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Part I

Chapter 8

Cleaning Up the Books: Common Issues that Impact Value

For many privately-owned businesses, the lines between personal and company finances can sometimes blur over the years. For example, you may hold certain assets within the company for convenience, or handle expenses in ways that make perfect sense for a closely-held entity but can confuse or concern potential buyers.

When preparing for a valuation or an eventual sale, it’s crucial to “clean up the books.” Robert highlights several common areas that often need tidying up to present a clear, transparent picture of the business’s operational value.

“Some of the top issues,” Robert begins, involve how you hold assets and how you categorize expenses. Addressing these proactively can smooth the valuation process and strengthen your negotiating position.

1. Non-Operating Assets and Excess Cash: Many business balance sheets carry assets that aren’t essential to the company’s core operations. Robert mentions seeing everything from “artwork” and “four plus million dollars in excess cash parked away for a rainy day” to, in some cases, “not one Learjet, but there’s been two Learjets.”

• Why it’s an issue: These non-operating assets (which can also include real estate not used by the business) typically don’t contribute to the company’s day-to-day revenue generation and are usually excluded by buyers when valuing the ongoing operations. “Any assets on the balance sheet of the business belong to the shareholders of the company,” Robert points out.
• The fix: “You’re going to have to either do it before, sooner, or later,” he advises, referring to removing these items from the business. This might mean distributing excess cash to shareholders or moving non-operating assets to a separate holding entity before a sale, as “obviously those aren’t the items that you want traveling with the sale of the business.”
• Related-Party Transactions: These occur when the business transacts with the owner, their family members, or other companies they own.
  • Salaries to non-active family members: It’s not uncommon for family members who aren’t actively involved in the business to draw salaries. Pre-exit, Robert advises, “It’s good to get that off your books.”
  • Non-market rate rent: Owners often hold the company’s real estate in a separate legal entity (which is generally a good practice). However, the rent paid by the operating business to that related entity might be above or below the fair market rate. This needs “cleaning up” by adjusting the rent to what an unrelated third party would typically pay or receive.
• Discretionary or Personal Expenses: Over time, various personal or discretionary expenses can find their way into the business’s financial statements. Robert lists common examples: “family trips that have booked on the business, car related expenses… college fees, country club memberships.”
  • Why it’s an issue: While these may have been managed for tax efficiency during ownership, a buyer will see them as non-essential to running the business and will typically “add them back” when calculating true operational cash flow. However, a long list of such items can also raise questions about the quality and discipline of financial management.
  • The fix: Identifying and minimizing these discretionary expenses well in advance of a sale presents a cleaner, more professional financial picture.

“It’s better to run lean and mean, especially as you get closer to a potential exit,” Robert concludes. By addressing these common issues, you remove distractions, reduce complexities for potential buyers, and ensure that the valuation reflects the true, ongoing earning power of your core business operations.

Part II

Chapter 5

Preparing for Due Diligence: Financial Clean-Up and Transparency

Once a private equity firm expresses interest in your business, they will embark on a rigorous due diligence process, with a heavy focus on your financial records. Jay Ripley emphasizes that proactive and thorough financial preparation is not just recommended—it’s essential if you want to build credibility, maximize your valuation, and navigate the sale process smoothly. Leaving this work for the PE firm to figure out often means leaving money on the table.

The Imperative of “Clean” Financials

“One of the things I would advise is that you will leave a lot of money on the table if you leave those problems to the next buyer,” Jay states, referring broadly to unaddressed issues, but particularly to financial clarity.

He strongly recommends:

• Professional Financial Statements: “Clean up your books… have a real set of financial statements that are ideally reviewed, if not audited,” by a reputable accounting firm. This provides a baseline of credibility.
• Transparent Pro Formas & “Add-Backs”: Many founder-owned businesses run personal expenses (cars, travel, etc.) through the company for tax efficiency. When preparing for a sale, these need to be identified and “added back” to calculate a normalized EBITDA that reflects the true ongoing profitability of the business under new ownership. “It’s okay to show pro formas saying, ‘Look, yeah, I run the car on the plane or whatever through it. Like, here’s the real [EBITDA] that would be behind,'” Jay advises.
• Honesty is Key: While you don’t want to create documents that could cause tax issues (“obviously you don’t want to write an email the IRS can print out and sue you”), Jay suggests being verbally transparent with potential buyers: “Hey, we’ve made some adjustments based on some yada, yada, yada.” If a buyer feels you’re hiding something, they’ll wonder, “If you’re lying to me about this, what else are you lying about?”

