The Importance of Planning Your Exit Strategy with Ned Minor

Episode Description:

In this episode, host Elizabeth Ledoux is joined by Ned Minor, a transaction attorney in the field of mergers and acquisitions that has generated more than $3 billion in total purchase/sales consideration for clients. Ned has also written extensively on the topic of entrepreneurs exiting their companies. Tap or click the play button below to listen to: The Importance of Planning Your Exit Strategy with Ned Minor.

In this episode, Elizabeth and Ned discuss the value of businesses and the importance of planning for exit strategies. They emphasize the need for business owners to understand the worth of their businesses and how to transition them into the hands of others. 

Ned also emphasizes the importance of involving key employees and family members in the decision-making process. Perhaps msot importantly, Ned urges business owners to start visualizing their lives after the sale, with financial security and a sense of fulfillment.

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Ned’s book, Deciding to Sell the Key to Wealth and Freedom:

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The Importance of Planning Your Exit Strategy with Ned Minor Transcript

Ned Minor: The first thing to infuse after trying to help prepare for emotional component again. So let’s talk about the various elements pretend to assume, never have to learn during which we’re going to camp, which you don’t have to write, then usually only answer this question we fundamentally don’t know the value of your business. And we don’t know what their personal financial requirements are.

Elizabeth Ledoux: Welcome to the business transition roadmap. My name is Elizabeth Ledoux. And through my years, I have seen how communities thrive. When business succession and transition are done. Well, me and my team at The Transition Strategists have been helping business owners develop and implement transition strategies for over 30 years. And on this show, we want to help you by giving you the roadmap to a healthy business transition. Let’s get started. Hello, everyone, and welcome back to our business transition Podcast. Today, I am so fortunate to have Ned miner who is a an original founder of the law firm minor in brown in Denver, Colorado, he and I have worked together for gosh, at least it’s been over 15 years, Ned, and you in my mind are one of the leading merger and acquisition lawyers in the entire country. And so I’m just so grateful that you that we have the time here today with you. So thanks for coming.

Ned Minor: Thank you very much. I’m thrilled to be here.

Elizabeth Ledoux: Thank you. So today we’re going to talk a little bit about preparing for your transition. And what that really looks like. And Ned is he wrote a wonderful book called deciding to sell your business. And it’s the key to wealth and freedom. So Ned, tell us a little bit about your book. And what made you decide to write this book. It’s been out for how many years now?

Ned Minor: Just for about 20 years now. Awesome. And I took it all the time we wrote it. We I we were very cautious, make sure that there was nothing that ever had to be revised. Again, we didn’t cite any colors state law in, say IRS sections. The point being in the book is just as relevant today as it was 20 years ago, the questions and answers are the same. The only thing that changes is what kind of market are we in? Are we in a good market or a bad mark? So I routinely get mixed messages from clients or prospects. Say they really liked the book, the index, etc center, but then it was just so modern and up to date.

Elizabeth Ledoux: That’s great. And one of the things that I loved about the book, when I first read it and still do is that it takes owners through a variety of different questions that actually trigger them and help them to walk through some self reflection on what do they how do they decide to sell their business and some of the whys behind that?

Ned Minor: Well, the reason I wrote the book is that the last 2535 years of you represented nothing but business owners. We are a former partner, John Brown, I sort of us from on April 15 1977, being the first tax extension. And we had no clients or for sources, no business and of course no money. The good news was that we had wives, you had real jobs, we didn’t have mortgage payments for kids that make a long story short, our clients are a privately held business owners small, large, extra large, so it’s not going to help people. And I wrote the book because I got a very quickly having done so many of these interviews, first time meeting with potential clients, and asked the same questions and usually get the same answers. And I thought to myself, I really think to write a book on this. And I did but of course it took about five years it was also being a father, a husband and a lawyer, the managing partner of a growing law firm but it surely is one of the great accomplishments that I think I’ve achieved as this book has helped so many people there isn’t a day a week go by that someone email from whatever saying, Thank you so much for the book. So the book is open to all of you people just get to the contact information. But it’s lovely to have it complimentary.

Elizabeth Ledoux: Thank you. Thank you. Yes and and the book all that

Ned Minor: information about yesterday. Did I answer that question?

Elizabeth Ledoux: You did answer that question. You did. It definitely did and, and the book all of the information that’s so jam Unless of you, Ned to provide that for the listeners, and for our viewers, and all of that information will be at the end of our podcasts. So that’d be awesome. So, as you’ve worked with business owners, and they’ve come in and begin, they’ve navigated, getting ready to sell and selling, what are some of the things that you discuss with them? And what are some of the things that you see business owners should be doing?

