Selling Your Business | Business Round Table
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Selling Your Business

Selling Your Business

The interview started with Andrew Cross talking about the basics of selling your business, one of which is to understand your ideal buyer. Andrew stated that the most important concerns for a buyer would be your company’s financial performance and sales growth. 

Andrew also discussed the current market for selling a business, which is still pretty disorganized, making the job of selling a business more challenging. The recent challenges may limit the market profit, but the buyer’s requirements remain the same, and must be properly addressed.

An essential technique Andrew mentioned during the conversation for selling your business effectively is by turning the table and imagining yourself as a client or buyer. Then by questioning yourself about the stuff, one has to consider in that position. Also, have a look at the risks associated with the business and reduce before considering the sale.

Moving towards the end, Andrew gave some reality checks about buyers, which can be found of varying quality. So, it is important to take the time to really know you ideal buyer better.

The discussions made it pretty clear how Andrew Cross has been able to steer client companies thorugh the successful business sale. Selling a business will remain a challenging task. Still, staying firm on your plan and utilizing your skills positively will help you make money and successfully sell your business.

Thanks to Andrew for enlightening our minds with some golden nuggets for selling a business successfully.

 

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:  info@exityourway.us

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

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Selling a Business

The Exit Your Way Business Round Table Live Stream

Transcript

 

SUMMARY KEYWORDS

business, buyers, sell, deal, sellers, business owners, money, pay, cash, people, risk, run, buying, review, opportunity, years, understand, question, company, market

SPEAKERS

Damon Pistulka, Andrew Cross

 

Andrew Cross  00:01

has never been my strong suits.

 

Damon Pistulka  00:03

Yeah. Hello, everyone. Thanks. Thanks again for stopping by the exit way round table. We got Andrew cross with us today. Andrew, how’s it going? Today?

 

Andrew Cross  00:14

It is going well, thank you. Good.

 

Damon Pistulka  00:17

Well, we were talking a little bit of coming in and and, you know, a, we we have these often and we we like to do them. And, but preparation is not our strong suit in these sometimes. So we’re going to talk a bit today about selling a business because we know this is something that business owners will deal with, if they if this is what they want to do. And it is probably one of the hardest things are going to do with their business, if they haven’t done it before. So, you know, Andrew, you’re you have been doing this for a while. And I’ve seen a lot of them come and go and some successfully in someone’s successfully. So the first thing that always baffled me when we when we started working together was the fact that only about how many what percentage of businesses actually sell

 

Andrew Cross  01:11

one in five,

 

Damon Pistulka  01:12

private one? There you go one in five, so 20%, whatever that is, but one in five? That’s, that’s not a heck of a lot. That’s not good odds.

 

Andrew Cross  01:22

It makes no sense. Yeah, makes no sense. Why, why is it so hard to sell a business? And it shouldn’t be? But a lot of it is has to do with the there is a lot of information on how to sell a business because these are private companies privately held transactions, and you know, so whenever you don’t have information available to you can’t get comfortable with the risks that’s involved in buying a business. Yeah, yeah. And it’s, it’s hard. So, and again, we, we don’t like to say, Hey, you know, compare it to buying real estate or buying your home. But it is similar in a way. And they that, but the process for buying a home is much more organized. And it’s really catered towards protecting the consumer or the home buyer. And it isn’t like that in business sales, because there’s no information about it, you don’t know, you know, you know, people don’t really understand there’s no information about what true value is what market value is, you know, and you know how you get a return on it and who represents Who? In the transaction. So it’s just, you’re really there. You know, you’ve got to just fend for yourself? Yeah, it’s difficult to do.

 

Damon Pistulka  02:49

But it’s good point. Because it is, it is. There’s very there’s some information online, you can get about about it, obviously, and those kind of things. But when it comes down into the gritty details of what you’ve got to prepare to sell a business, most business owners aren’t prepared for that.

 

Andrew Cross  03:07

Yeah, that’s correct. And, you know, it’s doesn’t make it a bad business.

 

Damon Pistulka  03:11

No, no,

 

Andrew Cross  03:14

it isn’t, says that they don’t sell either. But what I really are great businesses and, and, you know, it’s a market, it’s a strong market, and the buyers want to go in there, Dale, you know, they’re spending a huge amount of money. It’s a lot, a lot of risks they’re taking on and you know, they want to buy great companies, not just good companies, so has to be even better than that. So all the stars have to align. Yeah, wanted to make it happen. And you know, you can, and a lot of the stars just don’t align you can make them that’s how you get a business sold. Yeah.