Know Your True Earnings – Before They Do

A critical reason for this upfront financial homework is that PE firms are experts at financial analysis. “A lot of where these firms try to make their money is they actually think you don’t know what your earnings are,” Jay reveals. “You think you’re selling a $4 million earnings business, and it’s actually $6 [million after appropriate add-backs].” By doing your own thorough “forensic analysis” with qualified advisors before going to market, you understand your business’s true normalized earning power.

Focus on Earnings and Multiples, Not a Fixed Dollar Amount

Perhaps one of Jay’s most emphatic pieces of advice is for sellers to avoid naming a fixed dollar amount they want for their business.

“A lot of sellers quote a dollar amount that they want to be paid as opposed to a multiple. Huge, huge bad. Don’t do that,” he warns. He shares an anecdote: “We actually bought one recently where the guy was like, ‘I want to be paid $40 million.’ And we were like, ‘Well, is that enterprise value or equity?’ He’s like, ‘I don’t know what that means. I want a $40 million check.’ And when you did the math on it, that was like 3.5 times EBITDA or something. We would have paid him 6x, to be clear. We were like, ‘Oh, great, like, where do we sign?'”

The takeaway?

“You do yourself a real disservice when you think in terms of dollars,” Jay stresses. “You want to optimize your earnings number, because that’s what they’re going to value. And then you can, you know, the broker and they can compete on who wants to pay the highest multiple for that.”

Ultimately, robust financial preparation and transparency are foundational. PE firms “will ding you on your multiple if they don’t believe your financial statements,” Jay concludes. “That’s the number one issue we see.” Presenting clear, credible, and well-documented financials, along with a thoroughly calculated adjusted EBITDA, positions you to negotiate from strength and achieve the best possible valuation for your hard-earned business.

Part III

Chapter 9

Hindsight is 20/20: Key Lessons from a Business Sale

The experience of selling a business built over many years is an education in itself. Looking back on the roughly six-and-a-half-year journey from initially contemplating the sale of Atlas Captives in 2017/2018 to his official retirement in late 2024, Martin shares some potent “hindsight lessons” for other business owners who may be on, or considering, a similar path.

Lesson 1: The Paramount Importance of a Long Planning Runway

“I do think it’s [important to] try to think about selling a business well in advance,” Martin emphasizes. He acknowledges a common pitfall for entrepreneurs: “The owners are spending an awful lot of time running around working in the business and dealing with, you know, the shit show that happens every day… but we also know that you need to spend time working on the business and that you need good people around you.”

To truly prepare a business for an optimal sale, he advises:

• Think Years, Not Months: “If you are at a point of thinking, ‘I’d like to sell my business before too long,’ try to make sure that before too long means in three or four or five years time, rather than in six months time.”
• Seek Early Advice: “There’s no harm in talking to the business broker, the investment banker, what have you, five years before you want to sell the business. Say, ‘If I were to sell my business, what do you think it’d be worth? And what would I need to do to make it happen?'”
• Time Allows for Preparation: “Because then you’ve got time,” Martin concludes. “If you’re in a hurry, it’s not gonna go so well.” A longer runway allows for strategic improvements, professionalizing the business, and addressing potential buyer concerns proactively.

Lesson 2: Strategic Communication with Potential Acquirers

Martin candidly shares what he considers a personal mistake during the buyer meeting phase. When one promising potential acquirer asked why he was selling, his honest answer was, “Well, you know what? I think I’m pretty close to ready to retire.” This, he believes, “was clearly a mistake.” The acquirer, a very large company, likely wanted a leader who would commit to a longer transition or continued leadership role. “The reality is you ended up sticking around for three or four years anyways,” the interviewer pointed out. “It could have worked,” Martin mused. “It’s just the way you answer the question in your mindset.” He also felt this was an area where his M&A advisors “could have coached that” response better.

This highlights the importance of understanding a specific buyer’s motivations and carefully framing your own plans in a way that aligns with their likely post-acquisition strategy, especially early in discussions.

