31 Mar The Truth About Selling a Business
In this week’s Exit Your Way Live, we had the honor of having Mike Finger on the show. Mike is the Founder of exitoasis.com. He has formerly owned 8 successful business and sold some of them too. Mike and Damon are discussing the truth about selling a business.
The conversation started with Mike introducing himself and how he got into the entrepreneurial world. Mike said that he started his first business with his wife, in the 90s. They started this business from their living room.
After this, Mike shared his wisdom behind the truth about selling a business. He said that after 10 years of his first business when he went to sell it successfully, no business broker was ready to buy it. That is when Mike hit the realization that in order to sell his business, he needs to work on it from a buyer’s point of view.
Therefore, at this point, Mike had a realization and after 5 years of hard work, he sold the same business, with the same number of employees and the same revenue. Just a different perspective. And this is what, according to Mike, the truth about selling a business.
Later on, Mike talked about the 3d perspective that he has for selling a business. These are the three questions that “are my results desirable?”, “can a buyer duplicate these results?” and lastly, “can I document my results?”. Mike says that if your answer to these three questions is yes, that means you are closest to knowing the truth about selling a business. For Mike, this exponentially increases the chances of selling a business.
By the end of the conversation, Mike shared another interesting tip to sell a business. He said that every year, as a business owner, you should call a business broker. Ask them about selling your business and educate yourself with all the information they give.
He said that with this couple of hours of education you can learn a great deal of the truth about selling a business. You can see the strengths and weaknesses of your business and work on them later on. This, according to Mike, prepares a seller well before actually selling their business.
Thanks to Mike for sharing his time and knowledge. Watch the video below for the entire conversation!
Mike Finger is the Founder of exitoasis.com. Exit Oasis is an online business that helps small business owners learn the transitional value of their business. In his entire career, Mike has owned 8 successful businesses. Among these, he has sold four of them successfully. He also co-owns two of these businesses currently.
According to Mike, he is extremely proud of all of his businesses but mostly he is proud of the fact that he has helped various other business owenrs successfully exit. With his experience in business sales, Mike now knows the truth about selling a business. Moreover, he shares this truth with all his clients as well.
Mike has a Master’s degree in Administration and Management from Hamline University. He is also a certified fire officer.
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The Truth About Selling a Business
The Exit Your Way Business Round Table Live Stream
business, sell, buyer, owner, truth about selling a business, business owners, people, buy, damon, exit, desirable, talk, money, broker, brokers, reached, complexity, transferable, create, results, problem
Damon Pistulka, Mike Finger
Damon Pistulka 00:01
All right, everyone. Thanks once again for stopping by exit oil live with me today. I’m Damon Pistulka. And with me today, I’ve got Mike finger from exit oasis. Thanks for stopping by Mike.
Mike Finger 00:16
Hey, Damon. Great. Great to be here.
Damon Pistulka 00:19
Yes, yes. Well, I’ll get my microphone over by me. So it doesn’t sound like I’m talking into a bucket. First of all. So, Mike, great to have you. Because it’s, it’s it’s interesting what you do and how you’re helping people. And when I look at it, I really, I connect with it. First of all, obviously, as we will find out, but but then I look, I’ve got my brother, sorry, and my other good and someone else and then starting to play.
This is life. But But as we talked about the interesting, you, you’ve done something that a lot of people haven’t had, and we’ll get to that. As you as we go down the road of your history and things, but you’ve done for business exits, which most unless you’re in it as an investor or private equity group running in and out of businesses, even that doing four of them, if you’ve been in them and run them and done those things, is really unique. So I’m really excited to talk with you today.
Mike Finger 01:21
Wow, same same.
Damon Pistulka 01:23
Yeah. So kind of where where did this all start for you your entrepreneurial journey?