 

Damon Pistulka  03:52

Yeah. The thing the thing that’s really, really interesting to me and going through the transactions stuff as we have is that when you’re going through the negotiations to come to price or details on a deal. It is exhausting. It is to say the least it is exhausting. And really even for us being people that are just helping them through it. We’re not the ones that are sitting there going to get millions of dollars into their account if this is done. It’s exhausting to us, but to the business owners it’s it just absolutely mind blowing. I drive him crazy kind of stuff. And I just that that I can’t I can’t emphasize enough is that that negotiation part of it through the details and get down to the end, do the 11th hour it’s 1130 and it needs to be done by 12. And somebody decides No, no, it just happens like this. And that is that is why I think nobody’s really prepared for

 

Andrew Cross  04:56

Yeah, it we call that deal fatigue. And you know, the process, once you start, you know, once you put your business on the market, and that doesn’t include all the time that it takes to get ready and prepare and package your your opportunity that you’re going to put on the market, just from the day you go on the market, it takes most most likely you’re in it for a year before your, your closing. And then you’re going to be around more likely, several months, or even years after supporting the transition. Not often years, but but but certainly months after. Yeah. consulted fashion.

 

Damon Pistulka  05:39

It is not not quick by any means because sellin a business. I mean, on, you know, I think the fastest one we’ve done recently was 120 150 days, something like that. So that’s four or five months. And that was super fast cash thing, you know, smaller business where somebody can go out and stroke a check, but, but anything that has bank funding, you just added 90 days on to it without even thinking because of the bank timing. If you’re lucky. Yeah, you’re lucky.

 

Andrew Cross  06:10

Yeah. I mean, this is the other thing that’s happening now, too, is it’s a disorganized market. It’s difficult to navigate through that. And COVID has made it worse. Yeah, more disorganized. Not that there aren’t deals getting done. COVID is not, you know, people aren’t pulling back. I see a lot of buyer activity, but it’s even, you know, there’s a lot more questions that need to be answered. Yeah, a lot more disarray. It’s harder to find your way through, you know, going through a deal. And you get the buyers and offers and like that. It is a it’s a time consuming emotional, and, you know, emotionally draining and difficult process. Yeah. And at the same time, you can’t stop running your business. So you know, and, and that in itself. Yeah, that is difficult and time consuming and emotional. Yeah. I mean, just doubling down on these things. And it’s, it’s hard. So

 

Damon Pistulka  07:09

yeah, I think you hit one of the hardest things for a business owner, other than the pure volume of information, they’ve got a turnover. And, you know, you get that, that first one, we’ll talk about a little bit more in the preparation, but running a business while somebody while you’re, you know, a buyer, a good buyer comes in, you know, we’re discussing it with the business owner, he’s got to prepare some additional information. You know, always we’re always asking for updated financials every month, they got to make sure that financial performance doesn’t fall off, because that can, you know, put a deal in the toilet. That and and like you said, it’s just that’s on top of the normal running of a business, which are already pretty, pretty full bore on, it is a difficult thing to do.

 

Andrew Cross  07:55

Well, I’ll tell you what it’s like, the process is, if you’re ready, you’re ready. You know, and I haven’t come across one, one client, who’s 100%, right, they all need to get, you know, go back and do some housecleaning to get ready, varying degrees, but it’s like an audit, it’s just like an IRS audit. Yes, you know, and if you, you know, it’s the same kind of stress, it’s that, you know, you’re gonna have to go in, if you can’t get through an IRS audit, if they pick up the phone and say, they’re auditing you tomorrow, they don’t care if you’re busy. No care if your notices your, your, you’re gonna, you know, write some checks, and you’re gonna get people in there to get answers that they need. And get through that if you couldn’t get through an IRS audit, and you’re not going to get your company soul to this, because you need to have all that everything needs to lined up because the buyers are going to look at it even closer, probably than an IRS auditor. They’re gonna deal by look at everything. And the problem is there’s information there that like I said, it doesn’t make up that business, but they don’t the business owner has been doesn’t care about it. No, it doesn’t need that information. But the buyers need that information. The banks need that information. They’re also a stakeholder, make sure they are taking an interest in the business, you know, just by underwriting it, and you know, they are they’re tough cookies to make sure to get them comfortable. Takes a lot there. You know, they when they ask you how you did last month? And you can’t answer that question, because you don’t maybe even look at your p&l until quarterly and then see how you did. It’s not gonna work.

 

Damon Pistulka  09:39

Yeah, you

 

Andrew Cross  09:40

know, you’ve got to be able to answer those questions that you shouldn’t. Even in an ideal world, you should be able to answer those questions anyways, if you’re on top of your business.

 

Damon Pistulka  09:48

Yes. And when you start to you mentioned the the information that a buyer may look at when you’re selling your business even never would and I still do That, to me after doing as much as we have, I still am amazed at that. Because a buyer is going to come in, they’re going to ask you about consumer concentration, they’re going to ask you about how much of your market you you are. And and things like that which you customer concentration, yeah, it’s there. But I can, you may think about it in passing, but it’s not your your focus, when you get a customer and they go, Oh, my customer grows really nice. You go suck if they leave. But it’s you’re not thinking of it in the way is that? Well, that just maybe prevented me from selling my business? Again? Well, customer concentration will stop you from selling your business.

