Keys to Preparing a Business for Sale

Solving ERP Selection and Implementation Challenges

Keys to Preparing a Business for Sale

 

Starting a business may not be as difficult as is preparing a business for sale. In today’s episode, we studied how to do that with our guests.

 

In this week’s The Faces of Business Episode, our guests were Mike Finger & Andrew Cross discussing the keys to preparing a business for sale. Mike is the Founder of Exit Oasis. His company is an online and in person  resource to help small business owners, create transitional value in their business.  Andrew Cross is the founder of Cross Northwest, a boutique investment banking/business brokerage & a co- Founder of Exit Your Way.  

 

The conversation started with Mike sharing a bit about himself. After this, Damon asked him about the three key questions that one needs to ask while preparing a business for sale. Answering this, Mike said that when it comes to selling a business, you can easily point out multiple factors but there are three questions that you should always ask yourself.

 

The first question is whether your results are desirable or not? According to Mike, you must not think too much about this question. You just have to focus on the results your company produces and whether those results are desirable enough to attract a buyer.

 

The second question to ask while preparing a business for sale, is can a Buyer duplicate your results? This means that when you sell your business, can your buyer get the same results as you do with that business? Moreover, here you see how much a difference your absence will make in your business.

 

The third and final question is, can you document your results? Does this mean that do you have sufficient recording and documentation for your results? These are the keys to preparing a business for sale according to Mike.

 

Further, into the conversation, Mike talked about the revenue generation of a business and how it plays role in selling it. He said that a diversified revenue scares the buyers away but a concentrated revenue scares them even more.

 

This means that if you have a single client that generates 90% of the revenue, that is not suitable for the buyer. Therefore, according to Mike, for preparing a business for sale, you have to look ahead at your revenue generation process as well.

 

By the end of the conversation, Mike said that we have to make sure to see if the buyer can duplicate the results. Once your results are optimal enough that buyers can duplicate them, then you can surely work your way with it.

 

The conversation ended with Damon thanking Mike for his time.

 

 

 

Our Guest:

 

  Mike Finger

 

Mike FingerMike Finger is the Founder of Exit Oasis. His company is an online resource to help small business owners create transitional value in their business. Before this Mike was the Executive Director at Innovative Foundation of Western Wisconsin.

During this time, Mike and his team have purchased, turned around, and sold two small businesses. According to Mike, he has owned eight small businesses during his career. Among these, he has successfully sold 4, failed twice, and still co-owns two of them.

Apart from this, Mike was also a Consultant at Sunbelt Business Brokers. Moreover, he is the founder of School Business Solutions and Non-profit Business Solutions. As for his education, Mike has a Master’s Degree in Administration and Management.

 

 

About Exit Your Way®

 

Exit Your Way® provides a structured process and skilled resources to grow business value and allow business owners to leave with 2X+ more money when they are ready.

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Contact us by phone:  822-BIZ-EXIT (249-3948)   Or by Email:  [email protected]

Find us on LinkedIn:  Damon Pistulka  Andrew Cross Jonny Kingman Ira Bowman

Find our Companies on LinkedIn: Exit Your Way®  Cross Northwest Mergers & Acquisitions Bowman digital Media

Follow Us on Twitter: @dpistulka  @exityourway

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Service Professionals Network:  Damon Pistulka, Andrew Cross Ira Bowman

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Other websites to check out:  Cross Northwest Mergers & Acquisitions  Damon Pistulka  Ira Bowman  Service Professionals Network (SPN)  Fangled Technologies  B2B Tail  Denver Consulting Firm  Warren Research  Stellar Insight Now CFO Excel Management Systems

Contact Us to Exit Your Way®

 

Keys to Preparing a Business for Sale

The Exit Your Way Business Round Table Live Stream

Transcript

47:36

SUMMARY KEYWORDS

business, buyer, sell, people, small business owners, owner, business owners, work, sale, mike, exit, desirable, money, company, andrew, client, small business, deals, years, growth

SPEAKERS

Damon Pistulka, Mike Finger, Andrew Cross

 

Damon Pistulka  00:02

All right, everyone, Welcome once again to the faces of business. I’m Damon Pistulka, your host and with me today, I’ve got a couple special guests. First of all, we’ve got Mike finger up in the upper right hand corner to me from exit oasis. Mike, glad to have you here today.

 

Mike Finger  00:19

Pleasure to be here. Damon.

 

Damon Pistulka  00:21

Yeah, awesome, man. And then we’ve got my partner Andrew Krause. Gotta have him down in the bottom center, because we are talking about the keys to preparing a business for sale. Andrew, great to have you here today, too, man.

 

Andrew Cross  00:35

Sounds good. That’s great to see you guys.

 

Damon Pistulka  00:37

We got you on camera, not behind the scenes today. So we’re gonna have some fun, some great. Alright, so I thought what we can start out with is, is Mike, I think you’ve got three simple questions or statements that you like to work around when you’re helping clients prepare their business for sale. We’ll start there. I’ve got a few points. And then we’ll start in on the discussion about overall what what really are the key things for people to do? So could you start us off with that, Mike?

