How to Sell Your Company

Hosted By Matt DeCoursey

Full Scale

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Bill Snow

Today's Guest: Bill Snow

Investment Banker and Author - Bill Snow

Chicago, IL

Ep. #1181 - How to Sell Your Company

Today’s episode of Startup Hustle features Matt DeCoursey and Bill Snow, investment banker and author of “Mergers and Acquisitions for Dummies.” Listen to Matt and Bill discuss how to sell your company and what sellers need to prepare. They also talk about the importance of EBITDA, not overvaluing your business, and the earn-out process. Additionally, Bill explains why you can’t negotiate from both sides of the table.

Covered In This Episode

Most entrepreneurs dream of making a successful exit, but it involves more than offering it up for sale. Bill Snow talks about how to sell your company to your best advantage.

Listen to Bill talk about his backstory, explaining why his book, “Mergers and Acquisitions for Dummies” is so relatable. Matt and Bill also discuss what sellers need to prepare and the impotence of the buyers, revenue, and EBITDA.

Get Started with Full Scale

The conversation turns to tips such as not overvaluing what you have and factors that affect valuation. They advise finding out what the seller wants to accomplish to smoothen the transition period, earn-out process, and acquisition.

Find out all you need to know about how to sell your company. Join the conversation in this Startup Hustle episode now.

Listen to What Other Successful Entrepreneurs Have to Share


  • Bill’s backstory (1:39)
  • The Buyers, Revenue, and EBITDA (4:29)
  • What sellers need to prepare (8:32)
  • Don’t overvalue what you got (13:12)
  • Getting the best deal for your side (16:02)
  • Factors that affect your startup’s valuation (19:53)
  • The transition period and earn-out process (29:39)
  • What the seller wants to accomplish (35:01)
  • You can’t negotiate both sides (38:53)
  • The acquisition (41:10)

Key Quotes

The first thing is to make sure that you’re replaceable. That’s a difficult thing for an entrepreneur; somebody’s running the business. So you think about it, would you want to buy a company where one person is in charge of everything running the sales and design and development and overseeing HR and accounting functions, and if you take that person away, the whole thing falls apart? What would you pay for that company? So owner, make yourself expendable.

– Bill Snow

Nobody has magic words because something is worth what somebody else will pay. What the first party will accept tenure of the times is important. A motivated seller can put downward pressure on price. A motivated buyer, a buyer that really needs to make the acquisition, if it’s a strategic imperative to do the deal, then they’re going to come up probably with a very strong fit as well. The skill of the investment banker is important, but the strength of the underlying asset is the biggest determinant of the value of a company.

– Bill Snow

Much like raising capital, the acquisition process is equally grueling. It doesn’t happen fast. If you get something that would close in 90 days, congratulations, that’s a pretty quick transaction…. But you need to prepare yourself for this. And I think why having other people involved in representing you and working on your behalf is important because, remember, you still have another job to do, which is running your company.

– Matt DeCoursey89i

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Rough Transcript

Following is an auto-generated text transcript of this episode. Apologies for any errors!

Matt DeCoursey  00:00

And we’re back, back for another episode Startup Hustle. Matt DeCoursey here to have another conversation that I’m hoping helps your business grow. Speaking of your business growing, if it grows, grows, grows, you might run into an opportunity where it’s time for you to sell, sell, sell. And for so many founders, that is the promised land. That’s what so many people are aiming for. But that process is full of pitfalls, and things that will trip you up and stress and stuff that’ll make you old fat and bald really, really fast. We’re going to talk about all of that on today’s show, which is powered by Hiring software developers is difficult and Full Scale can help you build a software team quickly and affordably and has the platform to help you manage that team. Go to to learn more. There’s a link in the show notes that will help you get there. And if you’re not aware, that’s my company. And we love talking to Startup Hustle listeners, so reach out. With me today, I’ve got Bill Snow, and Bill is an investment banker and the author of Mergers and Acquisitions for Dummies, which sounds about on par with what we need to hear about today. So, straight out of Chicago, Illinois, Bill, welcome to Startup Hustle.


Bill Snow  01:18

Thank you for having me. I’m pleased to be here.


Matt DeCoursey  01:20

You know, let’s, let’s get our conversation poppin today with, oh, and by the way, if you want to learn more about Bill, go to And there’s a link for that in the shownotes. About, you know, why everyone scrolls down and clicks that link and learns more about you from your website? Why don’t you give us a little background and your backstory?


