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Tip of the Spear Ventures

Venture Capital | Business Transformation Consulting

Mergers & Acquisitions

30 Days to ETA | Day #30 – SUMMARY

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If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #29 post I shared congratulations — You made it to Entrepreneurship Through Acquisition (ETA)! But before you start popping those champagne bottles, you’d better have a plan for the next day of running your business. As an Acquisition Entrepreneur you should have the first 100 days lined out — Something I call The ETA First 100 Days (You can read the previous post by CLICKING HERE). Now that we’re officially at Day #30, Congratulations are truly in order! As an Acquisition Entrepreneur you should relish the accomplishment. So, in today’s 30 Days to ETA post, we’re going to review the last 30 days with a Summary… Enjoy!

30 Days to ETA Summary

Entrepreneurship Through Acquisition (ETA) is a journey to buy a business, and it seems like everyone I know that goes through ETA has a slightly different experience. At Tip of the Spear Ventures Mergers & Acquisitions practice, I see some who move through the process fast, stumbling into success in a matter of weeks after executing a brilliant ETA Strategy. Others move slowly, spending years of their lives perfecting the art of Acquisition Entrepreneurship. Some go back to college for years getting a master’s level education in business, and others get started before they even finish high school.

Yes, I’m here to tell you that there is no one 30 Days to ETA road that leads to success for everyone. Acquisition Entrepreneurship is a diverse and rewarding journey, but even so, there are certain hallmarks of the entrepreneurship experience that almost everyone goes through at one point or another. What follows is a summary of where we visited along this 30 Days to ETA journey.

30 Days to ETA | Day #1 – Startup or Acquisition?

My goal for this 30 Days to ETA Series is simply to walk you through the journey of sourcing, searching, and ultimately buying a business. However, make no mistake about this whole world of Mergers & Acquisitions… There is nothing “simple” about it! And in this Day #1 post we’ll explore whether as an Entrepreneur you should Startup or Acquisition — That is, should you start your own business from scratch (i.e., Startup) or buy a business that’s already in existence (i.e., Acquisition).

30 Days to ETA | Day #2 – Leading Your Business

In this 30 Days to ETA post, we’ll explore the topic of leading your business. Sounds pretty simple/straightforward, but there is a twist to consider! Specifically, if in Day #1 we tackled the decision of Startup or Acquisition (You can read the post by CLICKING HERE), in this post we’ll look at leading your business so as to create value or increase business valuation. Why? It’s keeping in line with our identification of the desired endpoint of the business. A business that you lead effectively should increase in value, and therefore be worth more to prospective buyers when you ultimately determine to exit. Understanding business valuations will help you as you start out on your Entrepreneurship Through Acquisition journey!

30 Days to ETA | Day #3 – The ETA Business Plan

In my most recent post in this 30 Days to ETA series, Leading Your Business, I explained that you can’t begin a business if you don’t know how it’s going to end. You have to identify where you want to go and why you are going there before you can figure out what type of business to acquire (You can read the post by CLICKING HERE). You must think strategically about the value of your business and then work to increase, or accelerate that value tactfully. And one of the best ways to start that process is by building a plan… The ETA Business Plan!

30 Days to ETA | Day #4 – Your ETA Competitive Advantage

In my most recent post in this 30 Days to ETA series, The ETA Business Plan, I shared that you can go anywhere you want with your business, but you’ll get there faster if you establish a Business Plan. The adage “A goal without a plan is just a dream” has never been more true (You can read the post by CLICKING HERE). Part of that plan, and foundational to the process, is identifying your ETA Competitive Advantage. Thinking strategically about the value your business brings to the market and the benefits it provides should be advantages you look to capitalize on. And your ETA Competitive Advantage should be identified/contingency planned while looking at businesses to acquire!

30 Days to ETA | Day #5 – Enduring Profitability

If you’ve been reading this 30 Days to ETA blog series, you’ve learned that having a business plan is essential for end results for success and that you should have that “end state” mentality in mind as you look to acquire a business. We’ve also explored your ETA Competitive Advantage that should allow you to be strategic in your direction and tactful in your actions to execute that business plan (You can read the previous post by CLICKING HERE). But there’s a key organizational attribute that you should screen for while conducting your Entrepreneurship Through Acquisition (ETA) process, that being Enduring Profitability. So in this 30 Days to ETA post, we’ll explore the concept of Enduring Profitability and how it should form the cornerstone of your search criteria… Enjoy!

30 Days to ETA | Day #6 – The ETA Team

If you’re following my 30 Days to ETA series, you know that my goal is to help you find a business to either merge with or acquire. In our last post, we explored how to add value to your company so that when it comes time to sell it, you maximize the sales price as much as possible (You can read the previous post by CLICKING HERE). In this article, we’re going to focus on what it really takes to be an Entrepreneur Through Acquisition, namely you don’t need to do it alone. Instead, you’re going to need to bring a team with you (Your ETA Team). Think of Your ETA Team as a group of specialists you hire to help you in your Mergers & Acquisitions endeavor, and you’ll want the best people on this team! We’ll also look at your organization team (Who will help you in running your business)… Enjoy!

30 Days to ETA | Day #7 – ETA Financials & Cash Flow

No matter how strong your 30 Days to ETA business plan is or how well you grow your team (You can read the previous post by CLICKING HERE), if your business does not have enough in its cash reserve to survive the ups and downs of the economy, black swan events, or minor financial storms selling your soon to be acquired business in the future will be a non-issue. In order to secure outside funding or know how much money you need to personally bring to the closing table, you must know how to calculate how much of a cash reserve your business needs to have on hand to withstand hard times. So in this post we’ll explore ETA Financials & Cash Flow and how they fit in with your 30 Days to ETA execution… Enjoy!

30 Days to ETA | Day #8 – Leading Yourself

Most recently in our 30 Days to ETA series, I’ve been dissecting the business characteristics that maximize or multiply your future company’s resale value. I’ve shared how to master competitive advantage, make your business scalable, hire a great staff, and build a cash reserve to weather the business storms (You can read the previous post by CLICKING HERE). Before leaping from our business’s acquisition to its growth phase further, I want to talk to you about leading yourself — the personal side of your business’s sustainability — Your personal sustainability: your physical well-being and how it affects your business’s value. Why? A strong mind requires a strong body to achieve the final destination of success… Enjoy!

