290 - Oh No... I Should Have Followed The Steps!

0:00Oh no! I should have followed the steps! That is something that I have heard quite a bit lately. And so I wanted to spend some time on what I've seen, real-life examples of what happens when you don't follow the steps. And I talked a little bit about this in a video I did on Friday. So the first thing is, if you're going to do business acquisitions, you need to know the steps before you can follow them. Makes sense, right? So there's a lot of ways to learn those steps, but the best that I've put together is the Acquisition Advantage Boot Camp. You can go over under brucewhipple.com. You can look at the boot camps and classes, and you'll see it there.

0:46Now that'll give you a series of videos that go through the steps, picking an industry, building a board, finding the professionals, lawyers, and accountants, interviewing financial institutions, reaching out to prospects, closing a deal, and then running a deal. So you need to know the steps to follow the steps. So I would highly encourage you to do that. that acquisition advantage boot camp also gives you access to a monthly live Q &A with me. It's a group call where you can ask questions about what you're going through. So let's talk about some real problems when you don't follow the steps.

1:31I got an email yesterday which was a series of questions. I don't mentor this person. How to raise financing for financial statements that don't show any profits. Okay, now you are probably having the same reaction that I'm having. This process is about buying profitable businesses, not about trying to raise financing for turnarounds, unprofitable businesses, startup ideas, etc., etc. Speaking of turnarounds, a lot of people say, well, you know, it's not making any money now, but if we can do this, they don't do any marketing, and we'll be able to bring new people in, and we'll be able to cut expenses.

2:19We'll be able to lower the bonuses that people get and wages that people get. It's usually a recipe for disaster. I have worked a lot of turnarounds in my career, and I would say half of them at least were not able to be turned around. Now, in my case, we had sufficient cash flow that we could take those chances, but especially for your first deal, do not choose a turnaround. It will be harder. It will take more money, more time than you think at the outset if you can be successful. A lot of times I hear, I just want to do a deal that will give me credibility. So I'm not going to build a board or get professionals.

3:06I'm just going to go out and make offers. Okay. That's the same thing. One, you're inexperienced. You don't know what to look for usually. How are you going to put together the documents, the due diligence, et cetera, et cetera? Oh, well, I'll use ChatGPT for mutual nondisclosures. and maybe for purchase and sale agreements and letters of intent. Don't do that. Use professionals. Now, the point on professionals, however, is you have to manage professionals and what they do. For instance, you can use an accounting firm that says, okay, we'll do a quality of earnings report. Now, a small deal, you may not need a quality of earnings report, and that's typically an expensive document.

3:54so you will spend money on something you don't need so a lot of people end up saying okay well I'll just let them do what they need to do that is a mistake understand what's being spent understand why it's being done think about alternatives on your first deal you can certainly look at the possibility if it's small enough of doing the accounting due diligence within the board I would highly recommend you use the external law firm, not someone on your board to do the non-disclosure agreements, letters of intent, purchase and sale agreements. That should be done by an outside law firm because the people on your board do not have a client relationship to you like the outside professionals do.

4:44And certainly when you're going through that process, you know understand that you don't know these answers so rely on your board a lot of people end up telling me well I don't really see any value in my board so I kind of just do it myself well that's because you've got the wrong board is that you should have people that have been there done that you should have people that know the pitfalls that they've seen in the past so you don't go through the same things. I mentioned LOIs. One of the things that I'm a big fan of is putting a breakup fee in an LOI. Why is that? You end up negotiating, you've got your professionals working on due diligence, depending upon the deal that you have with them, and even if you have a hundred percent discount, they are expending time and effort.

5:36And if one morning, And this is a real example. A seller wakes up and says, you know, I talked to my kids last night, and they said that I shouldn't do this deal. So thanks, but no thanks. Or, you know, I had a better offer, so I appreciate, Bruce, you know, everything you've done, but I'm going to take that better offer. Well, they walk away scot-free, and you end up having to deal with accountants, lawyers, boards that say, well, that was an awful lot of work. and why did we let them get off the hook so easy? So I'm a fan of asking for a breakup fee. I've had cases, several, where breakup fees have either been collected or have kept somebody in a deal.

6:22The ones that come to mind, the example I used was real. A person woke up, said I spoke to my kids, that they said I shouldn't do the deal, so I'm not going to do it. mentees said okay you can do that but you've got an 80 ,000 pound breakup fee at which point they said I understand I'll pay the fee and they paid the fee took a little work but they paid the fee another example where the value of a good law firm there was a breakup fee of 150 ,000 plus expenses on a deal the seller decided they didn't want to sell the lawyer for the other for the seller said well, not going to do this deal. And the law firm representing the mentee said that's okay, but we're a big law firm, we're an expensive law firm.

7:14The document you signed said you're going to pay 150-plus legal fees, which will be significant. So if we don't see a wire transfer by 4 p.m. this afternoon, I'm going to file the paperwork and start a lawsuit. And guess what? They sent the$150 ,000. And then lastly, an example were two sellers that were partners in the same business. They had signed a breakup fee. They decided one of them, they didn't want to do it. One partner said to the other, well, okay, but I'm not paying the breakup fee. That's coming out of your pocket. And he decided, well, then, okay, I'll go ahead. So it kept them in the deal.

7:56All of those. But again, something I say all the time, never ask, never get. So that breakup fee only happens in a couple of ways. One, you decide you don't want to sell after you've signed that agreement saying you would. Or two, you decide you're going to sell to somebody else. In both those cases, you haven't kept your word. You can do that, but there's a price to it, hence the breakup fee. So those are just a few. I could go on and on and on, like don't do a big deal as your first deal. That often ends in disaster. Not getting the current financials at the end of a period before sale. People may do funky things to end up making the financials look better than they really are.

8:44So I hope that helps to reinforce, one, follow the steps. Get people around you who know what they're doing. Get professionals that help advise you. Again, if you don't know the steps, an easy way, an expensive way, is to go over to bruswhipple.com and sign up for the Acquisition Advantage Boot Camp. And again, that gives you those monthly ability to get on a live Q &A and ask questions about what you're doing. So hope that helps. Follow the steps. Can't say that enough. and you ask questions when you're on that Q &A. You can't get questions answered by me if you don't ask them, and I don't do that through email.

9:30That's only for VIP members. There are a couple of spots opening in that. If you're interested, go look at the VIP Mastermind under BruceWhipple.com. But the Acquisition Advantage Boot Camp, good way to learn the steps, good way to stay in contact with me on that monthly call, and that will serve you much better than just bumbling your way through something and learning from your mistakes.