Bill Snow  01:39

Sure. So I’ve been doing this thing called middle market investment banking for close to 20 years now. We do nothing with investments. We’re not a bank, of course, we call ourselves investment banker. So what does that mean? We sell companies or we help other companies make acquisitions. Before that I had a series of jobs sales and worked for a retailer where I was in the field running stores and helping acquire Mom and Pop chains back in the 90s. Back in the dark ages. And I had been interested in startup world where do ideas come from? What is the genesis of a business? And so I started getting into trying to get into startup companies. So I worked for friends and family-funded, Angel-funded, venture capital-funded companies, worked for a company that was an intermediary between venture capitalists and entrepreneurs. And you end up getting a lot of business experience and knowledge and so forth, banging your head against the wall. A friend of mine, a former colleague from the venture capital days, segwayed, over to a middle market investment banking firm. And they were looking to add somebody I very wisely turned down that job four or five times until the owner found me in a moment of weakness. And I said, okay, fine, I’ll go be an investment banker. It was a little bit of a change for me, but it’s worked out really well. And I’m very pleased with what I’m doing.


Matt DeCoursey  02:59

Well, thank you for that recap there. Now, when we talk about like how to sell a company. This can occur. And I mean, this is this is a very, very broad topic. This is almost like asking me, how do you build software? You know, because you’re you say, Oh, wow, what route do we take? Now, first off, businesses exist on many different levels, and many different sizes, as small as one employee and a sole proprietor level. Those aren’t typically the kinds of companies that I would imagine you and investment bankers deal with ever. But some companies are small and lean when it comes to headcount, but big and bold when it comes to results. So when we talk about like how to sell a company, I think let’s, let’s like there’s gonna be some real obvious answers in here, but who buys companies from other people. And now I think that and I’ll just go ahead and put this out there. Sometimes the person buying the company is one of the partners, maybe buying it out from another partners, either want just wants to sell or wants to do something different or maybe isn’t as passionate about it. That’s typically not what investment bankers get involved in. But it could be at some point, if the company is big enough, there could be some financial partners in there. But who are some other entities that will buy companies from entrepreneurs of all shapes and sizes?


Bill Snow  04:29

Sure, sure. So middle market or lower middle markets we defined let me just give you a couple of terms when we’re talking about the type of buyer. So when we talk about size of company, and this is for your founders, people building a business they should think along this way, sometimes people I was talking about headcount, which is important. We look at revenue, we look at earnings, specifically EBITDA. Hopefully people know what EBITDA is, you can look it up or I can explain. We like to work with companies I used to say at least 10 million in revenue now with things change. During the market, smaller deals are a little more difficult. I prefer to see at least roughly 20 million in revenue, we used to want at least a million in EBITDA, those deals are increasingly difficult. I want to see at least $2 million in EBITDA. So these are sizable companies, companies that have some meat on the bone to use a silly euphemism. The buyers range from other companies, those are called strategic companies, private equity, lots of private equity firms out there looking to make acquisitions, sometimes they’re looking for a platform. So a company that will be the base that they build off of, they’ll invest, they’ll make other acquisitions to grow that and sell it to someone else. They’ll look for add-ons as well. So they already have a platform. If you’re selling a company, they’ll say, Yeah, this would be a great add-on it opens up new products, or open up new geographies for us, or opens up new sales, corporate companies or executive level that we’re not dealing with right now. So that could be a slew of reasons why a company will want to make an acquisition. So really, it depends, first and foremost, on the owner of that business, what are they looking to accomplish?


Matt DeCoursey  06:08

You use the term I like to I like to stop and define things. Even if it feels redundant to people that are more experienced but EBITDA, earnings before interest, taxes, depreciation and amortization. I believe that’s the ad is absolutely correct. And what that is, folks is you’ll you will definitely run into this, this, if you don’t know what your EBITDA is figure it out, because there are certain things that acquiring parties are going to look at that are going to give a truer ballast of the company’s health, its growth potential, its profitability, maybe a lot of its flaws, too. Like you could have a company that has a high revenue and microscopic, if not even non existent, EBITDA. Correct. Revenue doesn’t mean shit at that point, if you’re not making money. Now, it’s for so many of us in the startup world that had been around for the last 15 years, especially, you see valuations sometimes exploding, and they feel hard to describe, like, why they make any sense to companies that are worth a billion dollars that haven’t made any money, but have some kind of leverageable ability to fix that in a big way down the road. So yeah, EBITDA is a big thing, just to even know your numbers. And, you know, that’s, that’s often going to be multiplied times something. Now, with tech businesses, you’ll often catch a revenue, a multiple of the revenue. They’re a little different. But yeah, headcount is not a great is not a great health measure of anything other than the size of your company, as far as like the people that work at it. So yeah, you mentioned a few things. So now Now, obviously, we’re looking at how to sell your company understanding your EBIT DA would be a good thing. I think you got to understand your business as a whole. If you want to sell your company, you have to be prepared to have the adequate things that and that someone wants that want if you okay, if you wanted to go buy a home, you got to get a home inspection, you got to get a loan approval, you got to get like a whole lot of stuff. Because there are safeguards out there that want to prevent you from doing dumb stuff. Businesses have the same things you’re talking about years of profit and, and loss statements, just general budgets, like where you’re going, who you’re doing business with, what are a couple other things that someone wants to sell a company needs to make sure that they have before they enter the arena?


