By Sankeetha Selvarajah
Today's issue is brought to you by Zensei LLC. We help high achieving entrepreneurs get clear on their growth by planning their exits in a mindful, systematic process. If you're an entrepreneur who is looking to exit and scale in a way that fits your lifestyle, sign up for our Zensei Group Accelerator with our discovery call here.
Backwards ROI....and being a BUYER.
"This is so backwards"
Last week, a strategic buyer** client and I were laughing at the irony of the word “ROI”.
For so long, we focus on Return on Investment (ROI). But, no Return actually happens without the Investment first.
It should be IBR: Investment Before Return.
You actually HAVE TO invest before gaining any Return.
Time, energy, IP, money, sweat, angst.
All of these are investments for your future exit.
But while you're busy planning your exit, try flirting with the idea of BEING a buyer yourself.
Let's not forget EXIT PRINCIPLE #1: that your company's value is completely based on your assets.
Asset A + B + C = Company X
(And a mixture of company(s) and assets makes a portfolio)
Company X + COMPANY Y + Asset D = Portfolio
Thereby, buying another company or asset is an investment into your company as well.
Yes, you can scale your own company.
Yes, you can also buy another company and increase your own company's value.
And yes...you can also license out your assets while retaining ownership.
Many truths can exist at the same time. And all exit "truths" hinge on how YOU perceive potential Asset value.
Why this matters to you now, and for your exit:
Knowing the value of each asset will allow you to understand each asset's negotiation and exit parameters.
And allow you to make multiple exits within your company with each of your assets.
In some instances, buying another company/asset can accelerate your exit faster than actually SCALING your company alone.
Million Dollar Questions:
1.What kind of assets can I buy?
A. Intellectual Property (Trademarks, Copyrights, Patents)!!
B. Management contracts (called an Aqui-hire) where you can buy out a Company's leadership team's employment contracts.
C. Client contracts (recurring, strategic)
D. Real estate (building, land, leaseholds)
E. Many other assets (book a call and let's explore).
2. How do I buy an asset without excess cash or investment capital?
1. Earnout - With 10% down-payment and Buyer paying the Seller on the Earnout over X months or years.
2. License to own - Like a lease to own with an option to buy within a certain amount of payments
3. Create a mutual partnership with Asset Owner and an agreement to buy the asset within X months for a reduced fee
Fun fact: When you buy another company or asset, you can also Leverage your current assets (or portfolio) as collateral. Like a mortgage on your house.
No matter what you do, do NOT buy ANY asset unless you can clearly state the following:
Your AVT (Asset Viability Test):
1. How does the new asset fit into my company portfolio? (Does it represent your current or future brand?)
2. What's the purpose of the transaction? (To buy and hold, or to be revenue-generating from Day 1)
3. How will it add value (Revenue/Profit) on Day 1 and Year 2, 3, 4, 5?
4. How will this assets "work" with my other assets? (Is it complementary or competitive?).
5. What is the new asset's "exit plan"?
Exit Term to know: EBITDA (Valuation method)
EBITDA: A company's Earnings Before Interest, Taxes, Depreciation, and Amortization (commonly abbreviated EBITDA - it is a measure of a company's profitability of the operating business only), thus before any effects of indebtedness, state-mandated payments, and costs required to maintain its asset base.
Ex: Buyer will want to know Seller's EBITDA to determine financial and overall value than cash profits alone (Forbes, 2021).
Action Steps for this week:
- List 2 assets that you could BUY instead of create.
- Research 3 potential sellers of those assets
- Do the AVTest above.
Quote to consider:
"Your ability to expand is directly and equally proportional to your capacity to RECEIVE".
**Of course, we advise BUYERS (Portfolio and Strategic) as well! Exits are expansive.
Stay open,
Sankeetha
Whenever you’re aligned, here is the best way way we can help you:
1. Our Zensei 4 week Group Accelerator is almost full for the next cohort in SEPTEMBER. At half the cost of an individual Exit Plan, this allows you and I to co-create a 2 year Exit Plan for 2024 and beyond. Taking a cohort maximum of 6. Every Exiter has a private, 2 hour Exit meeting with me at end of Program and a complimentary 30 day followup. Sign up for a free discovery call here to learn more.
2. Zensei Exit Membership. Sign up for a free discovery call here to learn more.
3. Do you want to scale your company faster by planning your exit? Apply for private, full exit planning for 2-4 years here.
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