 

Mike Finger  01:08

Yeah, absolutely. Absolutely. So when I first came to this space, I came as a as a business owner. And what struck me when I went through my first sale, and subsequent to that was how complicated this space can be. Right? We all know that even if you’re thoughtful and intentional about it, you go out and you look for lists, and what what should I focus on, you very quickly come up with 47 things on 15 different pieces of paper, this thing, you know, this analysis that look at this ratio. And for me, as a small business owner, it was just too much. And I find that the business owners I work with have a limited time to spend on this.

And so what what I look to do is to really boil it down as much as I could. And I asked three basic questions when we sit down. Working with a small business owner, the first question is, are your results desirable? And don’t over Don’t overthink that one small business owners. When we say desirable is what you produce in your business. There’s the results that you produce in two key factors. attractive to someone else, those two factors, your sellers, discretionary earnings, and your job, right sellers, discretionary earnings.

That’s your owner’s clash. Cash Flow. That’s what you generate. more is better. Is that a desirable number? Second is your job? Are you working 18 hour days and miserable conditions with lousy people? Why would I pay you to have that job? So are your results desirable? Yeah. Can a buyer duplicate your results? That’s the second question. Do you have a team? Do you have systems? Or is everything dependent on you? So can a buyer duplicate your results? And finally, can you document document your results?

Do you have clean records? Can you prove it to me? If you can answer yes to those three simple questions. And it’s really important, you’re honest with yourself when you’re asking them. But if you can answer yes to those simple questions, you are exponentially ahead when it comes to having a business that you can sell. So that’s that’s what that’s our simple approach.

 

Damon Pistulka  03:34

Yeah. And I love that and I’ll share my points in that it’s funny how you and I independently came up with the list and and did that. But before we get into that, Mike, explain to people the frame of reference where you’re coming from now you’re helping people preparing businesses, small business for sale, but you’ve also sold several businesses of your own.

 

Mike Finger  03:58

I you know, I have I’ve been lucky enough to have four successful exits. started a business in the mid 90s. grew it over 15 years, sold at the end of 2010. That was a life changer for me. I worked as a business broker for a little while loved part of that hated part of that. worked in in accelerator for a little for a couple of years, then bought and sold to small businesses, I think primarily to prove to myself that I hadn’t been a fluke the first time through so I’ve been able to be on both sides of the table buyer seller and broker. And I love the space it is it is a life changing space for so many small business owners if they can get from owner to former owner successfully.

 

Damon Pistulka  04:52

Yeah, yeah,

 

Andrew Cross  04:53

yeah. Very difficult process for sure. Kudos to you for getting through that. That’s at multiple times, for most, for most people, it’s a one shot deal. And it is enough, it’s enough. But

 

Mike Finger  05:09

I fell in love with that space right after the sale. I fell in love with the possibilities that exist and the opportunities that exist and the reduction in stress and responsibility that I’ve got, sir. I’ve got a colleague on LinkedIn, who recently sold his business and he’s been producing a fair amount of content about that time space. And what a lovely time period that is.

 

Andrew Cross  05:37

Yeah, yeah. It’s really interesting. We, we work with clients too. And I think where we came from, you know, on the broker side is I, I totally relate to what you’re saying, love it, and hate it at the same time. But you know, what, teaming up with Damon, over the last five, six years now, we’ve been working together, because bringing that consultant experience consultancy, and management consulting, is where we, you know, where our team we’ve been working on helping businesses improve, you know, for years, not with an exit in mind necessarily, right.

But when you when you step into that space, when the exits happening, which is, like you said it is to me also, it’s fascinating, because it there is change coming and you know, a company may have been kind of in a rut or hitting ceilings for quite a while, you know, not dying, but necessarily, but you know, everybody wants to put some back pain on the place up before they sell it. And they’re willing to do that, at that point, right?

But there’s no reason for that, right? But it’s because then it’s really the whole spotlight of where I’m at, you know, is right in front of you now. And the changes, I need to do this, I need to, you know, I need to get the right people in the right seats, or I need to, you know, I need to get better accounting systems, you know, I get the more real time information, things that the buyers want to see, like, what you’re talking about these processes, and you start doing them? Yeah, it’s it’s a little bit of a shame that they’re sweet, that is happening last minute. Yeah, you know,

 

Mike Finger  07:15

bicyclic, great, you you hit the nail on the head. And the best part of the work that I do is that I’m dealing with business owners that are more open to change than they are at any other time in their career. Right, because they want that exit, they want that result. And you say, here’s what a buyer wants. And if we can’t, if you’re not willing to put the business there, that’s okay. But then you don’t get to you don’t get the exit.

 

Andrew Cross  07:46

Yeah, it or the exit you want necessarily to but because there are bad exits. And there was a lot of ways to get out of business. And most of them are bad. The best way to get out the good way is to sell your business the money that you want, on the terms that you want. But though, you know what?

Yeah, I think that’s, I think it’s a fascinating space, too. And it’s, you know, it’s really rewarding to to start to get in and put some systems in place, something that you can hand off to a buyer, right, and sort of tune up the whole strategy and the playbook. So that you know, and that’s what we tried to, you know, accomplish. You know, it’s a little deeper than just putting a flier together and saying here are there’s x business for sale. Here’s your playbook, Mr. Entrepreneur coming in.