 

Andrew Cross  10:42

Yeah, it’s a lot of risk for a buyer to take. Now, you know, as a seller, you’re the business owner, you’ve already taken that risk? And the answer is sure, you know, I’ve got one customer is 80% of my business, and he’s been my customer for 15 years, you know, and that’s fine, you know, but will he remain being a customer too, and also, what are you risking the sellers risk is different than the buyers risk? Yes, seller is, is isn’t leveraging himself, he’s already got his business paid for, it’s all just cash coming. If he loses it, he just doesn’t lose his potential future income, but the buyer is gonna get a multi million dollar loan over 10 years. And if he loses,

 

Damon Pistulka  11:26

then that’s more than bankruptcy. If you brought you brought up a great point that I think that business sellers really need to think about when they are selling their business. And that is the buyer coming in, and the amount of debt that that buyer is going to take on in regards to their overall wealth and your cars, just the number itself and everything because you hit what I think most sellers don’t understand that. If that customer goes away to them today, it goes away. And yes, they lose the income from that, but they still have their business, they still have their business and everything, they don’t have their business, plus that multi million dollar loan where they’re paying $100,000 a month, or whatever the monthly payments are on that. Plus, if they’re in equity type buyer, the investor money that they’ve just last, because of that this is a this is a much bigger deal for those buyers.

 

Andrew Cross  12:29

Yeah, it’s it to really understand it that if a seller in when we work with the sellers to we try to you got to be a little empathetic, you got to put yourself in the seller in the buyers shoes, then you can really kind of see what’s going on. And, you know, would you do this? If you were on the other side of the table? Would you you know, I mean, it is everything’s risk. You know, it’s all about risk, but you’re not. You know, and that’s another reason it makes it hard to get a deal done. You know, obviously, there’s a lot of risk to it, but they happens every day, everybody, you know, the people who successfully sell their businesses, they will take on that risk, there are no perfect or opportunities, you can find 1000 reasons not to do it. Yeah, you know, you know, but we’re entrepreneurs. So, you know, we have a different threshold for risk. But we got to, if you understand that, and you can build a company that mitigates that risk, or at least build a company and that’s what we do here with eggs, your way is to position a company that mitigate you know, that is addressing the risk for that buyer, then a you’re going to get more money in the transaction is going to happen. Yes, won’t be one of the one of the five.

 

Damon Pistulka  13:41

Yeah, exactly. It’s you won’t be one of the four that didn’t get hold of you, if you get your get your house in order as as when we help businesses. I mean, we’re through this process and through the exit your way process for actually helping them grow their value and prepare the business before we sell them. You know, is is all about the buyer is about the buyer. Yeah, we want the owner to make more money today. And we help them do that when we grow the sales and the value in that and get their team working much better. But that is all to create the end result, which is a a sale of that business that gives that buyer the amount of money they need. Well, yeah, you know, it’s, it is it is interesting, though, when you go back and you you start back at the beginning of this process, and we begin and sit down and talk with the seller of a business. They’re often really surprised at the value. Mm hmm.

 

Andrew Cross  14:41

Yeah. And go ahead. They certainly are and I get it’s really one of the reasons that a business doesn’t get sold. You know, if again, we try to say you know, put yourself on the other side of the table would you spend that money on this how much cash is available to support this purchase price. You Don’t think about it from their shoes. And then where’s the risk? You know, the risk factors? How do they affect that future cash flow to so you know, it’s, it’s so important to understand that, you know, but it you know, here’s a perfect example. The other one is I’ve got clients who go, I’m not upselling, I’m not going to let I’m not going to sell or finance, I’m not going to do a bank loan, it’s either all cash or forget it. And that you become one of the four out of five that don’t sell.

 

Damon Pistulka  15:30

Yeah, yeah, yeah,

 

Andrew Cross  15:32

it happens, cash sales are sold there. It doesn’t, it doesn’t make any sense to spend all cash, if you can get financing is cheap as it is today. Yeah, the might as well just deal in reality and prepare your business for, you know, up, you know, to be financed by the end again, you know, you’re in business, you probably been to a bank and ask them for a loan. Yeah, you know, so consider selling your business, the same process, go into the bank buying alone, they aren’t just going to write you a check. Here’s an application, let’s have a look at your assets. Let’s look at your tax returns. Like, you know, let’s look at you know, if you have inventory, what’s the collateral in, you know, let’s get some third party valuators out there to, you know, to figure out what is the inventory really worth what it is, if

 

Damon Pistulka  16:29

you’re going to leverage the age of inventory,

 

Andrew Cross  16:33

you know, you if you’re ready to go through a process like that they are, it’s, it is not easy to go get along, you know that you have to do a lot to get it. Same thing,

 

Damon Pistulka  16:44

selling the business. The one thing is good about companies that are already getting bank loans at that, where they have to be reviewed on an annual basis by a CPA firm, if they do have their books generally and a little better condition, then, then people that don’t have to have to go through a CPA review every year, not to say that we haven’t run into financials that have been CPA Reviewed, there are a bit strange, to say the least. But it does, it does seem to help a bit. But still, in the end, you know that the value is such a sticking point for so many, so many sellers, because they don’t understand, as you said, they don’t understand that that not as a just a sale right now. And somebody just got money, they’re going to plunk down I mean, they’re going to take a fair amount of the cash flow that that business is generating to pay down debt. While they’re while they’re running that business, at least for at least the first five years and oftentimes longer. So that is that is a significant amount of money that goes out the door right away, then you go, Okay, how much money do I need to support the business growth, replaying re equipment and you know, more inventory, whatever, if I’m going to grow it, so there’s some extra money, I need additional money I need there. And then Do I have enough money to pay myself or any new staff or other things like that I need to do so these, when you look at it from that perspective, then you can begin to justify the price that people are willing to pay for a business?

