In this podcast, Michael Platner, chairman of Lewis Brisbois’ Corporate Practice Group, talks about:

  • How business owners should look at their business to increase value;
  • The most important thing business owners should start doing right now to prepare for an exit;
  • How poor financial information can derail a deal; and
  • Other signicant impediments that can hurt the chances of selling a company.

About the Guest

Michael Platner serves as chairman for Lewis Brisbois’ Corporate Practice Group. Michael also has founded or been an early stage investor in several businesses, particularly in software, Internet infrastructure and cloud computing. Empathizing with the role of the client, he believes that a transactional lawyer adds the most value by fully understanding the business strategy and the "deal" so as to be able to suggest creative strategies and alternatives.


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Noah Rosenfarb: Hi. It’s Noah Rosenfarb from Freedom Exit Advisors, here with Michael Platner. Michael serves as the Chair of Lewis Brisbois’ Corporate Practice Group and his legal practice is focused on helping companies and their owners build value and manage risk, but perhaps as important to our listeners, Michael has also founded or been an early-stage investor in several businesses especially in the software internet infrastructure and cloud computing sectors. Today, one of the things we’re excited to talk about is a list that he’s developed of ten impediments to maximizing your exit opportunities. Michael, thanks so much for joining us today.



Michael Platner: Pleasure, Noah. Thank you.


Noah Rosenfarb: Why don’t we start, Michael, by you sharing, you know, in your years of experience as both a practicing attorney and an owner, what would you say is the most important thing that a business owner should start doing right now to prepare for an exit?


Michael Platner: That’s a tough one, but one clearly rises to the top and I’d have to say that that is having the mindset of an owner as opposed to an operator. Business owners are in it everyday and our mind is on the operation and on the problems of the day. Business owners tend to be experts at a lot of the challenges that they face in a business because they learn the hard way and they’ve done it many times over, whatever widget they’re selling, whatever type of people they’re employing, whatever services they’re providing, we become experts, but the one thing that we’re not often accustomed to when we’re in that business ditch, I call it once in a while, is really thinking like an investor. The best way I think that you can get in the right mindset for thinking like an owner when you’re looking at your own business is to star to think of the business as an investor.


Noah Rosenfarb: That’s great advice. To look at it as an investor, what would you say is kind of the mindset that they have to adopt? Is there metrics involved? Is it just a way of thinking?


Michael Platner: Well, it has a 50,000-foot view and then a micro-view. Let’s start at 50,000 feet. I advise owners to, everyday when you walk in your business or at least as frequently as you can on a weekly basis, look around and say to yourself - and typically I would say it to my CFO as well - "Would you buy this business today if you had the choice and what would you pay?" When you start creating that metric, now I’ve gone down 10,000 feet to the first metric I start thinking about, is what my business really worth. It doesn’t matter if you’re really right in the method that you choose to value it. What matters is that you’re creating a benchmark and you’re starting to track it, and then you can really open up the opportunities to have other people that work with you in the business to start to consider the overall value of the business as one of the key metrics of performance. Obviously, that’s going to lead to ultimately a better liquidity in that.


Noah Rosenfarb: That’s great advice. I was with an owner the other day. They have about a $50 million equity interest in their company, and they’re generating a $6 million pretax profit. I’m sorry, he’s $3 on his 50%, and I said, "You’re getting a 6% return in this company." He says, "I never looked at it like that." I said, "If you had $50 million in cash, would you buy this company?" It’s funny that you say it. I think owners don’t often think in terms of their equity as a choice and it’s just been a cause that over time this is where they’re invested their time, effort, energy and money.


Michael Platner: You know, there’s two pieces to it, Noah. Also because on the one hand, you look at, "Okay, am I getting a good return on my investment," but a lot of guys have built a business up from scratch so they don’t necessarily track how much equity they really have invested even though that may be a balance sheet item, but when you start to ask the question, "What would I pay for it today," that really brings home the idea of value and whether this business has built inside of it an attractiveness, a magnetism, that would create its premium if you went to go out and sell it that would make it really prepared to be sold when you’re ready and it would maximize the value of any sale, or therefore also yield potential financing opportunities or any number of things, this kind of state of mind.