This is you know, here’s the plan, here’s the projections, here’s the strategies, and all the things that you need to execute, all you need to do is execute this with your skills and experience and your cap and go to work on it. And that’s, you know, that’s a different level of getting the answer. But you know, as you do that with the owners, and then the light bulb goes off, on a lot of them are going God, I wish I started doing this 10 years ago. Right? Yeah, right.

 

Mike Finger  08:58

Absolutely. And that’s Yeah, it’s actually the one thing about about the owners I work with is I don’t get paid on commission, I don’t care if they sell the business. And it’s not an uncommon result that the business gets resolved towards being less dependent on the owner. Systems driven, right, all of these little bit more profitable, right? All of these, we start checking these boxes, and suddenly they go, I think I’m gonna hold on to this thing for a little while, which is a fabulous outcome. Again, we all know that the best business to own is one you can sell tomorrow. Yeah,

 

Damon Pistulka  09:33

yes, it and you make a good point, because that actually happens that two things happen to us. Usually when we when we’re doing this is we’ll start helping somebody and they will sometimes fall back in love with their business, which is good. But oftentimes, that’s part of our overall strategy to because when you look at a smaller business, they may not be able to meet their retirement goals with just the sale of business. So it may take us to increase the size and profit ability of the business and make it easier to run and more desirable for the new buyer. But then they may have to run it for a period of years and continue to grow it out as a little slower rate or, or whatever.

We continue consulting with them. You know, we just had a client that called us this year that we worked with them for years ago. And that was the plan for the beginning. We had a really definite amount of money they needed. We got him up to the point we said, okay, and they had a definite exit timeline. They said, I want to, you know, I want to do it when I’m a certain age, and Okay, cool.

And then Honestly, it was it was very nice, because they call it up and said, Yeah, we’ve been growing. We’re a little bit bigger than you know what, you know, Twitter was, like, 20% bigger than when we talked to them. And yeah, I’m ready to go now. Yeah, it’s like, that’s cool. Because you go back in, and I know that they’ve got good people in place. They’ve got good processes. So it’s really nice. Absolutely. Yeah.

 

Andrew Cross  10:56

Yeah. Can you guys hear me? Okay? Yes. Can

 

Damon Pistulka  11:00

Yes, again.

 

Andrew Cross  11:02

I didn’t know if I cut out there. But now there’s no, that’s a very good example, too. Because really, what this does is, if you’ve been through a bad bladder control, yeah. Yeah, that’s really the owners, you know, turning it over to brokers, gab other people coming in, they’ve got auditors looking up their skirt, they’ve got, you know, they have to go clean up policy of the booboo bad employees, you know, all this stuff they have to do. And then they realize, you know, by the time this is all done in this process takes seven or eight months.

They’re too sick of it. And they’ve lost complete control over this. And that’s what if you have a company like that, that you’re answering the questions that you’re talking about with the processes and the people that can run itself, then you’re in control of your ads, I know, knowing your value, what you’re working towards, as well. So you know, and that’s at the end of the day, I think that makes it a whole lot easier for for the sellers. And you know, and makes them happier. said, Yep,

 

Damon Pistulka  12:09

yep. So coming back again,

 

Andrew Cross  12:11

to what comes when you’re going in a good direction. Yeah,

 

Damon Pistulka  12:15

yeah. So coming back again to the the keys keys to preparing a business for sale. I, you know, I want to share my list that I came up with, and I’m gonna clean it up a little bit, because this is much rougher than Mike’s Mike’s got it is really dialed in well, but but one of my first ones, because if you just go out and Google that the big the biggest reasons why businesses don’t sell, and it’s it’s around value.

And I always say you need to be comfortable with the value of your business, the realistic value of your business, because just because you want your business to sell for $2 million, or 10 million or 15 million, that’s doesn’t mean it’s got to support it, as Mike was saying, and has to have the the the discretionary earnings or the appropriate measure for that, that that allows the owner, the new buyers to get the investment return the return on the investment that they want. So you really have to get comfortable with that value.

If you’re you know, you have to be comfortable with that if you’re not comfortable with it, you need to change it. It’s not something it’s not, it’s not, you know, we have to do that if we sell a piece of real estate, right, Real Estate’s got a certain value. And people for some reason think businesses don’t because they’ve got potential, or they got this or that. But at the end of the day, it is about the profitability of a business.

And that is the by and large, one of the biggest drivers of value. In the vast majority of businesses, I don’t care if you read about a unicorn company that sold for 100 times, you know, earnings or something like that, that’s a completely different scenario that or a public company, or, you know, famous company, I mean, just there’s so many variables, but the day in and day out business owner, it’s a simple math, it’s can they make return on the investment?

 

Andrew Cross  14:10

Go ahead, Andrew. Yeah, it’s a difficult thing, I think for an owner, but I like to say you, you need to know value, you need to know your value. And yes, it and keep in mind, it’ll never be as much as you think. It’s not the end of the day. But there’s ways to find out it is a difficult thing to do. Because like real estate, real estate is highly regulated. It puts the consumer in control to protect them. And there’s no hidden information that all the information you need to make a big decision on real estate as an investment.

You don’t get that in business transactions. So you have to go out and learn a little harder to understand your value and just chatting with one of your buddies at the golf club who sold this company four years ago. I’d got a nine multiple buddy bragging about doesn’t make your company with a nine multiple.