30 Days to ETA | Day #9 – ETA Mission, Vision, & Values

If you are following this 30 Days to ETA series, you have built your business plan and hired the team to drive your long-term goals. In our last post, I stressed the importance of leading yourself (You can read the previous post by CLICKING HERE). One of the aspects of Entrepreneurship Through Acquisition that I find most rewarding is finding/aligning with a culture that resonates. The foundation for that culture is the ETA Mission, Vision, & Values that you profess to and the business you’re looking to acquire says they already have/stand for. So in this post, we’ll explore exactly that… Enjoy!

30 Days to ETA | Day #10 – ETA Culture

In our last post in this 30 Days to ETA series, we discussed your ETA Mission, Vision, & Values (You can read the previous post by CLICKING HERE). Having clarity in the Entrepreneurship Through Acquisition strategy is paramount, and nothing signals that more than your identification of where you want to go with your future business. In this post, we’re going to explore the backbone of how you will get to that future destination via ETA Culture. ETA Culture is your business’ values and culture that will shape owner-employee relations. The business that has outstanding values and inviting culture can help bring top dollar at the time you want to eventually sell… Enjoy!

30 Days to ETA | Day #11 – ETA Entity Formation

If you’ve been reading this 30 Days to ETA series, you know that in the Day #10 post I stressed the importance of creating an ETA Culture (You can read the previous post by CLICKING HERE). In today’s 30 Days to ETA post, we’re going to discuss how choosing the right type of business entity at a company’s creation can effect its liability and its ability to sell when it comes time (i.e., ETA Entity Formation). Many people believe that in business exit planning, the idea of preparing a business to sell, occurs just prior to the owner’s desired exit time. This couldn’t be further from the reality of what should happen. Acquisition Entrepreneurs know that in their Entrepreneurship Through Acquisition journey that the time to prepare their future company for sale is at the onset, not as you’re contemplating your exit. Some of the planning we business owners need to do should be done five to ten years before the sale ever occurs, so starting at the beginning with the end in mind should make sense… Enjoy!

30 Days to ETA | Day #12 – ETA Metrics/KPIs

If you’ve been reading this 30 Days to ETA series, you know that in the Day #11 post I discussed how your ETA Entity Formation is an important structural item on your journey to Entrepreneurship Through Acquisition (You can read the previous post by CLICKING HERE). In today’s 30 Days to ETA post, as an Accountant I want to look at two of my favorite things in the business world – facts and figures in the form of ETA Metrics/KPIs. We’re going to deal with the financial reports your future business needs to provide to not only lead the organization successfully, but allow interested buyers to see how great a business you have. Remember our end-game when it comes to Acquisition Entrepreneurship, that in order to make a business sellable we have to provide buyers with accurate financial reports that show our historical growth, our current financial status, and our business’s potential growth in the future…. Enjoy!

30 Days to ETA | Day #13 – ETA Risk Mitigation

If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #12 post I discussed how your ETA Metrics/KPIs allow you to establish a scoreboard for your journey to Entrepreneurship Through Acquisition (You can read the previous post by CLICKING HERE). In today’s 30 Days to ETA post, a wise person once told me, “Somebody else’s experience is a far better teacher than your own.” I wish I had listened to that advice. If I had understood the vital role of a business risk assessment in the purchase of a business, I might have avoided making the single biggest mistake of my business career… Enjoy!

30 Days to ETA | Day #14 – ETA Engagement

If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #13 post I discussed how your ETA Risk Mitigation — if done properly — will allow you to avoid big and costly mistakes in your journey to Entrepreneurship Through Acquisition (You can read the previous post by CLICKING HERE). I know that you know the saying, “No risk, no reward!” I also know that strategic risks take into account lead to your motivation. Some of us are motivated by fame, others by money, etc. In today’s 30 Days to ETA post, we’re going to explore what drives ETA Engagement, or the motivations associated with owning/running a business with a team… Enjoy!

30 Days to ETA | Day #15 – The ETA Business Team

30 Days to ETA | Day #15 – The ETA Business Team

June 15, 2021 By Sam Palazzolo, Managing Director (Edit)

If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #14 post I discussed how to achieve ETA Engagement amongst your future employees. Why? It’s awfully difficult — Impossible! — to achieve happy customers if you have unhappy team members, and happy team members are engaged team members in your journey to Entrepreneurship Through Acquisition (You can read the previous post by CLICKING HERE). But what if there was a way to build the company of your dreams with an ETA Business Team? An awesome ETA Business Team that pulls just as hard as you do towards the business goal of not only acquiring, but building a company in order to sell it for maximum profit. In today’s 30 Days to ETA post, we’re going to explore how we can assemble our dream ETA Business Team of employees and executives, and in doing so how we can cultivate company culture and add employee incentive programs to ensure our ETA Engagement adds to company success… Enjoy!

30 Days to ETA | Day #16 – ETA Deal Flow

If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #15 post I discussed how to achieve The ETA Business Team. I’ve said it before and I’ll say it again, people are the most important ingredient in your journey to Entrepreneurship Through Acquisition (You can read the previous post by CLICKING HERE). So, even though so far in this series we’ve spent a lot of time talking about strategic initiatives within the business, it’s time we pull up to explore ways in which you can find that business. In today’s 30 Days to ETA post, we’re going to explore how we can create a system where business owners, and those that have a business for sale — Brokers, Attorneys, CPAs, Bankers, etc. — can find you to present the business… Enjoy!

30 Days to ETA | Day #17 – The ETA Exit Plan

If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #16 post I discussed how to maximize ETA Deal Flow. You need to analyze a lot of businesses in order to get one to purchase in your journey to Entrepreneurship Through Acquisition (You can read the previous post by CLICKING HERE). But even though you’ve found the perfect business and were fortunate to purchase it, I’m going to encourage you to focus on the end. In today’s 30 Days to ETA post, we’re going to explore how that end-game focus — The ETA Exit Plan — can provide you with all kinds of benefits, especially financial benefits if you do things right… Enjoy!