I see owners that are CEOs everyday or even owners that just perform as chairman and have a CEO working for them, and that’s easier when you start to look for that investment mindset, but really getting down to that brass tacks of what would you pay for this. The next question that pops out of that is, what are the things that would cost you as a buyer to discount the value of the business?


Noah Rosenfarb: Yeah, and there are plenty of them. Perhaps, you’re list of ten is a great place to start. Why don’t you share with our listeners the list of ten impediments that you’ve come up with over time and share some stories of how this came into being?


Michael Platner: Sure. As you know, I’ve practiced law for 30 years, as an M&A lawyer serving middle market owners businesses. I also, 12 or 13 years ago, started my own entrepreneurial efforts and started some businesses, and what I found in representing literally hundreds and hundreds of owners of middle market businesses as well as having some myself - having exited some of those myself - is that there are really some fundamental reasons why deals fail to close or why companies get discounted in a sale. If you work backwards from that endpoint and say, of all the deals you’ve seen - and I’ve seen hundreds and hundreds, billions of dollars worth of transactions in middle market companies, and I’ve watched lots of entrepreneurs become wealthy beyond paper wealth but in real cash - what have been the decision points or the problems that have caused those situations to go wrong? Just take for example, we should start talking about financial statements. Does that make sense?


Noah Rosenfarb: Yeah, let’s start there.


Michael Platner: Financial statements. If I’m a buyer and I’m looking at your business - and I’ve seen countless businesses in this situation where we’ve been running the business to maximize our personal income and minimize our tax liabilities - and we don’t have GAAP audited financial statements and the buyer comes along with the banks that they want to also use for funding and their own internal criteria for investing in companies and they want GAAP financial statements, and they want to see how we talk about our profits and they want reps and warranties in the contract that show that our financial statements have been kept properly so that when they take it over they understand what’s going to be happening, and very often I’ve been in a situation where an owner is ready to sell where the market timing is right to sell and we look at the internal financial statements and there’s nothing there except for tax statements. Maybe something that was punched out of quick books, maybe something that was punched out from some internal financial reporting that was going on, but we don’t have GAAP financial statements.


The number one thing that does is that changes the time for the due diligence period for an owner, it increases the cost of due diligence, and most importantly it absolutely gives the buyer an edge in negotiating for discounts because we know that they’re going find items of deduction on the income statement or balance sheet items that give rise to more questions, more issues, and therefore discounts.


Noah Rosenfarb: Yeah, totally great. I had an instance where a client - their account receivable reserve - was challenged by the auditor and that had a big impact even just in the negotiations and the haircut they had to take. Even though it was a non-cash item, they had a history of what their write-ups had been but that had an impact. It gave the buyer an opportunity to negotiate haircuts.


Michael Platner: Sure. Deferred revenue is another area where we always see haircuts get taken. Working capital adjustments, where we’ve got non-GAAP and GAAP items getting mixed into the financial statements, arguments over purchase price adjustments. All this burns down to another really important part of the conversation and one of the other ten items that cause problems, it’s the inability of the seller to be able to talk in terms of the language of deals, EBITDA and positive cash flow. That’s the other thing that surprises me.


I have a brilliant seller, we’ve got a great business, and he’s got financial statements that we’re going to be able to get an accounting firm to put into some sort of a GAAP format, and I ask him what is EBITDA and he said he has no idea. He hasn’t tracked it, and so now I know a few things come from that situation. Number one, I know that he hasn’t been talking with the people in his company about how to maximize the EBITDA - the Earnings Before Interest Amortization Taxes Depreciation - and I know that therefore nobody’s really paying attention to maximizing EBITDA in the company. They’re assuming that that’s something that’s not part of their job, and that’s just flat out wrong if you’re trying to build value into a company.


Now, we have to go and get recast financial statements. Now, we’re talking about expense and time, because not only do we have to worry about getting financial statements that can be put into GAAP format, characterizations, accrual based statements, and hopefully audited statements, but we’re now also talking about delays for creating recast financial statement from those GAAP statements to try and figure out what is really the cash flow of this business - how much cash for the investment that the investor, that the buyer, is going to make, how much cash will throw out.