Yeah, those, those are the kinds of things you know, because I come up and they got an idea and you can’t, you can’t go into that with, you know, into a transaction with a price in your head or a number in your head. Because you’ll end up chasing the rabbit. But, you know, I think the better way to do it is to find out what you need and get the number you want out of it and start building a company to to that level and and be disciplined about it, treat it like an investment. And,

 

Mike Finger  15:30

guys, you guys are both you guys are both way over complicating this, let me flashback there we go to the mic who owned his business for 10, the first 10 years that Mike knew his business was worth two times revenue. That’s what I read in an article one day. So that’s what my business was worth. So I focused on growing revenue, I got it up to 5 million. I thought, listen, if I get even one times revenue, that’s enough.

That’s enough runway for me to do what I want to do next. And I can put myself right now at my desk hanging up the phone from the third broker who said, I can’t sell it. It’s not worth anything to owner dependent. Not enough cash flow. What do you mean, it’s not worth two times revenue? It is crazy. It’s crazy how we draw conclusions on this huge transaction from the dumbest things like the guy at the golf course who said he got nine times earnings.

 

Damon Pistulka  16:31

I love it. I love you.

 

Andrew Cross  16:35

I actually I’ve got a I’ve got a I got a buddy who owns a little craft distillery tequila business did he market is it sells I don’t know what he’s doing. How much money but when George Clooney sold his company was in the news for I don’t know, a billion or something. If you could give me a call. I can give you a George Clooney?

 

17:04

Yeah. Oh, man.

 

Mike Finger  17:05

Yeah. But we laugh but it’s incredibly painful.

 

Damon Pistulka  17:09

It is it is and it’s it’s terribly painful to and and when you when you look at it, the thing that that is, is what I think is a disservice that the the overall investment banking business broker here, whatever you want to call it is, there is leeway in evaluation there is you know, because part of it is risk. And, you know, and some other things in market, and obviously, I’m not a valuation expert, but there is. So people take that too liberally to get to get maybe get listing to Sell a Business perfectly knowing well that it’s not going to sell for that amount of money.

They’re just hoping that, you know, either they may hope to get lucky and someone bid, you know, be able to come with a sale is too high, or they’re fully intending on that they’re going to have to come back and you know, help the buyer rationalize a lower offer for that business, which I think that you know, on the flip side, what you’re saying, yes, it’s really easy to see the high publicized deals like you and Andrew both bought up.

And you’re, it’s it’s very common. And that’s why I think understanding the value and having a few different viewpoints on that going in. Even if you can, sometimes we do in some of the bigger deals, we actually will float them out to some equity people that we know, or some buyers that we know in the market. And we’ll say, you know, what is what is this value? If it’s good? So yeah,

 

Andrew Cross  18:38

well, here’s another thing, and I’ll just, you know, put this up for any business owner out there, go talk to your banker, you know, go talk to your SBA lender and say, hey, I want to sell my business, you know, what do you, you know, they’re the ones that are probably going to be financing it. So they’re a factor in the decision to it’s not just the buyer. I mean, I don’t know about you guys, but I haven’t done 100% cash deals ever.

People are gonna, you know, people are going to come in and leverage capital to buy these businesses. And, and to get it all cash, it doesn’t happen very often. But a banker is a great resource to really understand your value do is they’ll look at your debt ratios and beyond and your cash flow and all that stuff. And, you know, it’s very common sense at the end of the day as far as the numbers go. So and that’s exactly

 

Mike Finger  19:25

that’s exactly where I try to focus with with owners as we put on the buyers hat and we say, okay, you want this for it. Here’s what here’s the two things your buyer has to do after they buy your business. They still have to buy groceries and pay rent, and they got to pay the debt they incur to buy the business. Okay, so let’s do that simple math. Here’s what your business produces.

Here’s what you want for. You’re telling me I got to bring 70 grand to the table each year to buy this business. How does that work? I mean that. And and again, I’ve been on the other side of the table as the seller where I’m like, why should I have to care about, oh, I guess I should care about how somebody might actually buy this business if I want to sell it.

 

Damon Pistulka  20:14

Oh, I love the conversation because my number two is no your buyer and make the business attractive to them. Now, if you if you’re going to try to put a buyer into that situation, it’s not a very attractive business to them. It is not in the in that that point also brings up your your other point that you made that was so great on the fact. Is it desirable? You can’t it can’t be too dependent on you. That was another thing that I had. You can’t the you have to remove the owner from key operational things.

But knowing your buyer and putting yourself in that situation, just as you said, you know, what does that what does this new person going to be able to do? And how are they going to pay this money back because, as you mentioned, most times, the buyer is going to come in, they’re going to have leverage that you didn’t have as a as the owner, now, they’re going to have to take out that loan, they’re going to be paying that loan back. And then they’re going to want to try to grow the business too. And yes, they’re still going to want to return so they can eat and do whatever else they want with that with some some money. So that is a big consideration.