30 Days to ETA | Day #18 – The ETA Conglomerate

If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #17 post I discussed how as Acquisition Entrepreneurs we need to have focus on the end with The ETA Exit Plan. While you need to buy your business via Mergers & Acquisitions at the right strike-price, it’s equally important as a part of due diligence to sell the business right as well as a part of your Entrepreneurship Through Acquisition journey (You can read the previous post by CLICKING HERE). But what if you get into this as an entrepreneur and you find out you really enjoy owning a business? I mean, what’s better than owning a single business? Two or more businesses! So, in today’s 30 Days to ETA post, we’re going to explore how you can expand/create an empire by owning multiple companies — The ETA Conglomerate… Enjoy!

30 Days to ETA | Day #19 – The ETA Business Valuation

If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #18 post I discussed how as Acquisition Entrepreneurs one of the paths forward for you could be The ETA Conglomerate. If you love what you do, and in doing so want more love, then it’s natural to want to explore owning more than one business as a part of your Entrepreneurship Through Acquisition journey (You can read the previous post by CLICKING HERE). Part of the ETA difficulty as an entrepreneur is identifying the value you should be willing to pay for a business. So, in today’s 30 Days to ETA post, we’re going to explore how you can create and justify the price you should pay based off of objective versus subjective criteria — The ETA Business Valuation… Enjoy!

30 Days to ETA | Day #20 – ETA Business Law

If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #19 post I discussed how as Acquisition Entrepreneurs you can create and justify the price you should pay based off of objective versus subjective criteria — The ETA Business Valuation. Part of the ETA difficulty as an entrepreneur is identifying the value you should be willing to pay for a business as a part of your Entrepreneurship Through Acquisition journey (You can read the previous post by CLICKING HERE). Another ETA difficulty is knowing who you can trust. No matter how many jokes you’ve heard about lawyers, good attorneys can save you hundreds of thousands — or even millions — of dollars when it comes time for you to acquire a business. So, in today’s 30 Days to ETA post, we’re going to explore how you can identify and hire this vital part of your Professional ETA Team — ETA Business Law… Enjoy!

30 Days to ETA | Day #21 – ETA Mistakes

If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #20 post I discussed how as Acquisition Entrepreneurs you can identify and hire the most vital part of your Professional ETA Team — ETA Business Law. No matter how many jokes you’ve heard about lawyers, good attorneys can save you hundreds of thousands — or even millions — of dollars when it comes time for you to acquire a business (You can read the previous post by CLICKING HERE). Another ETA difficulty is the opportunity to make mistakes. You are going to make mistakes, but how you recover from them will make a massive difference. So, in today’s 30 Days to ETA post, we’re going to explore ETA Mistakes… Enjoy!

30 Days to ETA | Day #22 – ETA Deal Flow | Brokers

If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #21 post I discussed how as Acquisition Entrepreneurs you can bet that there will be mistakes made, something I call ETA Mistakes. You can make one mistake, or you can make one million! Regardless of how many mistakes you make, how you recover from them will make a massive difference (You can read the previous post by CLICKING HERE). One mistake that I see time and again made by Entrepreneurs Through Acquisition (ETA) is not having enough opportunities in the Mergers & Acquisitions pipeline. So, in today’s 30 Days to ETA post, we’re going to explore ETA Deal Flow | Brokers… Enjoy!

30 Days to ETA | Day #23 – ETA Industry / Business ID

If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #22 post I discussed how as Acquisition Entrepreneurs there is one mistake that I see time and again made by Entrepreneurs Through Acquisition (ETA), that being not having enough opportunities in the Mergers & Acquisitions pipeline. So, in yesterday’s 30 Days to ETA post, we explored ETA Deal Flow | Brokers (You can read the previous post by CLICKING HERE). I believe that if you fill your Mergers & Acquisitions pipeline with qualified companies to explore acquiring, life will become easier for you. But how will you know which businesses are right and which businesses are wrong to begin the filtering process on? So, in today’s 30 Days to ETA post, we’re going to explore ETA Industry / Business ID… Enjoy!

30 Days to ETA | Day #24 – The ETA Confidential Information Memorandum (CIM)

If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #23 post I believe that as an Acquisition Entrepreneur if you fill your Mergers & Acquisitions pipeline with qualified companies to explore acquiring, Entrepreneurship Through Acquisition life will become easier for you. But how will you know which businesses are right and which businesses are wrong to begin the filtering process on? So, in yesterday’s 30 Days to ETA post, we explored ETA Industry / Business ID (You can read the previous post by CLICKING HERE). But identifying seller personas and industry specifics are not enough. You’ll want to know how to rip apart the information you receive as a part of due diligence. The center piece of this information is the Confidential Information Memorandum, or CIM. So, in today’s 30 Days to ETA post, we’re going to explore The ETA Confidential Information Memorandum (CIM)… Enjoy!

30 Days to ETA | Day #25 – The ETA Owner Interview

If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #24 post I identified as an Acquisition Entrepreneur that seller personas and industry specifics are not enough in your Mergers & Acquisitions journey. You’ll want to know how to rip apart all of the information you receive as a part of due diligence. The center piece of this information is the Confidential Information Memorandum, or CIM as an Entrepreneurship Through Acquisition professional (You can read the previous post by CLICKING HERE). But your ability to analyze reports, or the CIM is not enough. You’re going to have to conduct interviews with key parties on the seller’s side of the equation successfully. These interviews need to be done so that you gather all of the missing pieces of information you need to proceed — if justified. So, in today’s 30 Days to ETA post, we’re going to explore The ETA Owner Interview… Enjoy!