Most purchases nowadays are from financial buyers that are, even if they have a strategic bent because they’re creating a platform in a particular industry or they’re adding on your company, even though they may have a strategic attitude about the business, their bank and usually their own boards are still looking at the financial underpinnings of the deal. The ability for the business to show what the cash flow is on a certain amount of equity that they have to put in is critical and that’s what the EBITDA number is. It’s a proxy for cash because it takes out the non-cash items and it takes out the interest items that if they’re putting equity they’re not going to have to pay.


Noah Rosenfarb: Michael, one of the sensitivities I think owners realize when they start looking at EBITDA is in the personal add backs and there are some concern that they might express over, you know, "If I show my accountant that I’m deducting all of these items, are they going to be able to prepare my tax return going forward? Are they required to disclose it?" What advice do you have for owners that are struggling with what to disclose, who to disclose it to if they’ve been deducting expenses from a tax basis that probably are not tax-adoptable?


Michael Platner: Well, I never advise clients and I never myself try and walk that line of making deductions that I don’t have a reasonable basis to call ordinary and necessary business expenses as taken on the tax return. I’ve found over the years that the best, most aggressive tax planning keeps in reserve always a little bit of extra deductions frankly, so that if you ever do get audited, you’ve got some negotiating position to trade off with things.


First off, let’s just say that if you’re deducting things that you think there’s no basis for that’s a level of risk that you’re taking besides potentially breaking the law, and you should have a CPA who gives you good advice about what your tax return looks like and how this thing is coming out. There’s lots of ways to save money but I’ve had a lot of clients over the years who have been led by what I call the tax tail wagging the dog. I always tell them, "Look, paying taxes is a badge of honor. There’s no reason to make all your decisions based on minimizing your income tax." It absolutely makes sense to minimize your income tax as much as legally possible with good planning and good CPA assistance and all that stuff, but I wouldn’t advise getting into a situation where you’ve got a lot of write-offs that you know flat out or not good write-offs.


That said, there are lots of things that owners get paid from businesses that are legitimate, ordinary and necessary business expenses but in the marketplace that business wouldn’t need to pay a person just doing that job, and there are edges around that obviously where you could argue whether that full deduction should have been taken or partial deduction. The point is not to give tax advice right now. The point is to say, "Look, whatever add backs there are going to be, most of the add backs are not going to be because you’ve overstepped your bounds and taken deductions. Most of the add backs are going to be because you’ve paid yourself more than market rate in the form of expenses to the business.


Noah Rosenfarb: Yeah. How about if we move on to another one of the impediments which relate to the process and procedures that owners use to solidify and reduce the risks in their company around their key relationship, their employment agreement, their vendor contracts? What stories do you have to share around that?


Michael Platner: Obviously, you’ve talked about a couple of impediments in there and so let’s talk about, first, poorly documented unassignable key relationships and commitments, what I call relationship assets, things that add lots of risk that cause a buyer to discount a deal, cause hiccups in getting a deal done. So look at supplier agreements. I had one occasion to work with a client who had a vendor that was - the vendor was key raw material - and that vendor was in South America and happened to be his brother. There was no written contract with respect to that material but to make matters even more complicated, the client was also a partner in his brother’s business, a minority partner in South America.


Now, he had a situation where the price that was being paid by the business for that key supplier’s material was anybody’s guess whether that was really the legitimate market price and it was really hard to figure out how you would assure that source of supply going forward unless you start to create a new contract for that and lots more due diligence. Again, had we just had a supply agreement in place with that entity and some research around what their proper market price was for that material, we would avoid a whole due diligence for that hiccup in that process of the buyer analyzing, you know, "Can I trust that sources supply?"


We see things kind of all the time. We had another deal we just did where we helped the guy sell his company and he had a friend who had worked for him in the business and at some point they had a parting of the ways, and he had left that friend continue to work on premises in the same office and warehouse doing a business within the same industry but with a couple of different products. It was one of those relationships that they were able to manage without any difficulty. When a buyer came along and saw that relationship the buyer said, "How can we have this person here who theoretically is in an almost competing, if not really competing business? We have no lease with him, we don’t have an agreement on keeping confidential our trade secrets, our pricing from him." In fact, the client had actually helped his friend build his own website as part of the deal, so there was becoming all sorts of confusion as to who owned what. This worked perfectly well for the client and for his former employee that was now doing business there and actually was a customer of the client, and just reselling under another name, but none of that was documented in a way that it could be explained.