Mike Finger 01:30
You know, I’ve always been a fan of Michael Gerber’s explanation of the entrepreneurial seizure, that that most of us end up having that causes us to be, you know, to be a business owner. Yeah, that was, that was my experience. My wife and I, in the mid 90s, tripped across an opportunity and made the decision to leap at it. We literally cut our dining room table in half to make two desks and started the business out of our living room.
It Oh, man,
Mike Finger 02:04
it was, you know, down and dirty, we bootstrapped. I still have memories of lining up the credit cards on my desk deciding which one had a free offer that I could use to pay the other one. It makes me smile, but it also makes me a little nauseous when I Oh, yeah, I think back on that, but the business grew. And through that tripped across the second opportunity, doing similar work for a different market. Long story short, after 10 years of what seemed like 18 hour days, which were probably just 12 to 14 hour days. Yeah.
After 10 years, I reached a point of toastiness I was this crispy piece of toast ready to absolutely get out and do something else. Yeah, we had had success growing the business. I had 50 full time employees at the time. Wow. And I had come to the conclusion that they were all trying to kill me, Damon, you know, it’s one of those things you joke about. I tell people I was scheduled scheduling in my, my heart attack, but it that’s how it felt. And wow, just the weight was. I was ready. I was done. I was ready to be done.
Damon Pistulka 03:29
Yeah. Yeah. And and that’s, that’s he you find that a lot in business owners Really? And I don’t I don’t think people that that are not entrepreneurs or business owners. Really don’t appreciate that. Because that that feeling is just that is like, this thing could kill me. And and it’s not like, maybe it’s like a definite possibility.
Mike Finger 03:59
Yeah, absolutely. I mean, I say some of these things. And it sounds like maybe it’s just color commentary. But I can remember hiding under my desk in my office, because I just didn’t want to deal with anybody else. For the rest of the day. It was just, I needed a little quiet time. And it sounds ridiculous to say it here. But that’s, and again, by all outward appearances, the business was successful. I was doing my job. But I had reached a point of burnout that I needed to do something about and so I had, I had thought I had done my homework, right.
I had read the article a couple years before that said, businesses in my industry sold for two times revenue. Yeah. And so I kept I kept doing the math and pushing my pushing my revenue higher and higher because I figured well, even if I just get one times that that number that’s that’s a good run. For whatever I decide to do next, and lo and behold, a couple calls to Business Brokers that it would actually triggered it as a competitor there, they’d reached out to me. Yeah. And so I put together a little package.
And you know, here’s here’s a little bit more about the business. And then I didn’t hear anything. And it was, it was silence until I reached back out. He said, You know, we’re, we’re not interested. So I reached out to a couple Business Brokers and started to get the list of symptoms from them right. To owner dependent, not enough cash flow data data, you know, the ones we can tick off. They all translate to one thing unsellable. Yeah. And so I found myself 10 years in, sitting at my desk with my head in my hands and wondering what I was going to do, because I couldn’t get out. And I didn’t think I could stay in.
Damon Pistulka 06:00
Yeah. That makes your stomach just kind of turn talking about it.
Mike Finger 06:07
If I can smile, because I know the end of that story.
Damon Pistulka 06:14
Mike Finger 06:16
here’s the reality, Damon, and you know this better than I do. All business owners experienced that experience those moments, but a an incredibly high number, reached that brick wall. And don’t live to tell about it. Yeah, I was lucky enough at that point, to be able to find a way through that to create some changes in the business that allowed me to get to a place where we were able to sell it five years later. Ironically, five years later, when we sold it, we had the same employee count, we had the same revenue figure. But we had been able to change the business so that it would actually be attractive and buyable by a buyer. Ah,
Damon Pistulka 07:09
that’s awesome. That’s awesome. So when you were doing that, how did you how did you really figure out what changes you were going to make?
Mike Finger 07:22
You know, it’s one of those things that when I look back at myself, I don’t understand how I didn’t ask these questions, right. I mean, I, and I was going to do an a back and forth with someone on on LinkedIn yesterday, talking about this place that we get to as owners, where we’re ready to sell, right, yeah, we run the business, we run the business, we run the business, boom, I’m ready to sell. And then most of us and I buy most of us, you know, the numbers, right 80% of businesses are never going to sell.