 

Andrew Cross  18:22

Yeah, I actually have a formula and I’ll put together a full price sanity check. And, you know, we look at the price, but it’s very, it’s very simple, you know, you just think about it is flip the table and say I’m the buyer and buying this business, what do I need? Well, you need to know what cash is available out of this business. And so once you figure it out, because there you know, it, not only annually but at the beginning monthly, how much cash is available every month, you look at that, and in the buyers gonna need enough cash that comes from the business and to a pay the debt service. Pay, if he’s gonna work in the business, which most of them do, or they’ll have, if they’re a better route, they’ll have some they’ll be paying somebody to come and run the business. They got to be able to pay themselves, you know, a good market rate to be a CEO of that company. We need to do that they need to be paid for their time to work in the business and then they need at least a 10 to 15% you know, cash available after that to reinvest in the business. Yeah. And then and then you know, the debt service you know, you’ll be building equity as you pay your debt service down. So you shared You know, I’m an all reasonable investor will say I will put up that money if this is happening and I have enough cash to reinvest in the business pay down the debt. I own this in five years. Yeah. And then you know, they there needs to be some blue skies there are opportunities to grow this and on every every, every buyer tries to do that and come in and do it and do better than it’s doing. They have to come in and improve the business in it. You know, it doesn’t always happen. So, you know, that doesn’t they won’t pay for that potential when they come in, but it will get them to buy it if they think they can do it. So

 

Damon Pistulka  20:13

yeah, yeah, you touch on one thing too there, right? That potential may close the deal. But growth is so critical to, to the buyer to the seller. Now, I’ve been in my business for 20 years, I, you know, I’ve got my houses, my boats, my whatever the heck I want, my business is provided for my kid, my kids are, you know, everything’s, you know, all that kind of stuff is in play or done or whatever. So they’re at a point to where they, their cash needs may be flat or actually going down as they get older. So they really don’t need that. But when you look, the buyer comes in, the buyer is totally in the opposite position, then they’re going to stretch as far as they can to try to buy that business, knowing almost, especially if it’s a private equity or an investment type buyer, that they have to grow that business, to make the return on their investment or make the money they want, when they after they bought that business. So owners that allow their business kind of flatline as they get older, are really doing themselves a disservice. Because in our world, when we see flatline businesses, they almost don’t sell.

 

Andrew Cross  21:28

Yes, difficult, there’s no real reason to do it, I mean, but if they’re steady cash generators, obviously, there’s value to that, you know, and there are, and there’s plenty, there are buyers who are looking for that it’s more conservative growth, growth is good growth sales company, that’s for sure everybody likes that. But growth is, is a risk to and that’s why owners at that stage, don’t don’t go for growth, you know, you you’re taking a risk there, you know, it doesn’t always work in it, it also costs money to, you have to be able to fund the growth in that. But a lot of these buyers, that’s what they’re looking to do. You know, and it’s a good problem for them to solve. Providing the capital, they need to grow the company, whereas the owner who was 100% vested in that business, probably, you know, doesn’t have the risk profile to be able to go, Okay, I’m gonna, I’m gonna run this thing up 20% year over year, you know, at that stage, they’re making, they’re doing just fine what they’re doing so yeah,

 

Damon Pistulka  22:27

yeah, because they don’t have the the loan that they have to pay, or the debt service we’re talking about, they’re not paying a loan on that business right now. And that’s really the, the big difference between a seller and a buyer, the buyer has to pay that loan and that, and, you know, even the small loans are a lot every month.

 

Andrew Cross  22:44

Yeah, it comes down to it, just it’s, it is what it is, but you just need to understand it as a seller, that, you know, the business needs to be able to support that, and then you’ll know where you’re at at that price at that price. If it can’t, then then then you just work back to and then you finally get what your number is to exit is you’re back to where you really truly are as again, it has to do with the amount of cash that’s available, the free cash flow that comes out of the business that you have to pay for the business pay yourself for the work, you’re going to be doing 40 to 80 hours a week, for the next 20 years. And and and you that reinvesting back in the businesses working capital, you got to pay for the new equipment, you need to grow the company, you need to, you need to cover your, you know, your lines of credit, because when you start in that business, you’re going to have zero cash, you have to have that too. So that’s another thing sellers got to think about is the buyers got to Bay bring the money to buy the business, but they also have to bring money to run the business yet the extra, you know, amount of cash that that they’re going to have to come up with. So they asked people, people, a lot of people forget about that.