What should have looked like a reseller of the client’s product simply being housed on the same premises with an agreement to be able to resell materials instead looked like a very unclear situation and it took over two weeks and about $20,000 of lawyers for the buyer and lawyers for the lender running around trying to figure out what this relationship is about and how they could protect against it.


Noah Rosenfarb: Two weeks at the end of a deal is not what you want to wait, because it could fall apart for another reason.


Michael Platner: Well, two weeks anywhere in the deal. There’s always Murphy lurking behind every corner and all of us that have been owners of businesses know that our job everyday is to control the things we can control because the universe is generally headed toward chaos no matter what. When there are things that we could have controlled such as having something written down in clear form, getting the right financial statements done - that’s another thing I want to go back and mention about the financial statement issue, Noah. My clients forever have said, "Look, I don’t want to spend the money on an audit. I’m going to get a compilation from my CPA firm."


I think that for anybody who has a business of any sizable format that they’re hoping to turn into cash down the road, the compilation really doesn’t get you very far, so they say, "Well, how about I get a review? My CPA firm said that I should get a review and they’ll do many of the things that they would do in an audit they just won’t charge me extra to give me an opinion that my financials fairly state the condition of the company." That’s not a terrible idea if you’re really pinching pennies and you’ve had a rough year and you want to start the process of being able to have an audit, but ultimately the extra amount of money, especially the earlier the stage of the business the better, it’s less expensive to start getting audits earlier. In my opinion, it pays big dividends when you need to borrow money and when you go to sell your company.


Noah Rosenfarb: Yeah, no doubt. Another one of the impediments that I know you like to talk about is death and disability. Talk to me about that. What were some of the things you’ve seen that have created a missed opportunity?


Michael Platner: This gets back a little bit to thinking like an investor as opposed to an operator of the business. Everybody who owns a business has a built-in exit strategy and that exit strategy is that you’re going to die. We all die. If you don’t have a strategy that at all applies to the business, in the absence of any organized strategy, death is your strategy.


We advise that you have a lot of agreements buttoned up between the people that you want to create succession and value in the business, and deal especially with the proper partnership agreements, shareholder agreements, and especially valuation mechanisms. I see very frequently a couple of partners or a family business and they’ve worked hard to develop shareholder agreements so that they can cover the governance of the business. They’ve even gotten good legal advice as to what the shareholder’s agreements should say about what happens in the event of death, and then they burn down to a provision that says, "In the event of the death of one guy we’re going to have a valuation done by an outside company or maybe even more than one outsider unless we can agree on it by ourselves," and there’s a whole process about how valuations work. I can tell you that more of those agreements end up in litigations than I’ve seen actually govern the way that things will work.


There are two ways to help yourself in those situations. Number one is make sure that you have some sort of keyman life insurance or some mechanism that’s going to create a fund to be able to buy out a shareholder who is deceased. Number two, make sure that the valuation associated with the shareholder’s interest is determined every year or every other year as a regular matter in the company and that everybody’s signed off on the methodology and the performance of that valuation well in advance of the event that occurs, because what we see is that finally when there is an event that occurs that requires a valuation, the partners get into an argument and then the lawyers get involved - and I’m a lawyer so I can even talk about this - and they start taking positions to leverage more money out of the deal or they arrive at a legitimate dispute about what the valuation is, and because they haven’t got a track record of using the same outside valuator and the same technique of creating valuation and signing off on the valuation, they’re really starting from scratch at the worst time they could possibly start.


Noah Rosenfarb: Yeah. You’re talking about litigation and you’re a litigator and I know one of the value propositions you bring to a client is effectively assessing the value of litigation in the context of an ongoing business operation. Tell me how that could have an impact on someone’s intention to exit.


Michael Platner: Obviously, when you’re buying a company you want certainty as much as possible. Litigation is the most expensive form of education and the most obvious indication of risk that you can find in a business. If you have litigation or threatened litigation in your business, it’s going to make it harder to sell, harder to borrow money and it’s going to remove your freedom and ability to get out of the business and create cash wealth when you’re ready.


I’ve developed, Noah, an attitude about litigation, having done this for 30 years as a transactional lawyer who’s done litigation strategies for corporate clients for a long time, and there are two key points that I’ll make on that.