Bill Snow  08:32

Yeah, great question. Make sure that the first thing is make sure that you’re replaceable. That’s a difficult thing for an entrepreneur, somebody’s running the business. So you think about it, would you want to buy a company where one person is in charge of everything running the sales and design and development and overseeing HR and accounting functions, and if you take that person away, the whole thing falls apart? What would you pay for that company? So owner, make yourself expendable. That’s the first thing and then beyond that size growth. As you’ve said, it’s just not the EBITDA, it’s the EBITDA as a margin as a percent of the total revenue. The higher the better, at least 10% is good when they get below 10% EBITDA margins, not impossible, but that becomes a little more difficult and valuations will come down. If a company is big enough, I always recommend make sure you have a third party accountant to prepare the statements reviews or audits are ideal, especially if you have inventory. I know you your startup techy people are probably scratching their head wondering what is inventory, inventory raw materials, WIP, that’s called work in process. That is the raw materials that get turned into a product that in a manufacturing firm or distribution company will have a lot of inventories are looking to sell it. So you want to have an audit or review. Why is that important? Because the accountants will come in they will count the inventory at the beginning of the year and the end of the year, you’ll be able to calculate exactly what your cost of goods sold is going to be. That’s important because that ties right in to the profitability of the business, so you want to have at least two years of auditor reviews. This way, you get an unqualified opinion, if it’s a qualified opinion, the reviewers or the auditors just looked at the inventory at the end of the year, they’re taking the business owners word of mouth. Take taking the word for it, that the inventory level that they said at January 1 was actually true. A quality of earnings report is another thing that we’re seeing that will help quantify add backs because it’s just not EBITDA these days. It’s adjustments to EBITDA that quite often when that’s that’s expenses that go away supposedly, will go away with the new owner, having a quality of earnings report, that’s another report prepared by accountants will help quantify those add backs to EBITDA.


Matt DeCoursey  10:42

Yeah, and there are there are definitely adjustments to EBITDA, there one time costs, little things that, you know, like you mentioned, like, I want to talk about the the key man or woman, key person that a business now look, as an entrepreneur, I think one of your goals should be to build something bigger than you, like start with that on a generalist basis. And I’ve gone through this because you know, my company Full Scale, we have 100 employees after a year. And you know, five years later up to 325. And just going and going and going. And we have been very specific as we’ve, you kind of have to do this segment by segment trying to install someone to do this enhance stuff like all at the same time. It’s kind of like the idea that nine women don’t make a baby in a month, you got to kind of gradually get through this. It’s very easy as an entrepreneur or a founder to unintentionally make yourself the conduit for too many things. Absolutely. Try to get yourself out of the way. I gotta tell you well, I mean, I’ve spent, realistic, I’ve spent years doing that at Full Scale shows quickly, you know, here you are, if you’re if you’re a multifunctional person, and like, I don’t know, man, I’m an A-plus generalist, like I had to kind of start there. But you got to remove yourself from a lot of these processes as you get bigger because one, all you can do is all you can do, but then also that key man thing, I often refer to this as the bus rule, as well, meaning if that person got hit by a bus, how screwed are you tomorrow? Sure. And that’s a real thing. And that can exist in different departments too. Like, if you have one person that just has way too much like, you gotta have, you gotta show and demonstrate that you ment, you mentioned that replaceability If needed, meaning your company shouldn’t crumble and fall with one person leaving. It can be a pretty bad thing.


Bill Snow  12:35

So yeah, it. No, you’re completely right. Yeah, sorry to interrupt. Yeah, you’re completely right.


Matt DeCoursey  12:41

Please expand. Yeah.


Bill Snow  12:42

And the check that I mentioned before, is, instead of just thinking about the company that you’re selling, or what you think you can get for it, flip it around and think about the situation, would you want to buy that same company, somebody who is integral for almost every aspect of the business, and what would you pay? Probably not a lot. So you have to, if you really want to maximize what you get in terms of a sale, think about what the other party is going to get. And would you take that deal that you want to get?


Matt DeCoursey  13:12

Yeah, and then you know, one of the things too, and let’s let’s just like have some real talk about this for a minute, Bill,  because, you know, and I don’t want to offend my peers and friends when I say this, but as startup founders we often overvalue what we got.


Bill Snow  13:26

No, really I’ve never seen that.


