CEO Advisor Newsletter™
Sept/Oct 2008
Practical Advice to Accelerate Growth and Profits

In This Issue

What Should A Board Really Contribute?

Selling Your Company - How to Determine the Selling Price

Client Testimonial

Words of Wisdom

CEO Advisor, Inc. - Member of Accredited Organizations


What Should A Board Really Contribute?

A strong, well managed board of directors can add tremendously to a company and it's CEO in many ways. But many CEOs consider a board of directors to be an unfortunate circumstance of the company's operations. In most cases, entrepreneurs choose board members from among their friends and family. They want a board that they can trust to support their decisions and help maintain their control over the business. However, as businesses grow, CEOs need more than just loyalty from board members. Recruiting a board that fulfills its fiduciary duties, while diving in and playing a key role in driving the business forward is a critical step that requires special expertise. We've identified seven capabilities and contributions that board members should bring to a business: 1. Strategic Focus: While it may not be the task of boards to actually produce the company's strategic plan, it certainly is the responsibility of the board to approve and support it. Too many CEOs try to tackle far too much and need to be kept on focus within the strategic plan. 2. Recruiting Talent: If your board members are well-connected, especially within your industry, they will be familiar with top talent. They should introduce, advise and assist you in seeking out top talent. Nothing is as important to the success of a business as the quality of its managers and employees. 3. Key Business Relationships: Board members should be acquainted with key managers in your target markets. Introductions to potential clients, vendors, resellers, distributors and funding sources is probably the second most important factor that helps determine the success of many businesses. 4. Fundraising: Board members should be integral to the fundraising process and should represent real dollar value (by increasing the value of the company in the millions of dollars in some cases). This includes formal introductions to fundraising sources, attending meetings or conference calls for fundraising, and helping the CEO close rounds of funding by speaking with investors during the due diligence process. 5. Personal Competencies: When selecting board candidates, many CEOs look to executives from within their own industry. It is very important that you recruit and maintain board members from multiple disciplines, with expertise in your industry, as well as, fundraising, finance, operations, marketing, etc. to have a well rounded board. 6. Short and Long Term Planning: While it is the responsibility of the board and top executives to prepare the company for the future, it is also the responsibility of the board not to lose track of the present. Board members must be involved in achieving results today that will support both present and future goals. 7. Succession Planning: Very few businesses have a succession plan, whether it is the selection and grooming of a follow-on executive or the identification and planning of an exit strategy. Unfortunately, most owners or CEOs choose board members based on expected loyalty or accept members appointed by investors/stockholders. In doing so, they squander a chance to form and utilize a powerful business asset. In summary, seek advice in recruiting a board of directors as a useful force for achieving the business' goals rather than being a hindrance to success. There are other pitfalls to avoid, so seek experienced, professional help to take your business to the next level. CEO Advisor, Inc. can research, formulate and recruit a board of directors that can create tremendous value while adding depth to your senior management team. Contact Us today for a no cost, no obligation discussion on how to achieve your business goals.


Our mission is to provide CEOs and business owners of small to mid-size companies the needed focus and expertise, coupled with hands-on advice to grow your business. To take your business to the next level, contact Mark Hartsell, MBA, President at or visit us at for more information.