 

Damon Pistulka  23:53

Yeah, that’s for sure. That’s for sure. So when we, when we talk about the process of selling a business, I just back up a little bit onto that, and, and kind of explain that. So there’s a lot of work that comes before you really start selling the business. And that’s, you know, can you kind of run through the steps, you know, the valuation and preparing information and those kind of things that that lead up to that? Mm hmm.

 

24:20

Yeah, you know,

 

Andrew Cross  24:23

the, the process for selling the business to get ready is, you know, what you’re trying to do is you’re going to, and this is why it’s difficult to work confidentially without telling anybody who what it is you’re trying to sell something. But you’re going to go out there, and you’re going to give a basic description of the opportunity. And then once we have reviewed it with qualified buyers, they’re going to review a proposal an offering package that deals so that that package has to be developed before we go to market and sell the business but hey, okay, what is it that I’m buying, but the next step is the objective is that is give them enough information about that. Yeah, I like this opportunity and then for them to submit an offer. And and that’s usually in the form of a letter of interest, or Li, which is a non binding, hey, I like it. I like the opportunity, I’m assuming all this stuff you told me is correct, I will pay this, here’s my terms. But it’s not, that’s not binding, that’s just the first step. Once you lock into that, when we then we go into the due diligence period, and we’re working towards closing that and then that we’re working with that specific offer, exclusively on that same as if you’re buying a house, you know, you got to offer in, but the Home Inspections need to come in, you know, the insurance, and all that hassle. It’s a very orderly process, and the banking is similar. All we do is take you know what the first day after we’ve accepted an offer, we receive a list from the buyers, saying, Okay, this is my due diligence agenda, I would like to review the financials, I would like to review the detail of I would like to see the bank statements, I would like to see, you know, the cash flow statements, the projections, the business plan, to I want to tour the operations, I want to meet the management team, I would like to see the key employees and review their resumes and maybe potentially talk to them, I want to, you know, I want to look at the equipment, if there’s technology involved, what’s the equipment, you know, I may bring in third party, you know, you know, people to look them over, because they’re on the balance sheet. So what are they really worth that condition? Are they in and, and that stuff, and it just goes out? In that they’re gonna look at all your paperwork, you know, the your Articles of Incorporation, all the documents, the minutes from your formation, all the lawyers are gonna want to see that, you know, as part of that, and how we’re structuring the deal. Am I missing anything? It not, again, because, you know, it’s our, you know, 667 pages long and some gap. So what we do is to answer your question is that list, you, we, we bite with Blitz, they’re something they’re all a little different, you know, some are shorter than others, some are longer than they need to be. But you know, we take that prior to go into market and say, if we can we need to, we’re going to do our diligence before we even go to market and anticipation. And it’s rising, you know, how long it takes and how difficult it is? I mean, I’ve had business owners who’ve been, you know, great business have been around for, but they can’t find their incorporation papers. Yeah. You know, we had a situation like that in a deal. They couldn’t, they couldn’t find it. Because I mean, it was 20. It was 2122 years ago, and they it was in a filing cabinet somewhere. Yeah, they couldn’t find it, then they had to call the IRS. Yeah, um, you know, to see if they could get, you know, the the file of, you know, just corporate documents that the lawyers need to see. And guess what the IRS was closed because of COVID. We’re just waiting. You know, and that kind of stuff, it’s better to find that out, before you go to market and get into a diligence cycle, when you are spending a lot of time and stress and putting people on it, dial it all up and have it all lined up. So it’s ready to go. Number one thing that kills a deal is time. Yeah, if you get into a deal, and you’re stuck, because there was something they asked for, that you don’t have, in some of these things can take a long time to fix. Or they found a discrepancy in the books, we do a deep Financial Review ahead of time, because they’re sending an auditors and if they found something on the balance sheet that doesn’t square out, and it doesn’t reconcile to your tax return, and especially if it has to do with inventory, everything stops, and then then third party auditors come in. And then we may have a really bad surprises. We presented the company with inventory at a value of this. And it’s not even half that. Maybe we don’t even have a deal anymore. Yeah,

 

Damon Pistulka  28:53

that’s a great point. And that’s why why when we’re working with clients, typically, we’re going to do that initial review. But if they, if they know their books aren’t good, we have people that we will bring in that will help them get their books, right because it’s not worth even starting until those books are sound because it’s going to kill the deal and no sense going down the road, you know, 10 miles only to find out that you’re going to run out of gas, you got to make sure you’re ready to go before you get we get our and and that’s really I think the the thing that when you talk about preparation, there’s there’s all these things down to the details. You know, if you can’t find all your tax records for the last, I’d be ready for five years if you need them. You need them that long, but hey, have them ready. But like you said, the things like the the formation documents, and when you have just anything if you have a partnership agreement, and it’s not written up and you got 40 some percent and they got 57% or whatever the heck the partnership agreement is. They got to know that because at the end of the day that money gets split up, you know, or, or just

 

Andrew Cross  30:03

yet, it’s good to find out before you you’ve done all this work and you’re in a deal to find out you have a partner who actually can not agree not to do the deal.