 

Andrew Cross  21:25

Yeah, yeah. You build equity in the company. But the other guy coming in is starting, he’s starting to climb the mountain. And he’s got to get over that. And how long is that going to take? And yeah, when we call that is what you’re talking about is the price add Chuck. Yeah, exactly. Right. You know, I mean, does the cash flow support the debt service? Does the cash flow, pay the operator, the owner who’s coming in at least a living wage? Because he’s probably going to be working on about a week, at least for the first year? For sure.

And you know, is he getting paid at least market rate for that, and is there enough after that, to read it back, invest in the business, because you know, you have to you have, you can’t just you know, I mean, it’s gonna need to paint every year or, you know, whatever you got to do to it, there’s capital expenditures, and, and there’s got to be enough sufficient cash flow to cover that.

So that’s, that’s the price sanity check. And then we’ll work back what the number is. What’s kind of cool about it, though, is it’s, you know, I hate to be in that position, where we have to talk to the business owners about what they can get, you know, this is the part that I hated about being a broker. Because you know, the bullies come to us at the company, the broker at the end, and then we start talking about all these kind of things.

And there is a lot of time to change things, but you can’t have an impact on it. If you start thinking about it way ahead of time, you don’t know what your number is, where you want to go, where your value is, today, start building a company towards that. It’s possible to do that, and you can do it very quickly. You know, it’s, you know, it’s not personal, right? That’s right. Yes. You know, get back in control of it. Yeah.

 

Mike Finger  22:59

Or even if you can’t get their informed consent, right, now, I understand what my business is likely going to be worth. It’s time to get that simple IRA going, it’s time to do some other things. Yeah. So that I’m not 65 trying to get $300,000 for a business that’s worth 100 grand, because the wife wants to buy a $300,000 home in Florida, when we retire. I had that conversation with the seller, I was a potential buyer. It’s like, well, this is why it’s got to be worth this much. If Well, I don’t care about your Florida home.

 

Damon Pistulka  23:38

Yeah. Yeah. And that’s a great point in buying care. Yeah, market doesn’t care what you want for it. And, and time gives you options, you know, five years ahead. And I know people go, oh, five years ahead, but five years, will allow you to double plus the value of your business if you work on it, and it won’t kill you in the process. And you’ll be able to, you’ll be able to enjoy that extra money throughout those years. And as you begin to make more money, you invest that money into other investments outside of your business.

And then when it’s time to sell you not only did I have a business that’s worth more money, and I sell it for more at the end, I have those investments as well. And those have been accumulating for me all along. This is a time thing and I know I don’t want to sound like a financial adviser, but we use a lot of the same principles when you’re looking at a business like this.

And when it comes to bigger businesses, even like some of the businesses that we sell, that are in the you know, the 10 plus million dollar range, the owners coming in even if there are equity groups that are coming in or other search fund buyers, they’re still doing the same math, you know, they’re they’re still it’s it’s just the math, there’s money beyond just the if they bring a seat eo n or whatever they do, there’s money beyond that, that has to go towards the fund as return, it has to go back to the mothership for return after debt and do that.

So it really doesn’t the the price, whether it’s a $250,000 Bakery on the on the corner or a $25 million industrial bakery, it really doesn’t matter, they still have to produce a return and the valuation principles are similar. Similar, obviously not the same. But similar. So that’s cool. Now, the you said, make the results desirable. One of mine was is, is remove the owner from key operational roles. Now, that’s often very difficult.

 

Mike Finger  25:43

Yeah, that’s the Ken, Mike, Ken, my buyer duplicate my results, right? If that, if the results walk out the door, when the owner walks out the door? What am I buying? I got I got nothing of value here. So it’s got to be about the team. It’s got to be about the systems. And it’s got to be about an owner who’s willing to sacrifice a little bit of their ego so that the place actually runs without them.

 

Andrew Cross  26:10

Yeah, well, absolutely. Yeah. Well said, Yeah, that’s a that’s a, it’s a, it’s a value driver, I think you have to really understand is, you know, if you can come in here, you know, we’ll ask them straight up just if you were doing the business valuation, if one of the first questions we talked about is where you know, where is your key employees? What are the processes?

Do you have your processes written on? Yes or no? Yes. Can you leave the company for two weeks, you know, and go on a vacation and not have to call? If you can answer yes to those kind of questions, then your company is going to jump, you know, in another multiple add value. Yep. As you got the right people running it, I’ll be just on that alone will added zero.

 

Mike Finger  26:57

And again, I think that’s very true. Here’s where one of the places where I want to call out to the smallest to the real small business owners out there. It’s not just about a multiple of value. If you can’t do that, in your small business, you can sell your small business that I mean that if you’re middle market, okay, I can get 12 million instead of 10 million. If you’re a small business owner, you will not sell the business if it’s dependent on you. I mean, it’s just game over. It’s it’s not Oh, absolutely. And again, that’s that’s the problem in this space, is that what you said is truth, Andrew, but it’s not truth for everybody.

Yeah. And and that is that is a horrific reality that small business owners have to understand. Because the majority of the content that’s out there is for the middle market. It’s for that space where that flow is. And again, you’re speaking absolute truth to people who need to hear that. But there’s a different audience out there that should completely ignore what you just said. And there’s an audience out there that should ignore what I’m saying, because it’s what you said yes. to them. And that’s, that’s the reality of this that we as business owners don’t always recognize. Yeah, that’s a great point. Yeah, I think you’re right. It’s

 

Andrew Cross  28:16

a zero sum game. I think for the smaller business owner, it’s not your going to take a haircut on the sale is going to be no sale in somebody factors. That’s That’s the difference. Yeah, absolutely. Good point.