Number one, if you’re in litigation or if you need to consider getting into litigation because sometimes you don’t have a choice - you get sued - you should make sure that you analyze your strategy and choose your tactics with a view toward your income statement and balance sheet. Litigation can get very personal. It can involve egos. It can involve uncertainty as to budgets. It can involve uncertainty as to who’s right and who’s wrong. If you let your balance sheet and income statement drive some of your decision-making, you’ll get out of litigation quicker and you’ll be able to explain better when it exists to a buyer. If a buyer comes and you’ve got a piece of litigation and you say, "Hey, we don’t know what the outcome will be, we’re being sued for two million dollars but we think it’s only going to be a $500,000 impact and we’ve already accounted it for with reserves on our financial statement," that’s a heck of a lot different than, "Yeah, we were sued by these guys, they’re all wrong, they’re claiming $10 million. We don’t think we owe them anything. Litigation’s been going on for three years, we don’t know what the cost is going to be to continue it," blah, blah, blah. The difference between managing litigation and not managing it is understanding its impact on your income statement and your balance sheet.


The second piece of advice I’ll give you with respect to managing litigation though is very counter-intuitive and we see a lot of guys go out to get really aggressive litigators and lawyers that seem tough. I think the older we get the more we learn that tough is in actions, not words, and a lot of times tough is being able to get to the truth in the right way, unemotionally and objectively, so we feel like a really good strategy for managing most litigation - not all litigation but most litigation - is to remember that it’s an educational process and paying the courts to manage that process of educating the other side as to what the proper settlement result in a litigation would be is very expensive. Paying your lawyer to develop a great rapport and level of respect with the opposing counsel, if that’s possible, is a great way to shortcut the process and find yourself mediating early and getting a settlement.


One funny thing about litigation, you’ll hear lawyers tell you all the time that most cases settle, and then you’ll also hear lawyers tell you all the time, "Well, we don’t want to go into settlement conference yet until we finish setting this up," which really means that you’re spending a lot of money to get to the same end that you’re going to end up at, anyway, and it’s just beating each other over the head to create that educational process.


Noah Rosenfarb: I had once had a client tell me they wanted a lawyer who hated their, you know, the defendant’s lawyer, and I said, "No. You want someone that they’re going to go out to lunch after a settlement conference and try and brainstorm ways to resolve this."


Michael Platner: I can tell you that the happiest clients that I’ve had at the end of a litigation matter have been in the matters where I had a previous good relationship with opposing counsel, because we already trusted each other and we knew that we were on opposite sides but we also knew that we had to see each other the next day too and we weren’t going to BS each other too much. We were going to kind of tell it like it is and personally get to a collective evaluation of the strengths and weaknesses of each other’s cases so that we could actually help the clients get to a commercially reasonable settlement.


Noah Rosenfarb: Yeah, I totally agree. How about working with attorneys and others that might be involved in intellectual property? I know that’s another one of the things you think owners fail to think about.


Michael Platner: It always surprises me that when I see a company that has a great brand name or a great trademark or some process or a computer software, even something as simple as a website, and they haven’t filed copyrights, they haven’t filed trademarks, and they’re not keeping their trade secrets properly segregated or they’re not doing agreements with all their employees that give them the absolute obligation to assign all of their interests in anything they create intellectual property or otherwise. These are really simple steps that you can take when you’re hiring people and when you’re working with and creating things that can be protected by trademark, copyright or even patent law. They’re some really simple things that you can do to create value. If you don’t do those things, you can lose to a competitor where you really shouldn’t have lost to a competitor and something as simple as having a website where you’re working to optimize the business on the website everyday, it’s displayed and other people are going to be able to copy your ideas off that website. You can’t protect those easily, although in very limited circumstances you can get patents for some of these things, but the expression of what’s on a website, you can copyright some of that. It’s remarkable to me how few people actually file and register their website as a copyright with the US copyright office.


There are some really simple things that you can do, such as getting copyrights and trademarks and having the right agreements with your employees that really are gauges that create intellectual property value. I can tell you, when we allocate purchase price money in asset deals the value of good will associated with a trademark and other intellectual property can sometimes be 50% or 60% of the value of the whole deal. Again, it involves hiring a lawyer, making sure that you’re paying attention to the details, and it involves hiring the right lawyer too, a lawyer that’s had experience representing a company that has been sold before.