30 Days to ETA | Day #26 – The ETA Letter of Intent (LOI)

If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #25 post I shared that your ability to analyze reports, or the CIM will not be enough as an Entrepreneur Through Acquisition (ETA). You’re going to have to conduct interviews with key parties on the seller’s side of the equation successfully. The ETA Owner Interview needs to be done so that you gather all of the missing pieces of information you need to proceed — if justified (You can read the previous post by CLICKING HERE). Finding, researching, conducting preliminary due diligence — as well as interviews — are all precursor to what is considered by most to be the first step in the formal business sale, the Letter of Intent (LOI). So, in today’s 30 Days to ETA post, we’re going to explore The ETA Letter of Intent (LOI)… Enjoy!

30 Days to ETA | Day #27 – ETA Capital

If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #26 post I shared as an Entrepreneur Through Acquisition (ETA), finding, researching, conducting preliminary due diligence — as well as interviews — are all precursor to what is considered by most to be the first step in the formal business sale, the ETA Letter of Intent – LOI (You can read the previous post by CLICKING HERE). Now that you have the found the business and the ownership vision is in sight, how are you going to fund it to make it a reality? So, in today’s 30 Days to ETA post, we’re going to explore ETA Capital… Enjoy!

30 Days to ETA | Day #28 – The ETA Purchase Agreement (PA)

If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #27 post I shared that finding a business is good, but being able to fund what you find is even better, something I referred to as ETA Capital (You can read the previous post by CLICKING HERE). So, by this time in your Entrepreneurship Through Acquisition (ETA) journey you have found a business, determined how you are going to fund it, and successfully conducted due diligence under Letter of Intent (LOI)… Now all you need to do is purchase the business. Ok, that’s not all, but that is what’s next. So, in today’s 30 Days to ETA post, we’re going to explore the ETA Purchase Agreement (PA)… Enjoy!

30 Days to ETA | Day #29 – Leading Your Business | The ETA First 100 Days

If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #28 post I shared that by this time in your Entrepreneurship Through Acquisition (ETA) journey you have found a business, determined how you are going to fund it, and successfully conducted due diligence under Letter of Intent (LOI)… Now all you need to do is purchase the business with the ETA Purchase Agreement (PA) (You can read the previous post by CLICKING HERE). Congratulations, you made it to Entrepreneurship Through Acquisition (ETA)! Before you start popping those champagne bottles, you’d better have a plan for the next day of running your business. As an Acquisition Entrepreneur you should have the first 100 days lined out! So, in today’s 30 Days to ETA post, we’re going to explore Leading Your Business | The ETA First 100 Days… Enjoy!

SUMMARY

So there you have it… 30 days up, 30 days down! You are well on your way to becoming an Acquisition Entrepreneur or Entrepreneurship Through Acquisition. But wait, you probably know just enough to be dangerous! If I, or my Tip of the Spear Ventures Team can help you reach your ETA goal please reach out (acquisitions@tipofthespearventures.com). Better yet, we’re launching our Entrepreneur In Residence program specifically for leaders who want to become owner-operators of a business (You can read more about the program by CLICKING HERE). I hope you’ve enjoyed this 30 Days to ETA series as much as I enjoyed writing it!

Sam Palazzolo

30 Days to ETA | Day #29 – Leading Your Business | The ETA First 100 Days

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If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #28 post I shared that by this time in your Entrepreneurship Through Acquisition (ETA) journey you have found a business, determined how you are going to fund it, and successfully conducted due diligence under Letter of Intent (LOI)… Now all you need to do is purchase the business with the ETA Purchase Agreement (PA) (You can read the previous post by CLICKING HERE). Congratulations, you made it to Entrepreneurship Through Acquisition (ETA)! Before you start popping those champagne bottles, you’d better have a plan for the next day of running your business. As an Acquisition Entrepreneur you should have the first 100 days lined out! So, in today’s 30 Days to ETA post, we’re going to explore Leading Your Business | The ETA First 100 Days… Enjoy!

30 Days to ETA - Leading Your Business | The ETA First 100 Days

Leading Your Business | The ETA First 100 Days

After the formalities of document signings at the closing table, the business broker or M&A Advisor will often arrange and sometimes pay for a celebratory dinner. If your transition expert sets up a dinner, they will usually schedule closing in the late afternoon so that everyone can leave the closing table and go directly to a nice dinner. I’ve been to many of these celebrations where the ETA Professional Team members, employee team members, friends, and family members attend to commemorate the moment of success… Entrepreneurship Through Acquisition has arrived!

Many times, these particular events aren’t that dissimilar from a wedding celebration except you’re the best man, and the bride is your business. Most likely, you’ll get up and give a speech. Maybe you’ll tell funny stories about highs and lows you experienced in your search for a business. You’ll even recognize key people who helped you along your way. You may even receive gifts from certain employees, advisors, and others.

But don’t get drunk on too much champagne or feelings of goodwill… You have a business to run that is now owned by you — So you should probably get going!

Leading Your Business

I remember my first business acquisition. I signed the documents, and I went out with some friends to celebrate the accomplishment. It wasn’t until I got home and laid down for the night that it hit me… “What did I just do?” You know, I just bought a business. Did I make the right move? What do I do now? Worries and questions ran through my head all night long. And honestly, a minor panic attack ensued.

You’re probably going to be in the same boat I was. At the end of the day you acquire a business, you’re going to experience a myriad of emotions. Everything you’ve worked for has now come to fruition. Your friends, family members, advisors, planners, and employees will probably be there throughout the day to celebrate with you. By the time you get to the end of the day, the adrenaline will wear off. Things will settle down, and anxiety may creep in.

Obviously, you’re going to experience excitement and happiness. I mean, you’ve planned this day for months/years and isn’t it great that the day finally arrived? However, you’ll probably second guess your decision, too. So whenever you reach this point in ETA, remember that it’s just the start. There is so much more to life! No matter how old or young you are, there is so much more to live for, and now you have a business to run in addition.

The ETA First 100 Days

On July 24, 1933, Franklin Delano Roosevelt gave a radio address in which he coined the term “first 100 days.” For our recent acquisition, it’s an important perspective to take into account. On that day, Roosevelt famously said “We all wanted the opportunity of a little quiet thought to examine and assimilate in a mental picture the crowding events of the hundred days which had been devoted to the starting of the wheels of the New Deal.” Congratulations… Your new business is your New Deal!