Matt DeCoursey  13:28

Yeah, man, it happens. Yeah. So I remember when I was a kid, and I you know, this is back in the early 80s. And I used to collect baseball cards, and I’d go show my dad like the Mark McGwire rookie card me Dad, this is worth 10 bucks. And he’d say, Do you have some a little give me $10? No, but the baseball card store said they give you they give me five. And he’d say, well, then I think is only worth five bucks. And then that’s really what it comes down to. So when it comes to selling your company, and I’ve had a lot of discussions with friends and peers like this, I always say one thing I say, you know, it’s really hard to have an auction when you only have one bidder. Correct. And I think that as you’re preparing for, to go out and look at this stuff, so my business partner Full Scale, Matt Watson, who’s gone through a couple of acquisitions, and he’s talked about this a lot on the show. So his first company then solutions, which in 2012, sold for 150 million bucks. They did pretty well there. They went out just looking for financing. They just want they were thinking about raising a funding round and ended up at an ended up because they talked to several people or several interested entities. A bit of a betting war started. And, you know, they had this kind of joke at one point where they’d wake up and they just say every day, like because every day the price went up a little bit. Yeah, you know, and that I think that that sounds a lot for someone at the company that says you’ve done a good job because multiple people are interested. But, you know, if you really want to get the best price on something, you need to ask more than one buyer. Unless you are absolutely positive that you’re at a number that you think is it and someone nails that I would still go out and try to find another offers.


Bill Snow  15:21

Absolutely, yeah.


Matt DeCoursey  15:23

Now, you could be talking about 10s of millions of dollars that come in on that first offer. Yeah, possibly. And that’s like a very weird reality. I’ve had offers from my company that were eight digits, and, you know, like, you’re gonna get that it’s a it’s a weird, surreal feeling. But we turned them down. Why? Way too low. Yep. Yeah. So remember that the people that are out there that might buy your company, they’re in the business of getting the best deal for themselves, too. So just, you know, trying to make an informed decision in that regard?


Bill Snow  16:02

i Yeah, absolutely. Right. I always tell people, If I get hired to sell a company, I am representing you, I don’t represent the other side. I mean, we want to be fair, we want to be honest, I mean, we’re not looking to deceive, of course. But our job is to get the best deal for our side, we our job is not to negotiate for them. Again, you want to be fair, reasonable, you don’t want to hide anything you want to be deceptive or anything like that. But their job is to put together the best deal for them. And you’re right. When you have one buyer, there’s kind of an overused term, when you have one buyer, you have no buyers. Because you don’t have a data point, maybe you don’t maybe it is a really good offer. Maybe you got a good sense of what the business is worth. And more than that, maybe you’re thinking, Okay, what do I need? What am I looking to accomplish, and this offer allows me to look at maybe I’m looking to retire, I need a certain number, I sell the company, I am able to fill in that that bucket with my financial planning, and maybe that’s enough to get the deal done. I like getting multiple offers that gives you more data points as well. The the competition or the semblance of competition is a great influencer or and valuation. Of course, I think people make a mistake when they think about the things that we do investment bankers, again, we do nothing with investments. We’re not a bank, we’re advisors, we sell companies that we somehow I call it magic words, right? So I’m going to buy something from you and I’ll have bid $10. And you don’t like it, but you’ve got magic words, and you whisper those magic words, and I come back and offer 15, that’s not going to happen. Nobody has magic words, cut something is worth what somebody else will pay. And of course, what the first party will accept tenor of the times is important, motivated seller can put the put downward pressure on price, a motivated buyer, a buyer that really needs to make the acquisition, if it’s a strategic imperative to do the deal, guess what, they’re going to come up probably with a very strong fit as well. The skill the investment banker is important, but the strength of the underlying asset is the biggest determinant of the value of a company.


Matt DeCoursey  18:04

So I want to get into some of the things that help and hurt that before we do. I want to remind everyone that finding expert software developers does not have to be difficult, especially when you go to where you can build a software team quickly and affordably. You can use full scales platform to define your technical needs and see what available developers testers and leaders are ready to join your team. Go to to learn more. There’s a link for that in the show notes. While you’re down there, click the link to go to That’s who I’m having this conversation with today, in case you didn’t remember that. And Bill’s got a lot of information and experience. And he’s also the author of Mergers and Acquisitions for Dummies, which might be something all of us should read at some point. Because I gotta tell you, I mean, you know, Bill, I’m a pretty seasoned dude, at this point. I’m almost 50 years old. And so a couple years away from that, so not quite 50. But getting there I’ve done I’ve done a lot of done a lot of stuff. And I’ve been involved in a lot of conversations, a lot of things and a lot of stuff. I have not sold a company in a big exit. Been down the rabbit hole and I gotta tell you like it’s a different world like it is it is not it is not the same as being a founder starting a company, being an entrepreneur, it’s a different, it’s a different everything. There’s different language, there’s different terms. There’s different setups, there’s all these things that can flex it up and flex it down, you got to be careful because there’s some things you could get yourself into. If you don’t really realize what you’re doing that could be pretty expensive, and including the valuation of your company. So what are some of the things and we all we’ve always heard this stuff as founders, oh, this is going to increase your value this might not like what are the what are the real things that in 2023 are affecting valuations up or down?