One of the things I would ask before I go and hire an intellectual property lawyer for trademarks or copyrights or patents is, "Have you ever sold a company? Have you ever been involved in a sale of a company where the intellectual property rights that you helped that company obtain were part of the sale?" That’s a guy that I want on my team.


Noah Rosenfarb: Great advice. Let’s keep moving and talk to me about some hidden time bombs that you’ve seen and liabilities that were undisclosed.


Michael Platner: The most common hidden time bomb that we see in deals is dead inventory. "The reason I’ve got all this inventory here is because it’s part of the collateral for a loan, and if I write down the inventory value then I’m going to have to pay down the loan. There’s got to be a better way."


What happens is that means that the integrity of your financial statements is not up to par. That means that you probably have more than a problem with the bank and you’re delaying the inevitable and when you go to sell the business you’re going to have a problem buried there. At the very least, it creates a big time delay trying to figure out, "What’s really the value of the inventory. Maybe we need to go in and have a valuation done, maybe we need to readjust that now," and woops, that’s going to create an issue with the bank right away at the time that we least need it.


Unhappy customers, that’s always a problem, people who are just not keeping track of their customers’ satisfaction, companies that every once in a while do surveys and check on their happy customers and have testimonials from customers and have reference customers. One of the best things when we’re selling a company representing the sellers and when I’m representing the buyers, one of the things we look for is, who are the professionals the company has hired and who are the customers and who are the vendors, and will all of those groups of individuals give us a great Gung Ho rating on that particular company. If they do, nothing’s better than a reference when you’re trying to create credibility, when someone else says they think you’re great, especially when that’s the right kind of professionals, customers, and vendors.


For the contrary, when we don’t have that, again there are all sorts of hidden time bombs and liabilities and things that pop out of the wood work that when you go into your business and you say, "Hey, what would I pay for this place and how would I value it," if you know that by the way, there’s some secret deals with a sales guy who doesn’t have a no-compete who could walk out the door any day and go to his brother’s company and take all your business but somehow or another you’ve reached an accommodation with him for the moment but your business is in jeopardy, that’s a situation that you want to fix, get into a better agreement framework, find a way out of that, because that’s going to be a real dampener on selling the company.


Noah Rosenfarb: That happens, I think all too often, as owners don’t take a look at that company the way that you’re suggesting. They’re so comfortable with the risks because they’ve been living with it for 15, 20, 30 years and to them it’s old hat but to the buyer walking in, they don’t know how to evaluate the framework the same way that the owner might.


Tell me about personal guarantees. What do you think owners should be doing around that?


Michael Platner: Give us as few as possible and if you force to give a personal guarantee, create a benchmarking event that causes the guarantee to drop out, because as you know they’re really easy to give and they’re really hard to get off. When you have personal guarantees in the business, you’ve got other issues that change your decision making when it comes to being cuffed on certain types of liabilities and dealing with financing and banks, so think about, "How do I get rid of personal guarantees?


One of the ways you get out of personal guarantees is you make sure you’ve got audited financial statements, diversify your shareholder base, make sure you have good agreements with respect to share ownership. There are a lot of ways that psychologically you can avoid giving personal guarantees to banks if you have some of the financial statements in the business to back it up.


Noah Rosenfarb: We’re going to talk about number nine, not having your key metrics and no way to manage them. What do you advise owners to do in order to track their performance?


Michael Platner: When we talk about buying a business, we talk about buying an operating business, and most operating businesses need management to operate the business. If we’re doing due diligence as a buyer and we’re looking at a company and we’re saying, "Wow, these guys don’t have a performance dashboard. They’re not using key performance indicators. They’re not using a budget. They’re not able to predict the future," then the premium that buyers normally would pay for a company that is growing and can predict its future and meet its budgets, there just won’t be any premium there. If anything, there may be a discount because the buyer will start to say, "Well, we’re going to have to bring in all sorts of new talent to take this business to the next level." It’s not a trivial matter. Let’s face it, Noah. Getting to that five to seven million dollar level is a lot of work and then getting through that ten million dollar revenue number requires you to put in certain additional talent and systems to create scale, and then getting through that 25 to 35-million dollar level again creates a whole another level of scaling. You have to look at business in terms of its growth track, in terms of what are the building blocks that it’s putting in that protect its value as opposed to the building blocks that cost money off the income statement.