Over the past months, you should have been compiling the pages to make your ETA First 100 Days playbook. Within this playbook, you should have four main components:

  • Strategy
  • Execution
  • Cash (Revenue Drive!)
  • People

Unfortunately, at Tip of the Spear Ventures’ Mergers & Acquisitions practice I see leaders all the time that take over a business and have no plan. Perhaps the plan is to run it the same way the previous owner had. Perhaps they plan on “winging” it. But both of these “perhaps” will lead you nowhere fast!

When you first identified the business that you just acquired, you should have developed a list of potential levers — areas of improvement that if you bought the company you could flip to dramatically increase the revenue of the business. What are those levers?

The ETA First 100 Days is a time when you should have these levers and components pre-developed for an action plan. When you take over the business, while late, is not a good position to be in to start to assemble the plan. What are you going to do? Who will you need to do it with you? Why will what you’re doing align with your new organizations mission, vision, and values? These are but a few of the ETA First 100 Days you’ll want to identify well in advance of the first day of ownership.

At Tip of the Spear Ventures, we’re famous for aggressively setting out to accomplish goals during The ETA First 100 Days. However, and this is a nod of respect to the previous owners, we spend the first week (7 Days) attempting to seek first to understand, then to be understood. In other words, even though we’re default – aggressive in this time, we want to understand why things have been running the way they have. With a firm understanding, we then set to implement/execute our plans for ETA First 100 Days.

SUMMARY

Congratulations are in order… You made it to Entrepreneurship Through Acquisition (ETA)! As I previously cautioned, before you start popping those champagne bottles you’d better have a plan for the next day of running your business — You should have the first 100 days lined out! So, in today’s 30 Days to ETA post, we’re going to explore Leading Your Business | The ETA First 100 Days… Enjoy! Ultimately, a closing isn’t the end, but your new beginning.

Sam Palazzolo

30 Days to ETA | Day #28 – The ETA Purchase Agreement (PA)

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If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #27 post I shared that finding a business is good, but being able to fund what you find is even better, something I referred to as ETA Capital (You can read the previous post by CLICKING HERE). So, by this time in your Entrepreneurship Through Acquisition (ETA) journey you have found a business, determined how you are going to fund it, and successfully conducted due diligence under Letter of Intent (LOI)… Now all you need to do is purchase the business. Ok, that’s not all, but that is what’s next. So, in today’s 30 Days to ETA post, we’re going to explore the ETA Purchase Agreement (PA)… Enjoy!

30 Days to ETA - The ETA Purchase Agreement (PA)

The ETA Purchase Agreement (PA)

The ETA Purchase Agreement (PA), or Purchase of Business Agreement, is an official contract used to legally buy any type of business to another person/entity. The ETA Purchase Agreement can be used to sell only some of a business’ assets or shares, but not the entire business. In these cases, be sure you include all of the details regarding what assets or shares are being sold and to whom.

A Business Purchase Agreement acts as an official record of the sale and purchase, and also serves as proof of ownership for the buyer. At Tip of the Spear Ventures’ Mergers & Acquisitions division, we typically have our legal representative from our ETA Professional Team create the document for use (I highly recommend that you do so as well – NOTE – This is not something that you want to secure a template from the internet to complete by yourself! I’ve seen way too many DIY’ers who believe that they can save a buck here or there, only to end up paying tens of thousands of dollars to overcome mistakes made).

Now is not the time to get cheap/creative… Bring your ETA Professional Team Attorney into the mix to create your ETA Purchase Agreement!

Sam Palazzolo, Managing Director @ Tip of the Spear Ventures

1. What is an ETA Purchase Agreement (PA)?

You should think of the ETA Purchase Agreement (PA) as being like a bill of sale that documents the purchase of the business. Either assets of the business or shares in the company are typically transferred as a result of the ETA PA. As a legally enforceable contract, the ETA PA ensures that both the buyer and seller follow through with their promises and creates an opportunity to confirm the terms and conditions (T&Cs) of the transaction.

A Business Purchase Agreement typically will identify the following basic elements:

  • Business: describe the company, assets, and/or stock being transferred
  • Closing Date: when the Buyer will pay and the Seller will deliver the assets
  • Confidentiality: both parties agree to not share the details of the business transfer
  • Non-Competition: the seller promises to not compete with the business
  • Non-Solicitation: the seller will not hire any of their former employees away
  • Parties: identify the Seller of the business and the Buyer
  • Purchase Price: payment for the transfer, including any deposits or financing
  • Representations & Warranties: each party is relying on statements of fact or promises about the assets, business, and authority to enter into the transaction

It’s important to equip yourself with the skills to develop a solid negotiation strategy in order to secure the best outcome from a business deal. Negotiating the T&Cs of the sale of a business and document the transaction with the ETA PA at the closing.

As a reference, people often call the ETA PA by other names, such as:

  • Agreement for Purchase and Sale of Servicing
  • Agreement of Purchase and Sale of Business Assets
  • Agreement to Sell Business
  • Asset Purchase Agreement
  • Bill of Sale and Assignment and Assumption Agreement
  • Business Sale Agreement
  • Business Sale Contract
  • Business Transfer Agreement
  • Contract for Sale of Business
  • Purchase of Business Agreement
  • Sale of Business Agreement
  • Share and Asset Purchase Agreement
  • Small Business Purchase Agreement

SUMMARY

In today’s ’30 Days to ETA’ post, we explored the ETA Purchase Agreement (PA). By this time in your Entrepreneurship Through Acquisition (ETA) journey you have found a business, determined how you are going to fund it, conducted due diligence under Letter of Intent (LOI)… Now all you need to do is purchase the business. We’re entering the homestretch of our series!

Sam Palazzolo

NOTE – Seek legal counsel for your Purchase Agreement. It might cost you upfront, but you’ll be glad you did as it will provide you with a solid operating base to work from in the future.