Bill Snow  19:52

Yeah. The first thing well in the middle market company, so companies with this thing called inventory that have assets that. Again, you might not be familiar with it, I can explain offline. That’s that’s a different world than the tech world is, as you well know, the venture capitalists are looking for things that that scale very quickly, you’re the next Google or Apple or Microsoft or things like that. So the things that can impact valuation in terms of middle market company, let’s talk about that. Growth, both in terms of the top line both in terms of that fabulous acronym EBITDA, you want to look at the percentage of that, you want to make sure that you don’t have any concentrations, what does that mean that you’re doing, you know, 50% of your business with one customer, that one customer fires you, there goes 50% of your business, that’s a risk for anybody. You want to make sure that you’re replaceable, that you’ve got a team, a management team, who’s going to run the business after the new owner comes in place. So you want to make sure you’ve got all those systems in place and the people in place. Communication is a big thing. So if you’re planning to retire, and the new owner is going to either need to be the new president or hire president, you want to communicate that as well. So those are some of the things that will impact evaluation. One of the mistake that a lot of people make is they always look at the market. Everybody wants to be the smartest guy or gal in the room and time the market, right? I want to buy at the absolute lowest and sell the absolute highest, of course, who wouldn’t want to do that. But in M&A, especially in the middle market, the world that I play in. M&A is micro economic. Okay, the macro, yeah, that can have an impact. Sure, absolutely. But the check, there is a great company growing strong, profits, diversified customer base, really good management team that’s going to stay, just a great company, but the economy is on the rocks, that great company is still going to trade and probably get a really good price. The inverse is a booming economy, everybody’s making money, everything is going great. But the company is struggling, the revenue is dropping, profits are dropping, maybe it’s losing money. Bad Company, good economy is going to struggle to find a buyer or certainly get bids that might be of interest to the seller, micro economics. So focus on the company, control what you can control. And then as well,


Matt DeCoursey  22:07

let’s flip that to one more, Bill. Because I don’t think you we hit bad economy, good company. Yeah. Yeah. Did I miss that? Well, I just mentioned that because that’s almost what’s going on. Now, in some regards. There’s a lot of struggles and a lot of sectors. VC is slowed down. But without in my opinion, that means there’s almost a Darwinistic nature to that in some regards. And if you can, if you can, if your company and your sales and your revenue and your growth, show a level of survivability, and I think we’re in a good little like, you know, three to five year pocketed out, because how did you do during COVID? Like some businesses just folded? And, you know, and and you realize a lot of weaknesses that exists, or all these businesses that had a week of cash on hand or access to it, and now boom, gone. Like, that’s not that’s not a stable foundation. I’ll give you an example. Like when COVID had our revenue dropped by 30% in 60 days, and then we rose up even higher, like, over the next 90 days. Because, you know, there are certain, okay, it’s funny, I couldn’t tell that up until the pandemic, people always used haircuts as a recession proof example, like because people would get haircuts and good economies or bad economies, but when then suddenly couldn’t go to the haircut place. So that kind of changed it. But no, I think if you show a level of survivability and resilience and all of that, there’s a lot to be said about that in this current stage. Because if you shrug off something like a global pandemic, and find a way to grow, or, like in our case, it’s so we you know, we deal with helping people find offshore development talent, and they are our employees in the Philippines, like the whole, the workplace dynamic changed. And where there was a bit of a hybrid or offshore element to things the the work from home thing, really, especially in tech, even though it’s kind of reversing for a lot of companies. It’s still like it traded a favorable dynamic for some companies. So, you know, looking at, you know, while timing, the market is impossible. There are there are market factors in the timeline that I think really could like, say a lot for you.


Bill Snow  24:27

Sure, well, well, let’s let’s let’s talk about about what happened in the pandemic. And for those couple months there. Yeah, a lot of businesses dip. There’s a lot of uncertainty. We were forced, everybody was forced to shut down, which I think is a bad mistake. That’s a whole other issue. But I have a buyside client have had him for years. Great company. And I’ve seen this elsewhere, where companies are making allowances now we’re a few years past so you don’t have to look at that as much but I remember the president of my client, telling me because we will looking at making an acquisition a few years ago, and he said, you know, if they had a slow couple of months in the spring of 20, we can work with that. We can adjust that because everybody had to deal with that. So about the same time I got a coffee mug from a private equity firm and it had the new acronym EBITDAC. It added a C so earnings before interest, tax depreciation, amortization and Coronavirus. And so yeah, I mean, they are willing to as long as the business came back, so in your situation, yeah, you had a couple months where you had a very steep drop, but things look like they came back. And so people, let’s say you were looking to do a process, you know, a couple years ago, people would smooth that out and say, okay, it was a systemic shock to the system. Everybody had a deal with it. And looks like things have come back maybe even stronger as a result. You know, but the bad economy you touched on that. There’s there’s plenty companies, well, M&A is another mistake that people make. Everybody always asked me how’s your deal flow, and that that’s a term that drives me nuts, because it sounds like you have a wound, you know, I got a deal on my leg. And it’s flow and can give me somebody give me some guys to cover this thing up. Deal flow that doesn’t mean anything. You’ve got buyers and you’ve got sellers in the middle market, private equity firms strategic, the demand from the buyers is always very high. Okay, maybe some drop out, maybe they’re struggling. They don’t want to buy companies. But the demand, most companies almost all are acquisitive, they want to make acquisitions. The challenge is on the other side, the supply, the sellers, bringing good companies to market. Certainly the pandemic chased out and flushed out some bad companies while bad company is going to struggle to make a sale in a good economy or bad. The challenge is always bringing enough sellers to market and so your your listeners who might be more in the startup world dealing with venture capital. Venture capital is fending off all the people tossing books over the transom, give me money, give me money, give me money. An opposite thing happens in the middle market. In the private equity world, there are the private equity firms are calling every day sending emails, let’s talk. Let’s get together what he got what you got, what do you got. So in that regard, the buyers have become sellers in the middle market, they are selling a commodity, money, money is the same maybe the terms of the mouth change, of course, but it’s money. And the very limited resource, it’s difficult to find both as an investment banker and as an acquirer is a good company, a well run company and an owner with reasonable expectations. If you have a good company and you have reasonable expectations, you have a really good chance of getting a really good deal if you want to sell your company.