 

Damon Pistulka  28:30

Yeah. Yeah, no doubt. But there’s one that I’m going to bring up that I don’t know that, that it’s that it’s in your list, Mike. And maybe it is because of the size of business we work on it’s but diversifying your revenue. That’s one of the things that we’ve run into the past couple of years that even on nice sized businesses, you know, that are approaching $10 million in revenue and very profitable. diversifying revenue is something that scares buyers away, you know, concentrated revenue is something that scares buyers away at even even larger.

I mean, we’ve we’ve had an even larger business where scared people. So is that what do you think on the scale of that if I’ve got one client are that’s that’s generate 90% of my revenue? Is that in a small business, is that going to determine from the the overall sale?

 

Mike Finger  29:20

Well, it’s certainly a cautionary element for a buyer, right? Again, if we’re at the yes stage on those questions, if a buyer can duplicate my results, it’s still a risk if those results are dependent on one vendor on one customer, right? There’s just no way around that. Does it? does it keep a sale from happening? I don’t know. Maybe, right. Maybe, but maybe not. If I can prove to you that I’ve got this contract with a 50% client that goes for the next three years. You know, maybe they’re going to give you a shot to see if you can pull it off, but it’s absolutely In the head of potential buyers, no question.

 

Damon Pistulka  30:03

Yeah. So what are your thoughts? Yeah,

 

Andrew Cross  30:08

absolutely the lenders to great point, one of the first things they want to look at, you know, too, so Well, I think, you know, like I said, I think it’s not impossible to get a deal done or to get an exit. But you know, if you’re tied in to that tied to one customer, it’s a risk, it’s a big risk for everybody involved. You know, and certainly, I think even beyond that, you can add a few different revenue streams, or a couple new customers. And it doesn’t even have to be for a long period of time, if you can, if you can get that and get that level down a little bit.

You know, you’re gonna increase your value for more, so it’s, it’s a plus, plus, so and it can be done, all these things can be done in a pretty quick if you start thinking about it. But you know, if you’re chugging along at your business with your one client, this is very common in small businesses, because, hey, that one client I’ve had, you know, it’s enough for me, not enough for a buyer.

That’s the difference. If I was going to be taking on a loan as the big bad debt service, like you said, it has to pay himself. That’s just, that’s not enough for them. So you just got to think about that. Think about the customer. Who is now not the person who’s you’re selling your services or product to It’s the new customers a person who’s buying your business?

 

Mike Finger  31:26

Absolutely. And that’s the cruelty of this topic, right? There’s nobody that advocates for this, the client is going to going to come through my door and complain about service, the employees going to come through my door and talk about benefits. Nobody’s going to come through the door and say, Hey, Damon, you want to get out of here in five years? He’s got to start, right. I mean, there’s no advocate for this other than the owner themselves.

 

Damon Pistulka  31:52

Yeah, I think Andrew died on us there. But, but he’ll come back when he’s ready. You’re right, you’re right.

And I think that, that the, the, the owners, they’re just, they have to get educate themselves as much as they can, as early as possible in this because I honestly, at after doing this now for for the years that I did, and I didn’t even realize that when I was doing it as part of investment groups and other things buying and selling, how stressful it is, to, to buy or to sell a company, you know, until now helping with helping the clients doing and it is it is crazy. And it really is something that the more you can be prepared, the more you can be educated, I think the better off you will be as most things in life. But absolutely,

 

Mike Finger  32:47

David, that’s such an important point, I can still remember that time period, where I was spending eight hours a day running my business as if I was gonna own it forever. And then another eight hours pulling together everything I needed to get, you know, to answer the buyers questions and talk to the broker and figure out financing. It’s crazy making.

 

Damon Pistulka  33:09

Yeah, yeah, I ran out of juice did jack I totally

 

Andrew Cross  33:13

ran out of?

 

Damon Pistulka  33:15

Yeah, yeah. Well, we were just talking about the fact that, you know, it’s, Mike made a very good point about it, there’s no one that really advocates for the buyer, in this process. And it’s, it’s, there’s not really a it’s just a it’s just a such a tough thing. And and and then I mentioned about how important it is to really get educated early and do and be prepared. And, and Mike mentioned about the fact that he was running his business for eight hours a day.

And then he spent eight hours at night trying to get the stuff for the buyers, that they wanted their information and everything else ready to go, and how that just adds to that overall stress factor when you’re doing that. And it is a it is a brutally challenging process for for a seller of a business. There’s no doubt about it.

 

Andrew Cross  34:05

It is to and you know, this is very particularly prevalent in small businesses owner operated businesses.

 

34:16

They’re running the business.

 

Damon Pistulka  34:17

Yeah. Yeah.