 

30:13

Yes.

 

Andrew Cross  30:14

And they can be a minority partner, you know, and we’ve had that’s a, that’s a terrible surprise, to find out, you know, that you had you had a minority partner or something like that he’s not even active in the business and you’re, you’ve got a bonafide offer on the table. And you’ve been working on diligence and heading to closing. And the partner says, Well, I don’t want to sell. Yeah. You feel or you have a lawsuit, you know, so, but that’s part of the pre diligence, all these things, you know, we flush that out, too. And it’s, it’s the same thing a buyer looks for, too. They are, they want to know, you know, I mean, they will ask questions that the partnership, once a really good example they want, they’re going to make you disclose whether you have 30, you know, outside off balance sheet agreements, or anything like that. Because, you know, they’re not going to pay for that. So yeah, you know, those kind of things that they look at that really carefully. And, yeah, strange things come up.

 

Damon Pistulka  31:12

Like if you brought up one that I think that we we find in almost every deal is, when you look at legal things, like companies getting, getting in some sort of legal argument with somebody of some sort doesn’t matter if it’s 10 years ago, and it’s been settled, you got to make sure you got the settlement papers for those kind of things. Because for some reason it just happened on the deal we just closed is that they came up with it something that was very old, they had to pull out deposit slips or some damn thing for it, you know, but because they found it in the closing process, when the escrow people were going through and doing all their, their work, they find that stuff, so anything and then we you know, last year, we had somebody with an lni audit that wasn’t closed, and you know, and you have to figure out what is what is the maximum that that lni audit could cost you if you’re going to try to close this deal out lni or any kind of thing like that. It’s so because those things will carry forward to the business too, because there are some liabilities that no matter if you do an asset sale or not, they’re still coming out the business.

 

Andrew Cross  32:21

Yeah, it tax liabilities and stuff like that. And escrow, you know, their services, and those are good things to look at. But yeah, I mean, there’s you may have liens on your business, you don’t even know. Yeah, all the time. And, again, it’s better to find those out too. beforehand. So it takes a while it takes Well, okay,

 

Damon Pistulka  32:43

that’s it I did on our on this process, but it is something that every single thing, and no matter how hard we seem to try at the beginning, when evidently in evitable II still find something in the diligence and closing process that it goes. Damn,

 

Andrew Cross  33:04

we’ve seen it all, but I haven’t.

 

Damon Pistulka  33:09

Yeah, exactly. Exactly. So that’s, that’s pretty cool that that, you know, when you try to do your best, but you just can’t you just can’t stop. You can’t stop, but something’s gonna happen. And, and as you say every deal dies at least three times before it gets done. So hey, there we go. Yeah.

 

Andrew Cross  33:32

I think my phone’s ringing. So sorry about that.

 

Damon Pistulka  33:37

I gotta call you back.

 

Andrew Cross  33:40

Yeah, my phone ring through. You’re good.

 

Damon Pistulka  33:44

Okay, well, this is, um, this has been cool talking about the diligence and stuff. So when we get marketing material together and everything, you know, one of the things that that sellers often ask as they go, Oh, have you sold a business like mine before? Or do you have a lot of buyers in your buyer database? which, to me, we’ll talk about the first one. And I want to ask you about that. So if you have never sold a business like this, what really is the relevance in that? And again,

 

Andrew Cross  34:21

yeah, sorry. I don’t know. There must be a privacy button. But I haven’t been able to figure it out. So yeah. I’m sorry. We were

 

Damon Pistulka  34:30

about, you know, they say have you sold the business like ours before? You know, yeah. You know, whatever kind of business and that, you know, what is real? Is there really relevancy in that?

 

Andrew Cross  34:42

Well, and then the next answer is question you ask and you talk to them about their business to say nobody else does is like me. Yeah, that’s who we’re different. You know, there is no there is nobody doing what we do in our business. And I’m like, well, that answers your question. No, I’ve never sold about This is like yours because you’re unique. Not true. But yes, I mean, having some experience in it, I think, in is important in operating businesses, we are business owners and that kind of thing. I think it’s it’s more than just a financial exercise sale selling your business. But we don’t have to be specifically experienced are experts in that industry? You know, it’s more about understanding basic fundamentals of business, and there are differences between industries, but deals a deal a deal is a deal. And, yeah, and we, you know, so that you don’t necessarily and also, you don’t necessarily need to work with representatives who only work in your type of industry, that benefit to coming from the outside. And if you can make me understand it. That’s that that makes it even more saleable. As a company, you know, if you don’t can understand your business, unless you had experience in your industry, then that limits the amount of buyers you’re going to have

 

Damon Pistulka  36:08

is a great point, because I know, I know that the reason behind the the question, it makes sense. And if you read about how to select a someone to help you sell your business, a lot of people put that in there. Mm hmm. I think I think to me, when I talk, when I think about it, I think does that person have true business sense? Have they really had to operate a business? Because when we talk to sell the buyers and sellers, and we’re trying to, to explain an opportunity to somebody is much more about the business opportunity than it is? Do I know how a logging mill runs? an architecture firm runs? I don’t? Do I know the opportunity in that business? Can I communicate that opportunity to the buyers accurately and in any way? That puts the business in a good light? I think that’s important. When I think about it, then have you sold one similar to this before? Yeah,

 

Andrew Cross  37:13

yeah. Yeah. I think for the most part, people understand that after a while, but, you know, if you do need experience, right, but, you know, generalists are probably, you know, better suited for this than specifically experts. We don’t need to run the equipment, or run the computer program. But we do need to understand it.