Ned Minor: Well, the first thing is, and this is what really triggered the book is the emotional component. First of all, by the way, this is 55 Questions and Answers each questions separate and distinct, you don’t have to read questions one through nine to understand question 10. They’re all self contained. And being an entrepreneur by itself, as a business owner, myself, I know what everybody’s going through lights are in your business to think about when you’re going to leave your business. First thing I ask them is, why are you selling your business? And quite often they don’t know. That may sound strange, but it is true, they have some easy, fuzzy idea. What is life like after the sale? But they don’t know. And that’s the first question in my book. What do I do with that? So the answer is, you’d have so much time on your hands, and then all the things you want to do that you didn’t say hello to never have time to learn awkward magazines. So next question I were trying to deal with emotional issues are always our emotional issues tied to potential transaction over time, I help them sort through all this. So a lot of the time I’m playing miniature psychiatrist, psychiatrist or psychologist, because that’s what they need. They don’t have, they wouldn’t talk to the on top of their spouse, they’ll talk to their partners, may talk to their parents, you know, talk to their employees, they don’t talk to their lawyers and bankers, is something they hold very close to the vest. And we work our way through that. And that could be all sorts of examples are going to spend our whole time here on this one question. We really helped them answer the question, What will I do affects my business, I will share one story here. Camera was 62 years old, he came out is right here, well, tan, very successful hands. To sell his business to mark talk to him more, I was convinced that he really wasn’t ready to pull the trigger. This is the first time I met him this much cost of doing shows exposure and charging for these games. It kind of got intense, and it kind of got heated, because he thought he convinced me that he was gonna so I suggested this energy will sell. So make a long story short, he finally ultimately convinced me that he would sell the business for $40 million, or buyer $42 million cash. And our client walked away from the table. Wow. And the two weeks go by I called him and said, Bob, what happened? We had this great discussion, you convinced me that you were ready to pull the trigger? What happened? And they said, then, oh, by the way, thank you very much younger better deal than ever again. But the closer I got to the closing, the more frightened I became that didn’t know what I would do. So you were right, and that you said was correct. And I walk you off with her business. I’m sure you walked away from selling. Two years later, he sells the business for half a puppy. I would receive two years prior to that. Yes, hello crochet. So that was it always takes my heart to get across situations like that where if they just had a team of advisers who either just knew understand this whole concept of Exit Planning and

Ned Minor: committed to doing it. It cost them a lot of money. That’s that’s the joy that I bring to any potential client is I know every minefield there is no you Yeah. And you didn’t use it is if we get a claim to the market. We closed 99% of our deals.

Elizabeth Ledoux: On it’s interesting because, well, you know, my book, right? And my but I was

Ned Minor: old enough. I’m not strong enough.

Elizabeth Ledoux: Oh, no, no, no. Yeah, it’s when I think of it’s a journey. It actually is a journey. And that’s a really great example of a journey where it started they explored third party got cold feet, walked away, and then came back. And it did cost them a lot of money, I wonder to what some of the lessons that were learned along the way, and if you know, the if half was okay with those people, but as you as you navigate this journey, starting with your why I think is crucial, because if you don’t know why you’re walking into this business sale or this business transition, and you’re you don’t know, for sure that you want to go to a third party or for sure that you want to sell it internally to an employee or, you know, a family member or even another partner. I think that that that is the starting point, without any question, because once you are clear in your mind with that, then it’s so much easier to walk through the entire thing. And it’s expensive to go through these processes, and then to stop and then start again.

Ned Minor: But Elizabeth, you do read on page 100, stand corrected cut and not the answer that question. And you’ve got to just convince them that it’s okay to open up and talk to their advisor, their advisors. They just need a good sounding board. And I think that’s one of the things that you do such a great job of talking about your book being heavy, it is a good storyteller, we contact content. So congratulations, I know, that was a labor of love it is it’s going to be very helpful for people we’re talking about. Thank you.

Elizabeth Ledoux: Thank you. And, you know, I like both of our books, because they they come together in the middle, they do. Mine does deal with some more of some of the more behavioral softer spots, but it has some content in it. That’s pretty meaty. Yours comes at it from the how much side at times, and that’s one of the things I’ve always loved about us doing things together, is because we’re an amazing pair. And I think our books are the same way.