Matt DeCoursey  27:37

Let’s talk about those expectations. And I think that that’s something that a lot of founder listeners, or equity bearing listeners will find interesting. Because most of the time when your company, well, let’s just say something about my company to today, the chances that I’m going to still work there tomorrow are almost 100%. I mean, it’s like it’s it’s, there’s you with and this is I think this can affect your valuation a lot. Because if I’m like yeah, I want to sell but I’m not coming to work the day after that deal closes. Yeah, that’s gonna detract from your value that’s gonna that creates stability issues, there’s that just that that general handover nature you mentioned, like would you want okay, so if you told me you wanted to buy my Rolex from me, and I just delivered you a box full of parts? That wouldn’t be a very good transaction. Yeah, you know, and, and you got to figure out how to put it together, how to deal with it, and there’s a lot of little nuances. First off, I think that’s irresponsible for any business owner to do anyway, that tells me you don’t care about the people that you have there at the company. Because they’re dealing with new leadership. There’s a lot of there’s a lot of stress and anxiety that goes on when it comes to employees and the transitional nature like do I still have a job? Am I redundant? Who’s my boss? Do things change? Where’s my paycheck come from? You know, like all of it. Yeah. And that’s part of what you and I call that often just referred to as an earn out and the earn out though, can be a really lucrative thing if done well. And it can be a financially disastrous thing if set up poorly. What what what can you what what advice can you offer about the earnout process or that transition period? What are those deals usually look like? What can what can make them great and what can make them suck?


Bill Snow  29:39

Yeah, yeah. No, it’s a great question. That’s another thing that people sometimes misunderstand. They think they’re selling the business. I liken it to selling the old sofa in your basement, right? You put an ad online or wherever and 100 bucks your best offer and a guy shows up with a pickup truck and gives you 50 bucks you say okay, good enough. I want this out. You get the money the sofa is gone that’s an easy transact. should accompany is a lot more difficult, a lot more risk a lot more moving parts, as you’ve said. So if the owner is integral or viewed as integral and you need to have some sort of transition, the buyers probably going to want to do something. Okay, I want to have you for a year, I’ll put you on a contract, I’ll pay you this, maybe have a consulting contract. So for another six months, a year, whatever. So I can call you up if there’s some questions, they might ask the owner to roll some equity. So in other words, the buyer is probably going to set up a new entity and fold all the assets if it’s an asset deal into the new entity. And that opens up some opportunities, okay, well, we’ll buy 80% of the company, we want you to hold on to some stock, and we’re going to sell it in four or five years. So that gives an incentive to the business owner, the seller, to make sure that the transition is orderly, it’d be helpful, you might see an earn-out, as you’ve said. The earnout, the traditional earnout was, I’m going to buy your company and you tell me, I’m going to have 5 million in earnings, and I say I’m seeing forward late July, let’s get the deal done based on a four as the valuation and you prove it out through the end of the year, and then we’ll true up what I’m paying you, you’ll earn this out. So if you hit that 5 million, okay, well play whatever formula, I’ve already paid you some of it, here’s a little bit more to make the valuation as if it was 5 million. If you only come up with 4 million, I’m not going to pay you more if you come up with 4.2, I pay a little bit more. That’s traditionally what an earnout was. Earnout has become, sadly, something that is viewed as another component of a sale, right? The proceeds of a sale, you’ve got cash or clothes, maybe a seller note, and now you have this earnout component, sometimes they go for multiple years. Sometimes it’s a necessary evil, you have to deal with it. I want to minimize that as much as possible. As much as possible, have it based on something easy to measure top line revenue. The challenge is if it’s some sort of measure of earnings, and quite often, that’s what it is. There’s going to be a debate and discussion on well, what’s going to happen with the earnings. Okay, I’m going to agree to an earnout based on future earnings. Well, how do I know you’re not going going to start applying overhead to the business or start hiring? Yeah, you know, so there, you have to have those discussions and make sure that that it’s comfortable. So it’s reasonable, especially for if a transition is is needed, that the that the buyer has some sort of protection that the seller is just not going to skip. And if they do skip, and they don’t show up, they don’t help. Well, the seller is hurting themselves because a lot of money might be still tied up in the in the company.