 

Damon Pistulka  37:34

Well, and this is a this is something that if someone’s listening to this ever, and you know, you’ve got a CPA firm, or you’ve got a law firm, or you’ve got a a, you know, there are specialized places that sell says health care is a huge one that’s got them in there for health care practices. And those kind. You really, and you said this to me a long time ago, you have to wonder if should you go to a someone to sell your business like that, that has 100 other ones that are similar to you all over? And even the Why? right down the street from you?

 

Andrew Cross  38:10

Yeah, there are, there are intermediaries or brokers that’s that specialize and will only sell, for example, maybe CPA firms are only sell law firms, or, you know, they’d stay in their specific industry. Yeah, the only issue I have with that is you got if you got, you know, six law firms to sell, and you come in and going to sell them, you know, which one you get, you start getting a buyer and which one do you show?

 

Damon Pistulka  38:37

Yeah. That’s a good, that’s a good point. And, and I was thinking about it from a different standpoint, if you have those same six there, which one is the buyer gonna look at? They’re gonna look at the best performing why the bunch? If you’re the pack, then maybe it’s a good thing to do. But

 

Andrew Cross  38:54

yeah, I do struggle with that. I don’t understand how I don’t know how I would do it. So that way.

 

Damon Pistulka  38:59

Yeah. Yeah, it’s a question to think about, for sure. And then I think when, when people talk about buyer databases, I really think that’s an antiquated thing we get asked a lot, do you have a lot of buyers in a database, you know, if anybody knows what they’re doing, and in any business anymore, you can reach people, you can, you can find buyers, and especially in our, in our world, we’re we’re trying to reach professional buyers, or investment buyers, or people that are, you know, that are going to be at that range. I mean, if they don’t have large, I wouldn’t say large databases, but they’re not pretty savvy from a marketing and data standpoint. And you know, and different things and having, you know, I don’t want to say just because of us, but if you don’t have a fairly large network on places like LinkedIn where you’ve got a lot of professionals that you can reach out to when you need to do do something like this, or you have Other marketing methods that you use that help to extend your reach to more buyers? I think that’s more critical than I’ve got 10,000 buyers on my list, because those buyers were on your list at one time. But they’re only buyers for a certain amount of time.

 

Andrew Cross  40:18

Yeah, well, if they are, if they are buyers for a long time, they’re not really buyers. Yes, they’ve been a great business, you know, to buy for more than two years. And I asked that question, you know, I don’t think they’re the chances are, they’re never going to get a business spot. And there’s reasons for that, too. So there’s good buyers, and there’s bad buyers, and you can have a database full of names. And there’s nothing wrong with that. People who’ve expressed interest or you know, are actively shopping around for a business, the internet is a great thing, you know, so it’s really about getting, you know, the opportunity out there and exposed because, you know, you have to be proactive to do that. And you have to have the reach to be able to do that too, because there are listing sites, and I think in our industry, a lot of buyers will use, you will just post the opportunity on the internet and just wait for the phone to ring. Yeah, and that there’s nothing wrong with that. I’ve sold companies that way as well, you need to do that. But you also need to do extensive research on on strategics. And those people, you know, are not actively going on listing sites to look for opportunities, but they want to buy businesses that makes sense for them to do it. But you know, somebody’s got to reach out and notify them. And there’s ways to do that, whether it’s targeted, but it’s research, and it’s hard work and social media, and that kind of stuff, you have a good reach for that. And it’s really about them getting getting their attention, and teaching them to that by you know, getting the word out that buying a business is a really good strategy for you to bring your growth like the big boys do. So, you know, it’s it’s a good message. Again, it’s like back what we started here talking about in the beginning, it’s good, I’d prefer it is get as much information about the buying process out there as possible. Because it’s that’s the part two kills, you know, that makes deals on successful don’t happen? Because people are, you know, if they don’t have information, then it’s too much risk. Yeah, that’s the bottom line. No more they know, the better the more power you have, the better, you know, more deals are going to happen. And more good deals.