  • Selling Your Company - How to Determine the Selling Price
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    With over one hundred variables and critical steps in buying or selling a business, one very important question is, "What price are you expecting when you sell your business?" I always ask this question of our clients. The answers are as different as the owners and businesses. "We need $10 million to give us the type of retirement we want. We have invested $2 million in the product. Our investors have put in $3 million so far. It should sell for $5 million. I heard that xyz Company got $30 million for their company." To be very direct, my response to my clients doesn't tend to score points with them, but it is the truth. The market doesn't care. The potential buyers don't care how much it cost you to develop the product, or how much your investors have in, or how much you need to retire, or how much you think your business is worth. Buyers look at the potential ROI (Return on Investment) in a company. Depending on the industry and type of business, buyers are typically very knowledgeable in determining today's fair market value. If you are fortunate enough to have a technology that can be leveraged, the market may look at the future returns of that technology in stronger hands. There are benchmarks that are often used as a starting point for many businesses. The most common in a merger or acquisition situation is an EBITDA multiple for the trailing twelve months. EBITDA is simply an acronym for Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA is the standard for privately held companies just as PE multiples are to a business valuation metric for publicly traded stocks. There are additional methods such as revenue multiples for unprofitable companies, discounted cash flows and others, as well. Depending on your industry, rate of growth, uniqueness of product or service, technology or intellectual property, barriers to entry or patent work, gross margins, management team and other factors, the industry benchmark valuation for your business may be 4.5X EBITDA, for example. The three largest players in your industry may all be interested in the acquisition of your company and each one may submit an initial bid of, surprise, about 4.5X EBITDA. Since you are about to launch a new product or service you are looking for 6X EBITDA. The result is that we have a typical valuation gap between the buyer and the seller. This is the primary reason that many acquisition transactions do not happen. The seller is terribly disappointed and states that these buyers "just don't get it." The buyers have experience in making several acquisitions in their space and have their business valuation metrics pretty much in stone and think the sellers are being unreasonable in their expectations. So how is this situation negotiated? One of the most important roles of a business advisor on mergers and acquisitions is to devise a transaction value and structure that works for both parties. As a third party objective advisor, we establish alternatives with both buyer and seller to consider given their hard and fast valuation positions. Here are examples of a business sale transaction structure that could be a win for both buyer and seller: 1. Cash at Close which is approximately a 4X EBITDA multiple for the trailing twelve months. 2. An Earn Out (Additional Transaction Value) based on the selling company's sales revenue beginning in year one and ending at the end of year five. The earn out is at risk if not met, but is set to net the founders or shareholders a 6X EBITDA multiple on the current fiscal year projected sales. 3. Certain Assets (automobiles, domain names, etc.) were excluded from the sale and are to remain with the seller as they had specific value to the seller and minimal value to the buyer. 4. An Attractive Compensation Package, including stock options in the acquiring company, was negotiated on behalf of the seller for him/her to remain with the acquiring company for up to three years and possibly longer. 5. Specific Non-Compete Stipulations were negotiated out of the Non-Compete clause providing the seller far more flexibility in the future, as well as, other terms favorable to the seller while being acceptable to the buyer. It is critical that you seek professional help in this process. Most business buyers that approach a company with an unsolicited offer to acquire your company are bottom feeders and will attempt to buy well below the market. They will attempt to draw out the process and pursue several acquisitions simultaneously hoping that one or two sellers get consumed in legal fees, the idea of selling, or just cave and sell out at a discount. They may start out at a decent valuation, but as they go through their due diligence process will find one issue after another that makes them reduce their offer. They often throw out the term "material adverse change" in an attempt to justify their value reducing behaviors. Some business development directors get judged or paid bonuses on how much below the original offer they can ultimately close the deal. To stem this bad buyer behavior it is important to have options and manage your cash and your business prudently during the sale process. Whether you are considering buying a company or selling your business, it is critical to properly plan, research and get the needed advice. With over one hundred variables involved, a third party advisor with experience and expertise in negotiating will be the difference in achieving your goals. CEO Advisor, Inc. provides management advisory services, including mergers, sales and acquisitions to CEOs and owners of small and mid- size companies. Contact Us today for a free consultation.

  • Client Testimonial
  • "Being a small business owner I do not have someone to discuss ideas, details on major decisions, projections, or forecasting. I have really enjoyed working with you these last few months. You are a very smart advisor with great ideas. Your clients are very fortunate to have you as a consultant. Thanks for everything."

  • Words of Wisdom
  • "Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion."
    - Jack Welch, Former GE CEO/Chairman

  • CEO Advisor, Inc. - Member of Accredited Organizations

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    • OC Venture Group
    • Institute for Independent Business

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