I’m writing to you from a little town in southern France called Aix-en-Provence. In “Aix”, as the initiated refer to it, they speak French. Not out of some personal protest like the Parisians; in Aix they speak French because they have no use for English. They have no intention of moving away from this paradise and they feel that career mobility gets in the way of tennis, tanning and tapas. So they speak French.
I, on the other hand, speak English. Last night I ate dinner at a wonderful little restaurant in town called “Chez Jo’s” and after the first bite of their pizza I declared “Je t’aime” to my server. I thought I was saying “I like it” and really what I had declared to the waiter and everyone within a three-table radius was “I love you”.
I feel equally lost when talking about the mechanics of selling a business with mergers and acquisitions professionals, bankers, accountants, lawyers and the rest of the cast of characters who sell and buy companies. I’m generalizing, but most advisors seem to speak their own language in an attempt to show they belong to “the club”. They use technical jargon in a game of one-upmanship to prove who works on the biggest deals and therefore, who is the smartest person in the room.
This of course leaves their client in the dark and can lead to some lost in translation moments for business owners. Je t’aime. Here are a few of the terms you might run across:
“Tipping Basket” is a term typically used in a share purchase agreement to describe the point at which small details the company seller may have misrepresented in negotiating the sale of their company ad up to a point where they become meaningful to the buyer. For example, let’s say company A is for sale and company B wants to buy it. Company A may estimate their receivables will be $450,000 on the day the deal closes. If the receivables are actually only $350,000 on closing day, the buyer is out $100,000. If there is a $200,000 tipping basket in the share purchase agreement, the $100,000 is below the threshold of the basket and therefore the discrepancy is ignored by the buyer. If however, the tipping basket were $50,000 in the same example, the discrepancy in receivables is large enough that the basket tips over and the buyer has the right to ask the seller to lower the price by the entire amount of the discrepancy (the basket has tipped over and everything falls out) not just the amount that exceeding the limit. So in the example above, the price would be lowered by $100,000.
“Downstroke” refers to the amount of money a buyer puts into a deal that is “sunk money”. From your point of view, this is the money you get when you sell your business and is not tied to future performance (i.e. earn out).
“PE” I always used to think PE stood for Price to Earnings ratio or “multiple” (it still does in some circles) which was why I was so confused when my advisors told me they had a “PE offer” and that “the PE wants to have a management meeting with us”. PE of course stands for Private Equity and has become a noun of sorts.
What other jargon do advisors use with you to show just how smart they are?
Here are a few new articles about building a company you could sell.
Glut of ‘for sale’ signs on horizon
~ published April 20, 2010, the Globe and Mail
As I walked through the grocery store recently, I came across a display of half-priced chocolate Easter bunnies. It seemed the store had been a little overzealous in its ordering this year, and now, with the holiday over, there was a surplus available for pennies on the dollar.
They were in perfectly good condition, and had I not already consumed more than my share of Easter treats, I would have been tempted. But I strolled right by those left-behind bunnies. » more
Formula for creating a referable company
~ published April 21, 2010, the Globe and Mail
Before acquiring your company, a prospective buyer is probably going to want to talk to your customers.
In fact, getting your customers to say nice things about your business may be the final hurdle you have to overcome before selling it.
In his new book, The Referral Engine , John Jantsch outlines a formula for creating a referable company. I asked him to provide his best advice. Here’s our exchange: » more
Selling business is a lot like dating
~ published April 22, 2010, the Globe and Mail
I was in 12th grade when I first laid eyes on her.
I was at a party where a number of kids from the rival high school had been invited. Jennifer Beresford came in with a gaggle of friends, and I decided she was the prettiest girl I had ever seen.
Wearing a red-checkered shirt I had just bought, I felt so confident, I thrust out my hand to introduce myself. The girl of my dreams replied, “Nice shirt. What —did you steal someone’s tablecloth?” » more
5 Minutes with…John Warrillow
~ published March 23, 2010 NY Report
John Warrillow is a serial entrepreneur who founded four companies, the last of which was Warrillow & Co, a consultancy firm specializing in helping Fortune 500 companies sell to the small business market. In 2008, Warrillow sold that consultancy to The Corporate Executive Board. In addition to public speaking, he is author of Drilling for Gold: How Corporations Can Successfully Market to Small Business, and founding producer of the nationally syndicated radio show Today’s Entrepreneur. Taking what he learned in his own experiences, as well as what he learned from other entrepreneurs, he authored the recently published Built to Sell: Turn Your Business into One You Can Sell. NY Report executive editor Daria Meoli spoke with Warrillow about creating a scalable business and maximizing your company’s valuation.
Daria Meoli: What inspired you to write Built to Sell?
John Warrillow: Once I sold my company and started taking some time for myself, the idea of making some sort of contribution by sharing some of the lessons that I’ve learned felt like the right thing to do. And coming from a research background with my last business, the statistics really compelled me to write the book—50% of business owners around the country now want to exit their businesses, yet only 1% successfully do so each year. » more
DONE DEAL