I’m not advocating rampant spending on these types of things but I’m suggesting that management and owners who have management in their business that runs the business on analytics and metrics with a few key performance indicators in each area and splitting up the areas of the company’s agenda into critical success factors tend to give premiums and more interest in selling their business and financing their business.


Noah Rosenfarb: I think that goes along with the adage what you measure gets managed.


Michael Platner: That’s right. I think so, and what you expect needs to be inspected.


Noah Rosenfarb: Right. Let’s wrap it up with your last of your ten impediments to maximizing your exit opportunities, which is the no liquidity plan that you’re aware of. Tell me how you work with owners around that.


Michael Platner: That’s really the question of the day, is what state of mind does the owner have and if there’s no one accountable in the business for maximizing its value and considering everyday what would make this business more sellable, I call that a lack of a liquidity plan. Someone in the company should be accountable to manage that liquidity plan. That person should go beyond merely the owner but certainly starts at the owner, at the top of the business, and everybody should understand that the company is being run for the benefit of its owners, its shareholders, whether it’s a family or partners or a single individual, and that that benefit will be measured not just in terms of current income but in terms of the value being created because obviously when we sell a business we’re selling it for a multiple of the current income if the business actually has been run to create enduring value of some sort in the eyes of a buyer.


I can tell you this. I’ve got Rolodex with hundreds of guys who’ve sold their business. I can honestly tell you I can’t think of a single one that regrets having sold their business, obviously if they got money for it. As to my other Rolodex of guys who had the opportunity and then were unable to close their deal or decided not to sell when the opportunity started to present themselves in their marketplace, I have many of those guys who have regrets about that, because ultimately entrepreneurs are interested in the creation of wealth and the building of a base of wealth for their families. The entrepreneurs that are the most successful are the ones who are willing to take profits, sell their businesses, move on to the next one and continue to watch their build of value and experiences. We’re all living a lot longer nowadays. The idea that you’re going to be in one family business for your entire professional life is probably far outdated.


Noah Rosenfarb: Before we wrap up our interview, Michael, can you share a story with the audience about your own personal experience in owning an exiting company? Is there one in particular that you think would have a moral to the story, either good or bad?


Michael Platner: I’ll tell you. I think that one of the best stories that was personally involved in was a company where we had some really great, pure technology and we had some great customers and partners using the technology. In that business, at the time we sold it we weren’t making a profit but we had great technology, great partners, we had financed properly, we had the right agreements with the people at the top, and we sold that business for a multiple of many, many, many times top-line revenue, and everybody make a good chunk of money in that business. I think it was probably because we looked at everyday what was driving the value of the business and in that particular business what was driving the value was the technology and the team that we’d built around it. That was an unusual situation. There’s not a lot of stories like that out there, but that was very, very unique.


I’ll tell you a negative experience I had and that was one in which we had a strategic partner in one of the my businesses who was a large Fortune 100 company that had promised to do a lot for us and had given us millions of dollars upfront for the right to help us sell our product, but because we didn’t hold them hard and fast to benchmarks of achievements in those sales, the money they gave us amounted to really concealing their true motives, which were to look at us as a research and development piece and not really be there to share in our success. We weren’t aligned.


My overall advice that I give to countless owners, Noah, and I think it’s one of the most important things in building a business, is work everyday to create alignment among your board members, even with your family members with different perspectives on the business, alignment and agreement as to the direction of the company, and don’t let lack of alignment fester with strategic partners, with executives. Everybody rowing that boat needs to be rowing in the same direction.


Noah Rosenfarb: Great advice. Michael, for our listeners who want to contact you, what’s the best way for them to get a hold of you?


Michael Platner: Michael.platner@lewisbrisbois.com, and I think if you Google my name Michael Platner you’ll probably find me.


Noah Rosenfarb: That would be great. Thanks for joining us today. To all our listeners, don’t forget, if you’re interested in creating value in your own company we’ve got a free resource at freedomexit.com, where we have 53 different ways that you could evaluate and prioritize how to grow value in you business, and I think certainly ten of them are ones that Michael shared with us today. Feel free to download that and take a look and always, I’d appreciate it if you give us a rating on iTunes and we’ll look forward to having you again. Thanks, Michael.


Michael Platner: Thank you, Noah. Great to be with you.