30 Days to ETA | Day #27 – ETA Capital

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If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #26 post I shared as an Entrepreneur Through Acquisition (ETA), finding, researching, conducting preliminary due diligence — as well as interviews — are all precursor to what is considered by most to be the first step in the formal business sale, the ETA Letter of Intent – LOI (You can read the previous post by CLICKING HERE). Now that you have the found the business and the ownership vision is in sight, how are you going to fund it to make it a reality? So, in today’s 30 Days to ETA post, we’re going to explore ETA Capital… Enjoy!

30 Days to ETA - ETA Capital

ETA Capital – 5 Sources

When I think about our Mergers & Acquisitions practice at Tip of the Spear Ventures, the decisions that we make when it comes time to purchase a business generally fall within the confines of a financial decision. One of the mentors that I have in the capital space told me years ago that in order to successfully acquire a business, you have to bring capital. I couldn’t agree with him more! But how much and in what form?

The following represents five sources of ETA Capital that you should consider as an Acquisition Entrepreneur. These five sources fit regardless of whether or not you are breaking-off a piece of your Balance Sheet or going out and securing a debt instrument. NOTE – Entrepreneurship Through Acquisition is risky. Don’t believe for a second that because the business you are exploring has provided an income for the previous owner that the business under your new leadership will continue to do so — Especially in the early goings. Why do I share this? See the SUMMARY at the conclusion…

There has never been a time when capital is so inexpensive… Leverage your cash position accordingly!

Sam Palazzolo, Managing Director @ Tip of the Spear Ventures

ETA Capital Source #1 – Cash

The first way to acquire a business is to buy it with cash. Most likely, this is the way you expect to get paid when you sell your company when that time comes, right? However, this is the least likely ETA Capital sourcing event to occur. Why, I mean after all isn’t cash king? Of course cash is king, but with the cost of money so inexpensive, why would you want to put all of your cash to work in one place?

I have a capital mentor who is famous for telling me that with all those benjamins in the bank, the goal is to get those benjamins out into the economy and make little baby benjamins! It’s a good visual way of saying put your money to work for you, and I’ve grasped the concept since the day he shared it with me.

So while cash is king, it also like a king needs a heredity line of offspring to go forward with. So the ETA Capital Source of Cash should be your least likely way of funding your ETA Mergers & Acquisitions.

ETA Capital Source #2 – Stocks

Secondly, buyers and sellers can use one of two types of stock buy-out methods to pay for a business upon the sale. For these stock methods to work, the business must operate as a C Corporation or an S Corporation (technically an LLC taxed as a C or S is also allowed) that can buy, sell, and trade company stock. Remember our discussion about business operations and entities back in 30 Days to ETA post #11 – Entity Formation (You can read the post by CLICKING HERE)? This is where your chosen entity can affect your future sellability. If you’re not sure which business entity to choose or you’re not sure how your business operations affect your sellability, go back to that post.

Before we leave the ETA Capital Source topic of Stocks, let’s take a deeper dive into Employee Stock Ownership Plans (ESOP) and Stock Buy-Outs:

An Employee Stock Ownership Plan (ESOP)

What if you want to leverage the employees of the organization and make all of you owners of the business you are acquiring? Enter the Employee Stock Ownership Plan (ESOP). To buy a business through an ESOP in its simplest terms, you must hire an independent evaluator to place a value on the company’s stock. Once the value is determined, you hire a trustee to set up and operate an independent trust. At that point, the trust buys stock shares from you based on the purchase price the evaluator set. Employees, then, have the option to purchase company stock from the trust, which will hold the stock as long as the employee works for the company. When an employee leaves or retires, he can sell the stock back to the trust at a fair market value.

While the ESOP can get very complicated, it has a lot of advantages. Essentially, this is a way an owner can remain with the company while taking the capital out of the company. If the owner doesn’t want to retire in the immediate future, they can set up an ESOP. Then, they continue to partially run the organization until they’re fully paid or have sold all of their stock shares back to the trust.

Another good thing about an ESOP is that it benefits and rewards long-term employees. The ESOP creates a long-term initiative and loyalty program that rewards employee commitment and hard work. It incentivizes employees to drive the company towards success because they own portions of it. The more valuable your stock in the company becomes, the more money they get when they sell!

An ESOP is not for every corporation, though. Some entrepreneurs don’t like having a third party evaluate company shares. Many feel that the valuation is lower than what they would receive for their stocks on the open market. Another disadvantage of the ESOP is that the company has to have cash. You have to keep a fair amount of cash on hand so that when an employee leaves, you can convert their stocks to cash and pay-out that particular person’s shares.

Stock Buy-Outs

The second method of stocks as an ETA Capital source is stock buy-outs. These stock buy-outs can get complicated, so I’ll try to make it as simple as possible. To generate additional capital or to retire from the business, the owner of the company can sell their company stock. As in an ESOP, you’ll want to hire an independent valuator to place a value on those stocks. As the ETA, you can then purchase the majority of their shares, all of their shares, or portions of them. In doing so, you become shareholders/owners in the company and have rights to elect directors and vote on company policies. However, the previous owner may have the option to keep some of the company’s stock, depending on how you set the stock buy-out up. Thus, they can maintain some control of the business and receive immediate cash capital.

Let’s assume as the ETA you buy the company and as the majority shareholder drive the business to unprecedented success. Consequently, all shares increase in value, making everyone who owns stock lots and lots of money. With hopes this will happen, you want to add a provision into the stock sale agreement that allows you to buy additional shares at set terms, such as at the price the shares were valued upon the sale of the business.

Conversely, what if as the Acquisition Entrepreneur you drive the company into the ground? What if the value of your stocks plummet? You must have provisions written into the sales agreement which allows you to purchase additional shares at the same value majority owners can or sell them to other owners at a predetermined set price.

Another provision you want to address in stock buy-outs is a tag-along right. In other words, if as the buyer you purchase the majority of the company shares for $10 and then find a buyer to pay $20 for them, make sure you can include your shares in that deal. You want to “tag-along” on that sale and get that $20 per share.

Lastly, make sure you address piggyback rights in a stock buy-out. If as the buyer you ultimately make the shares public, you’ll want to address the right to publicly register shares. Most sellers will want the right to “piggyback” on your success.