Ned Minor: I agree. So

Elizabeth Ledoux: so when you as people start to walk through this process, do you find that they get stuck on other points? Are there other things that when they come into your office that they’re not prepared for or don’t have ready?

Ned Minor: Well, it’s interesting, I’ll take you through a couple of examples. Business owners are very smart, and very capable of building a company, when it comes time to letting go of their baby, their identity in the marketplace, the person they see in the mirror every day. John Smith is John Smith, owner of ABC manufacturing company. But one of the first things that we do is after trying to help them figure out the emotional component is on saying, let’s talk about the value, how much pre tax income you want come to you for the rest of your life assuming never have to go and generate additional revenue doesn’t mean that you can’t or won’t, but you don’t have to. Right. And usually don’t know the answer to this question. I mean, they fundamentally don’t know the value of your business. And they don’t know what their personal financial requirements are for getting as it relates to obligating the end of the role and triggering the sale. Classic example of husband and wife, Australian company who iPhone 51% husband on 49%. And they live together and work together with each other seven days a week, 24 hours a day. Ask a question how much pre tax income you want coming to and poor I finished the sentence the lifestyle I want 500,000 A husband? We are no longer slower than the wives. So on $1.1 million. And I said perhaps Abyan of course the slowest unwritten meeting submitted to juvie, right, or chat, they have a and they’re their whole lives or admissions business. They didn’t know why they were work, I didn’t know how much they need. And that is typical. A seller will say I only need extra I say the heck with but you need our know what you want. Because you gotta lose attention a lot in the meeting. And I want you to focus on the transaction strategy to get you what you want in more than what you need.

Elizabeth Ledoux: Yeah, and and one of the things that I don’t know if you found this but one of the things that I found is they have this revenue generating business and we’re assuming that it’s, you know, successful and it’s has the ability to create some outside wealth outside of the company, which is always a good thing. But typically, statistics are you know, 80% of business owners wealth is in their company. And they’re used to that income. So one thing happens is when they leave that business and they sell it, they no longer have that revenue producing engine. So they’re on a quote unquote, fixed income of some sort. And then the other thing is, if they haven’t thought out, going back to the first question in the book and your book, if they haven’t thought out what they want to do next, and some of the objectives that they want to achieve after the business, many of those things cost money. So it’s not just hey, let’s live the same life we’re living now. But I’m not going to go to work. It’s more along the lines of hey, I’m not going to go to work. And I’m going to have time. So what else do I want to do? And how much is that going to cost?

Ned Minor: I hit hitting brings 23 years ago, I would have opened up a residential real estate in Palm Springs. And because it seems like every time you close a deal with a buyer to buy a second and third home, I’m sure the seller can buy a second or third home. And right, and quite frankly, I’ll give you my i Six have always been 90 plus percent of our business owners that the business owners the biggest asset for their lives and ask how much do you want, though, they don’t know how much they want. But the key is to help them realize that want to plan for this whole situation. So exit opportunity, and do the right thing between now and the time you get ready to pull the trigger. To be will be you’ll be rewarded that goes into it. Absolutely.

Elizabeth Ledoux: So when owners decide that they’re getting ready to sell, and you’re truly an expert, I know that you can do documents and have done that on an internal type sale to again, a partner or some one who’s inside of the company that the owner already knows, you also are outstanding at the third party, right? Those external in those kinds of sales. So what have you found to be beneficial? When you take someone out to market? How does that work?

Ned Minor: This process, first step would be to bring in an investment banker, or a small deal, perhaps a business broker, I distinguish between the two Trade Investment bankers and Business Brokers, you could say it’s a deal, they both have the same process. The first thing you got to do is you sit them down with good investment banker, their role is to come in with extraordinary due diligence efforts. And they’re really trying driving, what is the best purchase price we think the market will deliver for you there. And based on that client and say, Well, I’m ready to market, I wanted to lose 15.

Elizabeth Ledoux: So Ned, you I know can have dealt with internal sales inside of your law firm. But you also have done a lot of external sales, a lot of those third party sales. And so can you walk our viewers and listeners through just some highlights of what you see what’s it like to go through that as a business owner,