Matt DeCoursey  32:34

Yeah, and you got to be careful in those regards. Because you know, this, this key word we use are the EBITDA, if someone buys your company, and they are immediately going to hit the gas on growth, EBITDA is always going to dip. Because you’re talking about usually like, you could say, Hey, we’re going to triple the size of our sales team. That means you’re going to take on salaries, you’re going to have to train people, they got to get up to speed and a lot of that and the end, the the trailing. The trailing effects of that, if done poorly is you just have a lot more expense and you lowered your profitability significantly. Those also might not be decisions that you get to make anymore as the former owner CEO, you know, you don’t you just just my caveat to everyone is be careful what you agreed to on the earnout. Because if you don’t have a control, any control and in the calculation of that stuff in the end, meaning like the new acquirer could, I don’t know, maybe maybe they don’t do a good job. Yeah, so just Just be careful with that. And then, and then like you mentioned that let’s why don’t you own a little bit of the shares? Well, be careful with that too. Because if the if the goal at signing is to just take what you’ve got. Mush it together with some other things, and sell it in three or four years for expanded price. If that for some reason doesn’t happen, and you get into a very lengthy window of that you may very much have a very illiquid thing. True and if you’re counting on that for some reason, and that that changes or the I don’t know, maybe it flops. I used to work for a company that that before I had started my own that was owned by a private equity company that put six different small chains of stores together into one. Hub and spoke kind of model and they had something happened and got a massive lawsuit judgment against them and they just shut the company down. Yeah, yeah, afterward, they’re just like, you know what, it’s cheaper for us to just shut this down. This is over now if you were a shareholder in that situation waiting for that next liquidity event. You got nothing. And the same thing goes with some of those metrics and, and, and other things. Just, just think it out. And you know, try to be on the same page with people and seeing what’s going on.


Bill Snow  35:01

Yeah, no, that’s that’s a great point. And I agree. And again, it goes back to what the seller wants to accomplish. So if you want to create if you want to retire or semi retire, create some liquidity, but you have a longer runway and you’re okay with holding some paper, if you get a note, if part of the procedure is going to be okay, well, we’ll pay I’m just throwing numbers out, it will pay $10 million. And we want you to take a $2 million note, we’ll call it $12 million deal, and we’ll pay you 7% on that 2 million. You got to put that money somewhere, maybe that’s not a bad deal, at least for a few years, to keep some of that money in a company that you know, you’re gonna get a good return on the capital and then get that $2 million. You’ll have a note, you’ll be on the balance sheet, probably sub to the bank. But maybe that maybe that makes a lot of sense. If somebody is looking to retire, especially if they’re, they’re older in their 70s or 80s, even. Because the buyers always ask, hey, does the seller want to roll equity because we always want to explain at the onset when we’re talking to the buyers, and we’ll put a book together with all the information. And we want to be very clear with what the seller is looking to accomplish. Hey, appreciate you asking if he wants to roll some equity. He’s 80 years old, this is a state planning, you know, we need all cash. He’s happy to stick around and help with the transition. But we need to create cash as soon as possible, you need to communicate that you can consider anything, maybe someone decides, you know, I’ll keep a little bit in some sort of an earnout or a note but you want to be able to communicate that and craft and put together a deal it makes the most sense for the client. Of course, it has to make sense for the buyer as well.


Matt DeCoursey  36:37

You know, in regards to payment terms, too, I think we’d be remiss if we didn’t talk about some some some tricky things that can be put on there. I’ve seen, I’ve had friends and associates, hey, look at this deal. And tell me what you think. And I’ve read some stuff that, you know, hey, we’re going to buy $10 million worth of equity, but we also get the first $10 million worth of profit, you get a preferred return. And we’re going to get a 7 or 8% return on that money until you pay it back. Where’s the thing $10 million, and 8% that’s a that’s a lot of money every year that you’re going to pay before you even looking at principal reduction. And there are just things that go in there. Now sometimes, you’re probably almost certainly going to look at what’s called a liquidation preference, which means in a future liquidity event that whoever the investor is will probably get made whole first before paying out other people. There’s just a lot of interesting things in there. And I think that’s why it’s important that you get the right legal team, the right accounting team and like someone like Bill that knows the landscape because your lawyers are going to look at legal terminology, your accountant is going to look at the tax implications. And then having someone that understands the structure of a lot of this stuff because, I mean, not all attorneys are startup exit savvy. Their, they don’t necessarily know a good deal or a bad deal. And I want to include that in a few closing remarks. As a quick reminder, today’s episode Startup Hustle is brought to you by If you need to hire software engineers, testers or leaders, Full Scale can help we have the people the platform and the processes to help you manage a team of experts. Go to answer a couple questions and we’ll match you up with fully vetted, highly experienced team of software engineers, testers and leaders. At Full Scale, we specialize in building long term teams that work only for you. You know, mentioning that that’s kind of what you do, right? Like you work only for the company that is seeking investment or acquisition?