 

Damon Pistulka  42:22

Yeah, yeah. Yeah, that for sure. And, you know, so we’ve, we’ve talked a little bit about the preparation, the value value, you know, and the marketing materials and, you know, vetting the buyers and same thing, those kind of things. And, and the diligence process, I think, really, the, the, you know, we’re getting out to the time here, but I think that the real thing is, is that sellers of the businesses need to really, they have to find somebody that’s going to sell their business that they think and no, I should I don’t really want to say know, like, and trust, because it said a lot of ways. But man, it’s a hard process. So if you’re going to be going through something tough, you really want to imagine yourself going through something tough with that person. Okay, it’s going to be tough,

 

Andrew Cross  43:16

you got to ask that question. Because this is this is going to be about a year and a half or a year working hard together. Yeah, really, really closely together. And, you know, I mean, you’re not going to be you know, if I’m representing you properly, I’m going to you’re going to be sharing information, we you probably don’t even share with your spouse or your priest. I need to know it all. You know, and you got to feel right about it too. But we do the same thing too, because we can’t do this for you, you know, we’re in it together. And you know, it’s you just, you know, you spent your diligence, do your diligence ahead of time before you decide to go work together on selling the company to make sure that you’re the right fit, because we’re going to be we’re going to be going hard at it for for a good long while. And you mentioned you made you comment on one thing I think is really, really key.

 

Damon Pistulka  44:11

If you talk like with us, when we talk to businesses that want to sell, we probably actually end up helping one on that same one out of five or something like that, because of one reason or another and it very seldom does it come down to you know, we lost on selection, but it does happen there are other once in a while they do that. But I I do. I do think that that’s one of the things that that really plays into our decision in that a lot is you know, do we do we really think that that’s somebody that or a business that we truly can sell, not just list it we’re not in the listing business. I mean, we’re on listing pray business, I mean, we’re in the sell business we and and that’s what One of the things that I think that is a good question for a business owner to ask when they talk to somebody about selling a business, like, how many businesses do you list? And how many businesses do you sell? Yeah, sure, are people that are out there just going, I want all the listings I can get.

 

Andrew Cross  45:19

Well, if you I mean, it’s a numbers game. And because of low, low odds, they will take all comers. And when I say that, it’s like, they would, you know, they would take a business and list it, that I probably wouldn’t, because for a, I don’t think there’s a high probably this one is going to be it’s not going to sell in its current condition. Now we can talk about fixing that, yeah, we got to go back and do some, some work to get it there, whether it’s not producing enough revenue, whether there’s, you know, the price, the pricing is important, and the owner wants a price that’s really, in some brokers will take the listing no matter what, you know, even if it’s just unrealistic for what the owner, want, you know, the client wants to sell that business for that, because there’s a one in five chance, so they’re going to need five listings to get to make a little money. Yeah, that’s, that’s real, or they get, you know, if they want to do five deals a year, they’re going to need to list 20. Because, you know, that’s, that’s weak. It doesn’t serve anybody Well, I think, too, because the business owners, you know, need to understand what what is doable, it’s, let’s, let’s be real about it. And the it figure out, you know, what it is also want to throw in there because it is wasting your time as it doesn’t, that’s the big thing, around another year or two, and then yeah, and then pretty soon, you’re up against, well, I really am tired, and I need to retire, and I maybe I got some health problems now. And then you’re falling into the tragedy, that you built a really good business for a long time. And at the end, you know, that’s a tragic ending.

 

Damon Pistulka  47:07

That’s the only chance that’s the only thing you can do, you know, or something like that. And that’s, that is that is truly a sad thing to see when, when you when you do that, and because it is it is it is a tremendous waste of the owners time, because even if you if you know, if you can’t sell your business, there are there are a lot of other things you can do to maximize your money out of that business, the time that you can run it and close it down in an orderly fashion. And because let’s let’s face it if you if you decided to sell your business, because someone just said they would list it. And two people said, hey, you’re not going to sell your business. And one person said, Oh, I got buyers buy this all day long. While I bet the two people out of three are probably right, yeah, yeah. Now, let’s see, I’m in that situation, I’m going to go out and take that chance, right, and do the things that we would help an owner do or an owner could do, if they were going to do going into an RV, the orderly liquidation two years down the road, because I’m going to degrade the performance that business while it’s on the market, and make my chances even worse. So all you’re doing is is lengthening your time until the inevitable and if you can make a lot more money, if you if you just step back and say my business isn’t sellable, I either I’m going to make the changes to make it sellable. Or I’m going to make I’m going to run this business knowing that I have a finite date that I’m going to get out of this thing. And get as much money out of it as I can while I’m here. Yeah, for sure. Yeah. Cool. Well, I you know, I think it’s always cool talking talking, this gets in people that that are listening to this. Probably don’t realize it. We talked about shit like this every single day. Any questions? Yeah.

 

Andrew Cross  48:56

Reach out, talk to us where we’re at. Because like I said, I’d like to get as much information out there as possible. That helps everybody. Yeah, just share the experience with it the process if you don’t want to understand it, you understand value. You know, the more the more people know the better.

 

Damon Pistulka  49:14

Yeah, that’s for sure. Well, thanks a lot, Andrew. And I hope that anyone listening gets a little benefit from it. We’ll be back again next Tuesday with I don’t even know the guest for next week, but we got some guests that are probably more engaging than us.

 

49:29

Yeah.

 

Damon Pistulka  49:34

But this is a good time. And thanks a lot, everyone and we will talk soon.