 

Andrew Cross  34:19

You know, the customer buying the company or buying a business is demanding the bankers are demanding everybody’s calling in your time in Europe, you know, at the end your business isn’t stopping to do and, and it’s just that’s, you know, it’s a difficult thing to get through on top. You know, it’s hard enough just to be in business. Absolutely. Absolutely. But

 

Mike Finger  34:41

then if you’re lucky enough, if things line up then you get through that storm and the and the clouds part in this beautiful rainbow comes in again. I just love that time period after the sale. That’s what a wonderful thing. It’s it was I kid you not it was a miracle in my life. I was, I was scheduling in my heart attack. I didn’t like the business that I was in anymore. I was unhappy. But we held it together long enough to make that exit. And it was just, it was a do over was just a marvelous do over I, I am a huge advocate and cheerleader for business owners. Yeah, to think about this, because it can be a beautiful thing. Yeah,

 

Andrew Cross  35:29

it sure can add on on that particular topic too is as far as planning to go and selling for a business we talked about, you know what numbers you need, and knowing your value. But the other thing about it is when to sell, you know, on the timing, right. And most business owners don’t think of that they just they, you know, I see this time and time again, especially with smaller businesses, you know, they want to do it, they want to, they just say on when I’m done, done, and 65 Now it’s time to sell.

And I want to be done with this. That’s not necessarily roll it back. If you start this process early, you’re looking at a five year window. And it is really exit is about his exit when you know, when you hit your number, you know, it doesn’t need to happen in this year or next year, decide what you want to do plan a building what you want to where you want to get to, and then do it. Because that’s the other problem is you could be you know, I’m gonna keep on going on to this is 65. But we don’t know what it’s gonna look like when you turn fast. One way,

 

Mike Finger  36:33

yeah, that’s a great point. And and again, I think it’s even amplified for the small business owner. Because for most of us as small business owners, that exit doesn’t come planned, right? It comes when on our drive home from the doctor appointment, where we get the diagnosis that we didn’t expect it, it comes with an opportunity that trips across our, our desk that we’re way more excited about than this other thing. But we’re three years from being able to sell this other thing. It Again, when when I talk with a small business owner, I’m not I’m not a big believer in the start with the end in mind, I think I don’t think most of us as small business owners can focus that far ahead.

We got to we got to get to sustainability, right? Yeah, you got to grow your business to sustainability. But once you get to sustainability, you got to be asking those questions that that I started with? Is it desirable kind of kind of buy or duplicate? Can I document because add from sustainability on your a phone call away from? Again, as owners, we don’t think about this topic until it’s the only thing we think about.

And when by then it’s too late for most of us. And that’s why the numbers are so abysmal for small business sales. Yeah, they’re abysmal, because most of us wait, and then we fail. That’s what we do. That’s what we do with this topic. We wait, I’ll do it in three years. I’ll do it in 10 years, and then we fail.

 

Andrew Cross  38:06

Yeah, I agree. 100%.

 

Damon Pistulka  38:08

Yeah. Yeah. Now there’s one last thing that I had on my my list that I was gonna ask you guys about? And how much do you think how much of a role do you think it plays? If the company has nice solid growth, compared to if it’s kind of flat lumping along making? Okay, money and just kind of flat? You know, so if it has 1510 15% year over year growth, it’s been doing that for a few years? Is that? Is that a lot more attractive to a buyer? Or is it really doesn’t matter as long as they’re good businesses? Andrew, I’ll

 

Mike Finger  38:45

let you take that one first.

 

Andrew Cross  38:48

Um, you know, I think businesses that are growing buyers, like businesses that are growing, that’s my experience, and I don’t care if you’re big or small or in between, you know, if you’re, you know, if you’re going in that kind of trajectory, those are the kind of businesses I like to sell.

 

Mike Finger  39:06

No, I would agree with you, growth is always better. What I’m gonna put there the caveat on that growth is expensive. And I see I see business owners sometimes that are, they continue to pursue that growth. I did that I for the first 10 years, I own that business. I was a growth junkie. I just never figured out how to make any money. I kept putting all the money back in so the growth is great. But if it’s coming instead of cash flow, that’s a problem. Yeah, unless you can make a real clear argument for here’s where this you know, here’s where the results are.

 

Damon Pistulka  39:46

You’re You’re 100% right. And that’s a great point that I left out of that and it does have to be producing profits growing growing profitably. So if you’re increasing those profits and that is one of the the caps And one of the things that we often have to help people with is how do you grow efficiently? and still keep increasing your profitability year over year? Yeah. And well,

 

Andrew Cross  40:10

and you, you bring up an excellent point to growth is expensive. And it’s also risky. Yeah. And you know, and if you’re a small business or a single owner, it’s all your risk. You’re in 100%. So it’s all you you don’t have partners, you don’t have, you know, you’re not using the other the bank’s money that maybe you are, maybe you’re not, but you know, and you know, that I think we see that too, that’s a ceiling that businesses get to as well, that they are, you know, they’re in a comfort zone and making enough money, I don’t need to go out and hire five more people to my sales team and add all that payroll and all that risk for something that might happen or not.

Yeah, you know, and, you know, and I’m going to be getting out of this thing in a few years, right. So I’ve may not see the benefits of that investment, you know, all those factors, right. But, you know, but if you can inject, you know, even in a strategic location, some growth in some trajectory, or, you know, momentum into your business, you can impact the your exit significantly, you can put a quite a bit more money in your pocket, it doesn’t take a ton of time to do that.