So most of us that reached that point, suddenly find out that the fact that I’m ready to sell has nothing to do with whether or not the business is ready to be sold. Yeah. But the problem is, is that all of the influences that have brought me there, whether it’s burnout, whether it’s a family issue, right, you got to move across the gun, whatever it is, that brought you to the point of I’m ready to sell doesn’t go away.
Even, you know, when you’ve suddenly recognized the fact that the business isn’t ready. So reaching that point, for me, it was it was down and dirty in the trenches. And I think the starting point, and one of the places that I try to bring folks that I talk with to as quickly as possible is let’s take a step back. And let’s put on a buyers pair of glasses for a second. And let’s talk about what are the basic needs that anybody who buys a business?
Not anybody but let’s let’s let’s be, let’s be accurate, most anybody that buys a business, what what is the buyer look like you? You know, Damon, it’s, it’s an individual, right? They’re planning to work full time in the business. They’re planning to take a salary from the business and use it to buy food for the family. Okay, so those are the Those are some basic realities for a buyer that if your business doesn’t satisfy, you’re not going to be able to sell that business, or at the very least, you’ve dramatically limited the pool of potential buyers.
Yes. And so when I started to look at my own business that way, I came to the realization that all of this self sacrifice that I had been doing for the last 10 years that I thought was building value was in fact doing the opposite. Right. It was creating a job I asked people, you know, if your job sucks, why would someone want to pay you for the opportunity to do that? Yeah, yeah. 18 hour days doing lousy work. never see the family low pay. Yeah, by that. Yeah. But that’s the business I had built.
Damon Pistulka 10:17
Mike Finger 10:18
Yeah. That a lot, Damon?
Damon Pistulka 10:20
Oh, yeah, yeah, you see, you see it a lot in in, as you say that. It also creates this kind of weird codependency on the business and with you too, because, you know, you get to that point, even if you’re burnt out, you’re asking yourself, or what the hell am I going to do after this? If I sell it today? Right. And it can because that’s all you know, it’s I mean, you know, a lot of times they’ve given up, given up friends, always you’ve given up time with family, you know, and sometimes marriages, if it’s, if it’s bad, it’s bad.
And and that thing becomes more like a family member than anything else. And and even if it’s an ugly dependency on each other, they don’t want to leave. I’m sorry. It’s, it’s just it is, it is a weird thing. But once you started getting your business into that point, did it become easier for you to run? Were you were you able to, you know, not be 18 hours a day, 14 hours a day, maybe? Or what? What What did you really see once you started to, to get your business in a shape to be sold?
Mike Finger 11:31
Yeah, it’s so funny, because it was a journey. It’s it was an embarrassing journey of self awareness, Damon, and let me give you a real simple example. One of the things that became very clear to me, when I started looking at the business from a, from an owner dependence perspective, was the fact that I had a lot of trouble being in the room, and not being in the room, right?
If I was on site, if I was in the meeting, I, I had a tendency to be that guy, be that manager. And I knew as long as I did that, that that owner and I had great people, I mean, I had great people. And they had essentially developed a crutch for me, and for my tendency to do that. So one of the things that I ended up having to do is I bought a small building on a main street in a town near where we live. And I stopped going to the office, and I started going there for work each day.
And so now I’m, I’m 45 miles away from the office, I’ve got people in positions in the office do a job running the business, but I had to essentially put myself in prison to keep myself from messing with the business. And, you know, reinforcing that owner dependence. So I mean, that’s, that’s one example of where once I started to recognize what I needed to do. It wasn’t always clean or easy to do it. But when you realize it, I mean, it just it makes such common sense when you look at it, right? Nobody wants to buy a business that’s dependent on the owner.