Matt DeCoursey  38:48



Matt DeCoursey  38:49

On the way out, Bill, why is that so important?


Bill Snow  38:53

That’s a great question. And a lot of times you see people say, Well, I’m going to broker a deal, I’ll put myself in the middle, I just want a good deal for the buyer and seller. I don’t think you can, I think you’ve got a moral ethical obligation to represent only one side or the other. Because ultimately, that is what’s going to happen, you’re going to favor one side or the other. And so I can only represent one side. So I’ll represent the seller, and someone else’s, the buyer will represent him or herself or they’ll have an advisor, do the negotiating. And that’s fine because we’re going to put together a deal that’s going to make sense. I’m going to do everything I can to get the best deal for my client. It’s up to the other side to come up with agreed to the right deal for the buyers. And same thing when I’m buying a company, I can’t represent the seller. I have to put together the best deal negotiate the best deal for my client, the buyer, again, you want to be fair, you want to be honest, and open and ethical when you’re dealing with people. You don’t want to deceive anybody, of course, but ultimately, the deal the structure is up to the person who is negotiating that you can’t negotiate both sides. It just just won’t work.


Matt DeCoursey  39:57

Well. Abraham Lincoln, who was an attorney is famously quoted for saying, He who represents himself has a fool for a client. Just meaning, like, there’s, there’s a level of perspective and expertise that even if you’ve done it before is still going to, it’s going to blind you, you know, like you, you’re too close to something to see it from multiple perspectives. And you know, another thing too is is, you know, as we kind of close this out, much like raising capital, the acquisition process is equally grueling, it doesn’t happen fast. If you get something that would close in 90 days, congratulations, you did a fast, like, that’s a pretty quick transaction. And if it comes to bigger money, you know, like, individual to individual deal could happen, this now. Like that can be as simple as writing some stuff down and passing out a check. But you need to prepare yourself for this. And I think why having other people involved in representing you working on your behalf is important because remember, you still have another job to do, which is running your company.


Bill Snow  41:08

Absolutely. So,as the, the acquisition piece. This is something that a lot of people don’t think about. I divided into three very discrete sections of work, search, negotiate finance. Let’s take them in reverse finance is actually the easiest plenty money, if you’ve got a good company, you’re going to have money in your balance sheet, you’ll have access to a bank that will lend money at least they used to lend money, you can tap a private equity firm, they will return your call all day long, they got nothing else to do but go to ACG events and eat shrimp cocktail and hope that somebody like me calls them and it’s a tough job. So that’s the finance you can get money. Negotiating, that’s the fun part. That’s the best part of the job, the search part. That is something people overlook that gets short shrift all the time, the PE firms hate it, they hire all these fancy MBA kids and they think great, I’m gonna be a buyer for PE firm, and they realize it’s a miserable existence because they have to call from legends like me and say, what are you good, keep us in mind. And I know it’s four o’clock in the afternoon because that’s on Friday because that’s when they start calling because they have call reluctance because it’s a miserable job. That search component, finding a company a good company for sale that meets your criteria as a buyer, one of the most difficult things that you will do in business and the mistake that we think is the mistake we make is we think it’s the same thing as going to a grocery store. Okay, I need to get some bananas and a can of soup, right? You’re gonna go pick whatever you want, right? You’ve got plenty of supply there at the store. In M&A, you know who’s pushing the shopping cart, it’s not the PE firm, it’s not the corporate buyer, the business owner is pushing that cart down the aisle deciding which PE firm, which corporate buyer. which can of soup to pick off the shelf.


Matt DeCoursey  42:47

Listen to that, again, people, you’re the one that’s in control.


Bill Snow  42:52



Matt DeCoursey  42:53

Not the other way around. By the time you’re about to get acquired. This is a way different vibe than when you were raising capital where you’re up there and feeling like a dancing puppet. You know, the other side of it, and you’re right, that dynamic and that, that, that communication and the tone and tambor of it changed dramatically. Yeah. So that you’re in control. Bill, thanks for joining me, I appreciate it. For those of you that want to reach out to get some help or advice from Bill, go to There’s more information about that. You’re pretty easy to find on LinkedIn too, if you just search Bill Snow so.


Bill Snow  43:31

Thank you.


Matt DeCoursey  43:31

Well, I’m gonna catch up with you down the road.


Bill Snow  43:34

Excellent. Well, I’ve really enjoyed it. Thank you so much for having me on the show. This was great.


Matt DeCoursey  43:39