 

Damon Pistulka  41:19

Yeah. Well, and as you said, Andrew to is as, as you’re in the process of selling, and this comes back again, to to, to when you were talking about Mikey, spending the eight hours a day working on your business than eight hours, preparing stuff for the buyers, if your business falters during a sale? Yeah, it’s, it’s gonna go against you, man, it’s gonna go against you. So you really can’t afford any slip ups during us that so growth actually helps with that some too, because because you’re gonna be able to, you know, a little dimple here or there, it’s not gonna not gonna hurt. But yeah, it’s, uh, it’s growth definitely.

And in makes it more interesting for the sellers, because every time you’re talking to a buyer, and another month flips over and you get the new new new financial statements and the value that the seller discretionary earnings or the EBIT, that goes up a little bit. It’s like, yeah, you’re you better go because the deals not gonna stay like this forever. Right. And, and that’s always, that’s always produces speed and momentum, as Andrew says, and it’s, it’s, it really helps a lot. So

 

Andrew Cross  42:29

yeah, people have to understand, too, this is a fairly long process, you know, once you decide, you know, once you put your business on the market, you’re looking at seven or eight months blocking happen between their, you know, their in closing, and yes, good, bad or ugly. So you got to be, you’ve got to be aggressive, and really keep your foot on the pedal with your business. And that’s, that is a, you know, a common happens to a lot of people, it’s hard, it’s hard to do. Kind of wanting to ride off into the sunset, and you take a little foot off the gas, and then your deals done, you know, it’s called Yeah,

 

Damon Pistulka  43:06

yeah. Well, and and you have to change the way you run your business a little bit too. And, and I had a situation in 2019, or a business owner decided to make a perfectly rational business change. Didn’t didn’t consider the ramifications of it. Well, it dropped their class cash flow by what was it a few $100,000 or something like that, or a couple $100,000 in a month? 250. Well, that business was was a 4x business.

 

43:40

It was actually I think, a 6x 6x. Okay, so I something like that. So it’s a million bucks.

 

Damon Pistulka  43:46

Yeah, it was it was over a million bucks, in fact, of the value of the business. He’s like, well, we just made it but but he didn’t talk to anybody. He just made this decision.

 

Andrew Cross  43:55

It wasn’t a bad business decision. No, it was, uh, you know, he did it. You know, we understood why he didn’t have to do it though. Yeah. Or time so

 

Damon Pistulka  44:04

yeah. So I we talked about redzone thinking, you know, it’s like a football team you play a lot different inside the 20 and we have to we have to help our clients Think about that. You know, you don’t you don’t bring on a ton of new debt unless you need it with new equipment and new trucks or whatever you’re doing and there’s just a lot of things that you go hey, if it’s good, we kind of want to hold during this time if we can help and keep it smooth read it was

 

44:31

great advice.

 

Damon Pistulka  44:34

Good stuff well, you know, I we could talk about this a long time. But I want to just summarize again because Mike said it way better than then I think that that we did but he brought up great points. You know, if you want to prepare your business for sale, Mike finger boils down into three simple questions are your results desirable fault that the profitability of your business And the job or the position that would someone would take over if they’re going to buy that business. I think that’s huge, because that’s the first one. And it’s obvious. Oftentimes, I think the biggest one, yep. But then can the buyer duplicate the results?

And that has a lot of ramifications around risk and, you know, owner involvement in a business and other things like that. I think that’s a great question, Mike. And then can you document the results? And its financials and good record keeping and other things like that. And the thing that that I was thinking about, after you said, that is, that only gets worse, the bigger the business gets to.

And and, you know, we’ve had, we’ve had some very long discussions with auditors and quality of earnings audits and some really detailed financial things on larger companies where you just, you can run a business out of a checkbook, it works just fine while you’re doing it. But when you can’t reconcile at the end in the back to a customer paid me $10 for this item, and the $10 went into the bank here, now, you’re gonna have a hell of a time selling the business, no matter how big it is.

 

46:09

Yep. Very important.

 

Damon Pistulka  46:11

Yeah. So awesome stuff, guys. I’m so happy that we get you guys together and let you talk about this. And I hope that people listening here on LinkedIn, got some got some good benefit from business owners. If you have any questions. Mike, if people want to talk to you about this, what’s the best way to get ahold of you?

 

Mike Finger  46:33

You can reach me, I’m active on LinkedIn. Or you can just go through the contact us at the website exit oasis.com.

 

Damon Pistulka  46:41

Awesome. Awesome. Well, thanks so much. And if people want to talk to, to me, obviously, this is on my profile. And Andrew II, we can get a hold of us that way on LinkedIn. And we’ll be back again next week with some more on the faces of business on Tuesday. And if you’re listening, and you’re going to be around tomorrow, don’t forget we have the manufacturing ecommerce Success Series every Friday at 1030.

And tomorrow, we have an e commerce. Actually, an e commerce client of ours that’s working tomorrow, they’re not going to be selling is one of our consulting clients. So it’s pretty excited about having that tomorrow, we’re going to talk about how resellers can help expand ecommerce sales. So there’s gonna be good. All right. Well, thanks, everyone for being here. Thank you once again, Mike. Thanks, Andrew. Awesome. Have a great day, everyone.

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