ETA Capital Source #3 –  EarnOut

Here is a definition of ETA Capital Source #3 – Earnout from Investopedia:

“An earnout is a contractual provision stating that the seller of a business is to obtain additional compensation in the future if the business achieves certain financial goals, which are usually stated as a percentage of gross sales or earnings.”

Essentially, this allows you as the buyer to give the seller a fair price for their company now, but gives the seller the bonus if they think it’s worth more later on if/when the business does well. For example, say the company has $5,000,000 in sales and $500,000 in earnings. As the ETA you identify that you wants to pay $2,500,000 for the company, but the seller think that’s too low (Of course). The seller counters that the company will drastically increase in sales because of some groundwork they have laid (Perhaps a robust sales pipeline or backlog of their book of business). For both parties to agree, you enter into an earnout or a compromise. In this example, you pay the $2.5 Million up front as a deposit on the business. Then, you agree to give an additional $2.5 Million IF the company reaches $10,000,000 in sales over a three year period. If the company doesn’t reach a certain amount of sales, you don’t have to pay the seller any additional money. Or, you can add in a provision that you will owe the seller “$X” more at the end of three years dependent on a predetermined earnout scale for growth.

Using the same $5,000,000 and $500,000 from our example, let’s say you pay the seller $2,500,000 up front. Instead of asking for an additional $2,5000,000 IF the company reaches a certain amount of sales, the seller asks for a guaranteed 5% of the company’s gross sales over the next three years. Then, and only then, if the business makes $10,000,000 in three years, you owe the seller an additional $500,000 per year for the 3-year term.  If the business makes $20,000,000, the seller earns another million per year of the 3-year earnout term.

An earnout can offer the seller a handsome reward if the company is who they say that it is. We’ve gone through LOI and typically identified that there is no way the business’ sales pipeline is anything but fiction. If we had gone through with the Purchase Agreement, it would have left the seller with nothing other than the down payment and us with the debt associated with structuring that down payment. So be wary, and protect yourself. Know the seller’s nonfiction reality before you choose to exercise an earnout option.

ETA Capital Source #4 – Seller Carried Note

A great option for buyers, Owner Financing may be the best option for sellers.

Different than an earnout, you and the seller agree on the company’s worth. You cannot or will not come up with the cash to cover the entire purchase price or even the down payment.  Typically, you offer to pay 65% – 80% of the company’s value, but ask the seller to carry a promissory note for the remaining 20%-35%. In this case, then, you expect the seller to carry some of the risks with him.

If you’re going to do a seller-carry, take a few factors into consideration:

  • Is the company well seasoned? In other words, is it strong enough to withstand transitions within the market? Is their product or service adaptable if technology advances or the economic market crashes? You may be investing in a market fad. Maybe the company is one of 20 stores in a small town. You know, because of economic circumstance, the majority of those stores will close their doors. If you doubt the future longevity of the company for any reason, then you may want to choose a different buy-out option.
  • Skin in the game! You are asking the seller to put “skin in the game” here, even as they exit the business. They must trust you enough to carry a note. What happens if you liquidate the company assets or spend all the company cash? Does the seller trust you enough to make consistent, long-term payments? Essentially, you’re asking the seller to leave you their greatest asset — the company’s assets — and risk it in your hands. At Tip of the Spear, we love owners who want to partner with us for the long term. Even though they are looking to exit their business, we still value them as a valuable resource and want to create an environment of trust.

ETA Capital Source #5 – Offer of Employment

In this last option, you may offer the seller some form of employment as part of the buy-out. If you’d like the seller to continue working within the business, this option might work for you. In those instances where you are acquiring a business where you don’t know enough/everything about the industry, ask the current owner to remain in the company at a certain level for a set amount of time so as to teach you how to operate the business. In my experience, I’ve seen the offer of employment buy-out work well, and I’ve unfortunately seen it work really bad. Here are a few examples of Offers of Employment gone right/wrong:

  • Leadership preferences. Sometimes, sellers stay to fulfill an employment contract and get frustrated. Usually, this happens when there’s a significant difference present (Difference in leadership styles, operational preferences, etc.)
  • It’s personal. Other times, buyers and sellers may encounter personality conflicts. Remember, sellers have poured years of blood, sweat, and spears into this business. They have made it their “baby” and if as the ETA buyer you come in and start making all kinds of changes, these actions could create resentment, angst, and animosity in the relationship.
  • It’s business. I’ve worked with over 1,000 organizations and an exponential number of leaders therein. I recognize that while there are similarities in style, no two businesses are operated the same and no two business situations are alike for a leader to apply the same principle. If buyers and sellers recognize that conflict can arise in this buy-out option, they can build protective provisions into the employment contract and make the arrangement simply business. For example, as an ETA you intend to become the President/CEO of the company and want the seller to report to you directly. Make sure you spell-out the specific roles/responsibilities, job description, even work location for the exiting owner. Try to get every card face-up on the table. The last thing the previous owner will want to do is go from being the President/CEO of the company to cleaning toilets. Make certain you add/consider exit clauses, such as: What if they get fed up? Is there a fall-back provision where they pay back some money, or do they get to leave and just keep some unearned compensation? What if you get tired of the exiting owner? Can you terminate them with/without pay?

SUMMARY

So, in today’s 30 Days to ETA post, we explored the concept of ETA Capital. Once you have the found the business and the ownership vision is in sight, how you are going to fund it to make it a reality is crucial. As such, we’ve explored 5 sources of ETA Capital for you to explore and select the best option to make your ETA dreams come closer to reality. Don’t forget, every business acquisition is different… Rely on your ETA Professional Team for counsel/advice.

Sam Palazzolo

30 Days to ETA | Day #26 – The ETA Letter of Intent (LOI)

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If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #25 post I shared that your ability to analyze reports, or the CIM will not be enough as an Entrepreneur Through Acquisition (ETA). You’re going to have to conduct interviews with key parties on the seller’s side of the equation successfully. The ETA Owner Interview needs to be done so that you gather all of the missing pieces of information you need to proceed — if justified (You can read the previous post by CLICKING HERE). Finding, researching, conducting preliminary due diligence — as well as interviews — are all precursor to what is considered by most to be the first step in the formal business sale, the Letter of Intent (LOI). So, in today’s 30 Days to ETA post, we’re going to explore The ETA Letter of Intent (LOI)… Enjoy!

