Tracy Myers and Gary Cantor, the founders of Advertising Arts College, and Bob Orenstein, founder of International Wine Accessories (IWA). Both have completed all eight steps within the business cycle, and they define what it means to "Exit At the Top." You met Bob a couple of years ago when we did his story about starting IWA from the extra bedroom of his townhouse.

Both stories are important.

Gary and Tracy's story is for all of us who are not even thinking about selling, then there comes a knock on the door.  Bob's story is for the rest of us who know that we have created a substantial asset. Bob, however, knew that his "time" was coming. Bob was strategic and spent several years getting ready for the day, and then it took over four years to consummate a deal.

To say the least, every one of us should have an exit strategy.

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International Wine Accessories, Inc. (IWA)

Robert Orenstein, founder

10246 Miller Road
Dallas, TX 75238
2143496097

Visit our web site: http://www.iwawine.com/

Office: 2143496097

Business Classification:
Home products

Year Founded: 1988

Deliver the Numbers

HATTIE: You now know you're entering a beauty pageant.

BOB: Correct.

HATTIE: OK, so how did you prepare?

BOB: Now you have a marketing effort.

HATTIE: How did you prepare to put yourself out there to all these people?

BOB: Well, two things happened. First, you come out with a book, and the book is about a 150-page book. And it details the history of the company, the employees, what their roles are, what their education is, basically a resume on each significant employee. It gives growth charts of sales and profits over the years, margin calculations over the years, going back five years.

HATTIE: And who are you going to send it to, and who you going to call?

BOB: Well, what happens for us is we prepare a teaser letter. And the letter did not reveal all the information, didn't reveal who the company was, just what kind of company, what kind of sales, and what kind of growth prospects we have for the future. And what we did is we sent that out to literally hundreds and hundreds of prospects.

HATTIE: And then what was your response to that?

BOB: From that, we've got about 46 responses that said, `Tell me,' you know, `we'd like to know more.'

HATTIE: Sure.

BOB: A lot of them, once they got the book, decided, `No, not for me.' And then it reduced down to a much smaller field, and I believe the field was reduced down to eight. You just have all these twists and turns, so none of the original people — and we had, you know, basically — the deal died three times. And it's like an emotional roller coaster. And I think the best way to put it would be that there's a little game going on.

Once they hook you, they start saying, `Well, we're going to have to take out $50,000 for this, $100,000 for that, half a million for that.' That process, after you go through that a few times, hardens you up, and you become a little anesthetized to the whole situation, and you don't react. In the original prospect, in looking for someone to buy the company, we did contact Beringer, we did contact, Windsor, we did contact all these other wine and mail order companies.

However, nobody came to the table at that point. Effectively, Windsor Vineyards, which was part of this group. They were purchased by a Foster's subsidiary in Australia. And shortly after being purchased, they contacted IWA and said, `Are you still interested in selling your business?' And that's when we started the discussions all over again.

HATTIE: OK. So by buying Windsor, which is a direct mail house — I mean, they ship wine directly — then they sort of opened this whole new division, and that made way for you? BOB: Exactly. Where they in direct marketing, I was in direct marketing, and they saw the synergies there.
 
 

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