Ned Minor: which to me, this is a surprise, we ended up selling to third party and outside third party, you you’ve got strategic buyers, and you’ve got financial buyers, a financial buyer is basically an investment banking firm, it’s going out to raise millions and millions of dollars for the sole purpose of making acquisitions in the marketplace that they’re seeking. And the advantages are very simple problems if you’re selling to an outside third party, one of our objectives and it’s no problem making inevitably bring in investment banker and investment bankers job is to study the market come back and say, we’ve started this market, we think it’s a great time to get into it. Here are the reasons here the multiples achieved and look forward to a bigger say it’s not the right time to go into the marketplace. So if we know that if we know how much they want, and we know it’s going to take by their own definition, three years to get there to get the company to where it needs to be. This is where Elizabeth and her company play a fabulous around they do all the things that help business owners be prepared to sell. And that’s invaluable because the owner doesn’t want to have anything to do that he or she wants a team or in business and company. You got the money in hand and was done in closing scale. You’re always going to get a better deal from an outside third party In private equity group, we’re being a strategic buyer, strategy buyer company. An example that is, we sold a great company and many of you in the audience have consumed this practice called Laura bar la are a bar and field data center called over the first day. And pretty use her name, she gave me that permission, but we interviewed the investment banking firm, a great investment banking firm, investment banker takes us through the process the very first day on and conducts the economic negotiations, the terms and conditions in the contract. We the law firm, have come in right at the beginning. And we’re also getting the seller cleaned up. We know that buyers attorneys going to insist upon a full and complete due diligence. And as a law firm, it’s, it’s our duty to make sure that we disclose everything there is to know about this company, because the moment the client doesn’t disclose everything that how tawdry or miserable that might be, it’s going to come up at some point. So we get their organization clean, so that when the seller started when the buyer wants to start negotiating the warranties and representations that they will have you, the seller make, we know putting yourself in that situation? And we’ll tell them what’s going on, we do a thing about strategic buyers and the private equity groups have the funds to get a deal done in a small deal, are you working with a broker, you’re probably gonna have to carry back a significant portion of the purchase price.

Elizabeth Ledoux: And that and that’s true too. Sometimes, if you’re doing an internal sale, right, an internal transaction transition, lots of times the owner has to carry back a significant portion of the money as well. So and there’s a lot, there’s a lot of risk in there. So as as owners start to navigate this, I can’t tell you how many times Ned, we’ve walked somebody through the thinking of what they truly want. So we’ll go again, back to your why. Back to that first question that you have, why are you selling your business? What do you want to achieve out of the sale the financial sale, so that you can live the rest of your life hopefully, with the choice of going back to work not because you have to, but because you want to to be fulfilled. And as they walk through that, why we’ve seen them go from, hey, I’m going to sell to an internal group, because I think I want to honor those people, they’ve been with me a long time, et cetera, or I want to keep my culture to I’m gonna go to a third party. And that’s the direction they go. And then we’ve seen the opposite where they come in, and they say, Hey, I’m gonna sell to this third party, because that’s exactly the best way for me to get what I want. And they ended up selling to an employee, because they found out that that was their foundation. And that was the most important thing to them. So kind of interesting how those things happen throughout this journey of exploring sale.

Ned Minor: You’re gonna make more money, if you sell to an outside third party. I’m not promoting that. It’s just the fact that they’ve got the money, they get knowledge about the industry, they’re getting into their professional buyout people in their job, the job of their advisors or their CPA, and they’re their business law firm. They’ve got to get his company prepared to sit on I gave us many things it was there’s no standard Java. But we try to get we don’t try it we do get in what we call a control auction. What’s a control auction? Says where the investment banker earns his money for auction is where they even study who are the potential buyers they earn hundreds of 1000s of dollars a year on data, they can find as many situations as many transactions they want to look at that would be comparable to find this particular company. And once they get all of that together, then they will say identify who these potential buyers may be very secretively confidentially, go to the marketplace and get expressions of interest from people who’ve never heard of our companies before. And also if The disclosure review. And that’s when you the investment banker, starts pitting buyer A, B and C against D and BCNF. It’s a, it’s a beautiful thing, when the investment bankers teases me because I came up with a very sophisticated Wall Street firm, the Steel’s lack of multiples, they get opportunities to sell for multiples that they’ve never conceived. It’s a beautiful thing to watch. And it’s just great fun to see the potential buyers beat each other up to death to get your arms around your company. Yeah, that’s where

Elizabeth Ledoux: that is where they are in their money.