30 Days to ETA - The ETA Letter of Intent (LOI)

The ETA Letter of Intent (LOI)

Sometimes called a Memorandum of Understanding or an LOI, the Letter of Intent alerts a business seller that a buyer “intends” to purchase their company. Usually, the LOI is non-binding, but many courts uphold its provisions as contractual and binding. Therefore, whenever you provide a Letter of Intent, make certain your attorney and your transition team have created/reviewed it respectively.

At Tip of the Spear Ventures, when we create an ETA Letter of Intent (LOI) we want to convey the purpose this potentially binding document serves In its most basic form, the ETA LOI is an agreement to agree or to reach an agreement. The ETA Letter of Intent (LOI) sets the stage for the business sale. It can effectively do one or more of the following things:

  1. Lay out the expectations and essential terms of the business sale.
  2. Serve as preliminary documentation for lenders or governmental boards.
  3. Put the public on notice that there will be a sales transaction.
  4. Determine which party or which team member will draft certain documents.
  5. Set a time frame for negotiations, periods of purchasing exclusivity, purchase agreements, and closings.

Elements of The ETA LOI

Whether the ETA Letter of Intent (LOI) shows a basic commitment between the buyer and seller or publicizes the trading of a company’s stock, it will inevitably contain a number of elements. While not exhaustive, here is a list of details typically contained therein:

  • A list of the assets to be sold in the transaction.
  • The purchase price for the business and all its stated assets
  • A good faith, or earnest money, deposit
  • Exclusivity period parameters
  • Expected length of time for due-diligence to occur
  • Signed Confidentiality Agreements
  • Definitions of important terms that might be used during the transaction
  • A target date for the execution of the Purchase Agreement (PA)
  • Allocation of expenses for both parties
  • Identification of sale’s jurisdiction and governing entities
  • Any provisions intended to be binding

The ETA LOI Excitement Blunder

Since the ETA LOI signals the start of the formal business sales process, you must be more cautious than ever before. As the Buyer, you have the opportunity to make many demands which the Seller has the choice to accept or refuse. Adding restrictions or limits to your Buyer demands can protect you during the approaching due-diligence period. I can’t say this enough; lean on your ETA Professional Team. The ETA Professionals you’ve assembled have hopefully walked down this road before and will know how to advise you accordingly.

The ETA LOI Guidelines

The following are a few ETA LOI Guidelines that I have created/compiled from the Tip of the Spear Ventures Mergers & Acquisitions practice:

  • Limit the exclusivity period to 90 days – If you’ve been properly preparing to acquire the business, you should have most of the data the seller will provide already. By limiting the time you give this particular exclusive right to buy the business, you prevent the seller from dragging out the process so long that the seller loses potential interest in selling to you.
  • Request the delivery of a purchase agreement within 60 days – Dragging out the sales process could keep you from effectively managing the company, which could cause the value of the company to decrease over the short-term. The seller will inevitably check-out from leading the business the moment they decide to sell the business. Time is not your ally.
  • Publicize other Letters of Intent received – If the seller receives other Letters of Intent (LOIs) during the due-diligence process, I’m a firm believe in wanting to know that they are receiving them. Therefore, they should be public record. It shows transparency, trust, and good faith to share this information. Any withholding of an LOI approach could/should be grounds for termination of LOI.
  • Don’t take responsibility for any fees – Don’t give the seller everything they desire and the kitchen sink! Share that you will not be responsible for legal fees and professional fees incurred during this time.
  • List everything that is not included in the sale – Just as you list everything that is included in the sale, be sure to list everything the seller should plan on taking with them. If they want to keep a piece of equipment or a plaque on the wall, list it. Don’t be afraid to keep things you will need for the business, but let them have those family heirloom items. Just be sure to clarify what you’re keeping versus what you’re having them take.
  • Address what will happen to cash on hand and Accounts Receivable – Clarify whether the seller is buying any, some, or all rights to the cash on hand and accounts receivable. Have a plan in place to purchase the 30 day, 60 day, or 90 day + accounts. Maybe buy the current accounts at a dollar-for-dollar rate. Then, maybe acquire the outstanding 60 day+ accounts for 50 cents on the dollar and the 90 day+ accounts for 10 cents on the dollar. Spell out what will be done with those open accounts and excess cash. I’ve had sellers desire to not include any accounts receivable as a part of the sale. The reason why you are an ETA, and not a startup entrepreneur, is that there is a business in place with associated customers/revenue streams. Not having access to this revenue stream is startup-equivalent, and therefore should be avoided.
  • Employ formula pricing – Also known as cap pricing, formula pricing places a set cap on the sales price. Formula pricing usually keeps a seller from negotiating a higher sales price as the buyer finds more value in the company.
  • Don’t text or email without attorney approval – Since this is the beginning of a FORMAL business sale, any and all written communication can affect the terms of your Letter of Intent and subsequent Purchase Agreement. Don’t send out a “quick text” or an emotional email without consulting your ETA Professional Team because that “quick text” or emotional email could alter the course of your sale and your legal responsibility therein.
  • Don’t offer IOU’s – If you agree to a promissory note for the cash on hand or the accounts receivable, the seller could receive it all, spend it all, and leave town without giving you a dime. Don’t trust them and don’t offer to write IOU’s.

SUMMARY

In today’s ’30 Days to ETA’ post, we explored The ETA Letter of Intent (LOI). Finding, researching, conducting preliminary due diligence — as well as interviews — are all precursor to what is considered by most to be the first step in the formal business sale, the Letter of Intent (LOI). A sharp seller is going to try to get everything they can for their bsuiness (You will too when it comes time to sell the business!) So when you’re dealing with the ETA Letter of Intent (LOI) to buy your business, listen to your ETA Professional Team.

Sam Palazzolo