Overall Satisfaction: “All’s Well That Ends Well”

Despite the lengthy closing process and specific learning moments like the interview misstep, Martin’s overarching sentiment is positive.

“I’ve got no complaints,” he states. “I mean, you know, I walked away with frankly more than I thought I would walk away with. So, you know, that’s all good. All’s well that ends well.”

Martin’s journey underscores that while selling a business is a complex and demanding endeavor, thorough preparation, strategic thinking, and learning from both successes and minor missteps can lead to a very satisfactory and rewarding outcome. His hard-won wisdom serves as valuable counsel for any business owner contemplating their own exit strategy.

Part IV

Chapter 3

The Untapped Power of Appreciated Assets in Giving

Once you have a Donor Advised Fund (DAF) established as your charitable giving hub, the next strategic question becomes: what should you contribute to it? While cash is always welcome, Brandon Davis of the National Christian Foundation (NCF) highlights a powerful, yet often underutilized, opportunity for maximizing both your charitable impact and your tax efficiency: gifting appreciated assets.

The “What We Own vs. What We Give” Disparity

Brandon points out a fascinating imbalance in how most people approach charitable giving. “The statistics are something like 7 to 10 percent of what’s held on people’s balance[s]… is in cash,” he explains. “The rest of it is in non-cash items. Primarily, stocks, bonds, mutual funds, closely held business interests, land, real estate.” Yet, when it comes to philanthropy, “we take that little bit of cash, [and] that’s how we do up to 95 percent of our giving.”

NCF’s perspective is clear: “Why don’t we use the rest of that balance sheet… that 93%… to actually do a lot of our charitable giving?” This question opens the door to more strategic and tax-efficient ways to support the causes you care about.

The Double Benefit of Gifting Appreciated Marketable Securities

While later chapters will delve into gifting complex assets like private business interests, the principle of tax-efficient giving is most easily understood with appreciated marketable securities (publicly traded stocks, bonds, mutual funds, or ETFs).

Imagine you want to make a $10,000 charitable gift.

1. Option 1: Give Cash. You write a $10,000 check. This is an after-tax donation (though you’ll receive a charitable deduction, assuming you itemize). Simple, but not always the most tax-wise.
2. Option 2: Give Appreciated Stock. Suppose you own stock currently worth $10,000 that you originally purchased for $1,000 (your “basis”). If you were to sell this stock, you would owe capital gains tax on the $9,000 appreciation. However, if you donate the stock directly to your DAF or another public charity:

• You potentially receive a charitable deduction for the full fair market value of the stock ($10,000 in this example), assuming you’ve held it for more than a year.
• You generally avoid paying any capital gains tax on the $9,000 appreciation.
• The charity (like NCF) can typically sell the stock without incurring capital gains tax, meaning the full $10,000 is available for grants.

“The only person that gets cut out is Uncle Sam,” Brandon quips, highlighting how the U.S. tax code is structured to encourage such charitable giving.

He shares a real-world example: when Piedmont Natural Gas was being acquired by Duke Energy, a donor with highly appreciated Piedmont stock chose to donate it directly to charity before the cash buyout. This allowed the donor to make their intended charitable gifts, receive a full fair market value deduction, and avoid the significant capital gains tax they would have incurred if they had waited for the stock to be converted to cash.

“All day long,” Brandon advises, “if you’ve got appreciated assets in your portfolio, fund your donor advised fund with that. Because that’s so much more efficient and effective for charitable giving.”

What About Other Non-Cash Assets?

While marketable securities are a common starting point for appreciated asset giving, Brandon mentions that you can donate other assets like interests in land, real estate, and even more esoteric items like intellectual property or mineral rights.

However, some non-cash assets are less suitable for DAFs. For instance, collections (art, guns, etc.) or tangible personal property typically don’t yield the same tax benefits when donated to a DAF as they might if given directly to a charity that will use the item for its exempt purpose (e.g., art to a museum for display). “Artwork in the hands of the National Christian Foundation,” Brandon notes, “unless we’re going to display it on our wall in our office, which we’re not, um, doesn’t get as much benefit [for the donor’s deduction].”

For business owners with significant wealth often tied up in appreciated non-cash assets, understanding these principles is key. By strategically choosing what you give, you can often give more generously at a lower net cost to yourself, amplifying your ability to support the causes that matter most to you.