Ned Minor: Where they really are their money. This is once they got the down to buyer A, and he gives us a letter of intent. At that point, then they start renegotiating the deal. It’s a non binding. That’s just the way it works. So they’ll say, Well, we just found this in your company’s books, or we would do differently in blah, blah, blah. But the strong investment banker will say no, and to his to his loosely, like, we’re not going to negotiate a bonehead, because we think that’s what the value is we’re gonna deal with sophisticated, sophisticated, outside third party is probably 75% of transactions we see. Yeah. And

Elizabeth Ledoux: you, and I just want to encourage there are so many people that I’ve run into over my many years that I’ve been doing this, that have businesses, and they actually believe that they’re not worth a lot or that the sale process would be difficult, which it is challenging. I mean, there’s no doubt about it, there’s definitely work, you’re running your business, and you’re trying to figure out this sale process as you go forward. I just you and I talked about this, we had lunch the other day, I have such a huge passion for our community’s doing well. And the business is continuing forward. And I think that it’s so important for owners and listeners to just explore what your business is worth and explore what it looks like to transition it into somebody else’s hands. So that again, communities go forward employees stay employed, and the people who are using your business and and have great value from it that they continue to gain that value over time. And I think that you and I share that value.

Ned Minor: I agree. And this is not intended to be a plug for my book, but I quickly read some questions on the in the book, the idea of why you should read it. And our job is not to convince you today as the day that you should sell your business but P quickly clear this is the day we want you to commit to yourself, that the day is the day that you will define design and implement your exit strategy. The 20 years will be two years. But for those business owners who have gone through this process, two things happen. And I almost guarantee it, they will get more money than they thought it was worth. They do it in a shorter timeframe than they thought. Just just to give you just to whet your appetite. When should I sell my business? How should I sell my business to a key employee or a group of key employees? Should I transfer my business to a family member? Or should I sell my business to a third party? My employees do their job? Should I feel guilty that my employees ethical sale takes place and want to put it in hell? No. But I just put in no sales process confidential. Should I take my company public? Blah, blah, blah. So the book is, first. Again, things we’ve been talking about the middle part is more about the transaction. I don’t want my clients to try to negotiate their own deal, obviously, I want them to educate them that have some feel for what you’re getting into. And a third party is full of my business owners who have sold their businesses for whatever it was they were called honored that I asked them that they asked me to tell their story, out the other hand was afraid to ask the devil effect to tell their story. Knowing that we’re gonna have it so and so. So does his company. Every stack open financial planning, the world’s gonna be the path to their door. What’s my great satisfaction? He said, No. We’re honored that you would select us to talk about the book situation and be totally comfortable with it. So that’s wonderful.

Elizabeth Ledoux: So Ned, we’re at our time. And I just want to ask you one final question for the audience. If you had to leave one thought with them, just one top spot for them, what is your number one thing that you’d like to leave in their minds today,

Ned Minor: I really want them to start thinking about and visualize what is life for them. After the sale, you know all the money you’ll ever need for the next three lifetimes. We’re going to do this routinely, people will say to someone just so their business professional, they think you’re a genius because you sold your business, they don’t know how much you sold it for, but very sold for I can tell you that they amongst taught me about his golf club or wherever, pursuance high price which was dating, you pay for it. So really start envisioning your life without being harassed by lawyers, CPAs bankers, by insurance folks and whatever, whatever. Really spend time talking to your spouse or your significant other, they’re really part of this team. And you get into a daily basis to make you feel fulfilled. And that’s kind of a trial and error situation. Many business owners think that that’s what they want to do. Nothing. It’s not fun to play golf, five days a week, the night game, it’s painful after two days. But really visualize waking up. Every morning, you got a big white candle candles. And you get to put in the shapes, the colors, whatever you want to make you happy in a hue feel fulfilled, doing what you want to do, because you want to do em.

Elizabeth Ledoux: on that. That is amazing advice. And I think that that vision, that visioning is so important. So I would like to thank you so much for your time today. And for being a part of our podcast. It means so much to me. And I’ll look forward to more work and more things to come. So thank you so much for being here. Thank you for listening to this episode of the business transition roadmap. If you are listening to this and you find yourself wanting to go deeper into these topics and start the process of putting together your transition strategy. I’d love to offer you a free initial strategy session with my team will help you to explore the future transition of your business, head over to www dot transition To schedule a call. Thank you again for listening, and I’ll see you on the next episode of the business transition roadmap.

The Business Transition Roadmap with Elizabeth Ledoux

How do communities thrive? When businesses experience healthy growth and transition. Join CEO of The Transition Strategists, Elizabeth Ledoux as she and her guests identify what makes a successful business transition roadmap. If you know you want to transition or exit your business “one day”, today is the right day to start planning. This show will give you the roadmap.

If you’ve enjoyed this podcast, you can check out other episodes here: Podcasts – The Transition Strategists
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