I mean, it’s just common sense, right? Yeah, you’re sitting in the owner’s chair, doing the work every day putting out fires, saving the day doing those things that you had to do for the first five years during startup that if you hadn’t done the place never would have survived? Right? Yeah. We’re not talking about I mean, you know, it’s funny, I see that sometimes. The story is about starting with the end in mind, and you know, you need to you need to build the I don’t know about where those people come from that tell those stories. How much money did they have in the bank to start? Yeah,
Damon Pistulka 13:54
yeah. Yeah. It’s,
Mike Finger 13:56
so it was that journey of recognizing what a buyer was going to need, and then getting the crowbar out to pull myself away from whatever it was that I was causing. That was creating the problem? Because I’m a firm believer that if you’re the owner, it almost always comes back to you. Yeah. Either either the cause of the problem or the the solution to it.
Damon Pistulka 14:23
Yeah. Yeah, that’s that’s something and 45 miles away. You pride yourself out of it with a crowbar? I like
Mike Finger 14:33
Damon Pistulka 14:35
Yeah. I wrote that. Yeah.
Mike Finger 14:37
Did you know what happened when I did that? The business got more profitable. My staff got more showed more ownership about what what their jobs were and what they were doing. And it was embarrassing. I mean, clearly, I had done a good job of hiring the right people. But so there were things I did well, but being there sharing my anxieties and my stress with everyone was Yeah, was not making things happen.
Damon Pistulka 15:07
Yeah, writing it down, I was good ownership exile. I like that, like exile. I like that word. Because it makes sense. I mean, when we talk about it with with, with an all the way through all this start back at the beginning, you know, you’re sitting there and you’re starting this thing up and you’re doing like you’re saying with the crowd, I mean, that’s real life. I mean, that’s real life, you’re like, hey, are we gonna be in business tomorrow, I got $50. Here I go, you know, whatever it is, you’re rolling around. And it is incredibly hard to break away from that.
And you see me as a business or you as a business or anyone else has done this and not gone through that process where you’ve extracted yourself forcefully from this. I mean, you’ll see business owners that are looking at $2 items. And where did that $2 go when they’ve got a $20 million business? If they’re not careful? And really, they’re there? Yes, someone’s got to be watching that. But obviously not the owner, and then surely not the owner when you’re trying to get that thing ready to sell because the businesses have to run on their own. And because otherwise, you’re the value and you just walked out the door when it closed or when you left?
Mike Finger 16:23
Yeah. So and that, that even that implies that you’re creating value, right? I mean, how many owners have I talked to that are overwhelmed, underpaid? You know, I remember sitting drinking coffee across the table at a public restaurant with a woman talking about her business and recognizing that there was no value there. She had been working minimum wage, you know, 14 hours a day, seven days a week, any buyer would have been so much further ahead to just go get a part time job somewhere, literally, I mean, literally further ahead, getting a part time job somewhere.
And she it she and she wasn’t looking for a huge amount of money. Right? She wanted 50 grand for the best. Yeah. And there’s nothing here. Yeah, there’s nothing here. And it’s a it’s a hard place to be. It’s a hard place to be as an owner. And I say that as someone who was there. Yeah. And you just look at yourself. And you think how could I have missed it? How did I? How did I not understand? What is it going through the minds of an owner that allows us to get to that place and think there must be a way out?
Damon Pistulka 17:48
Yeah. Yeah. Yeah, that’s a great point. Because it is in there, there is something that that clips that makes it whatever reason you just don’t even think about that. They think about the business and keeping the business going. And these things that that don’t make sense. And when you look at it in hindsight, like you did, so that was that was interesting. And then you then you moved on and and you’ve done a few things since but your whole focus in what you’re doing now with exit oasis. Can you kind of tell us about that, your ideas behind that and what you thought there?
Mike Finger 18:26
So the here’s here’s the premise. It’s it struck me as I was going through this, and subsequent to that, and I’ve been lucky enough, I sold those first two businesses and was lucky enough to buy and sell two additional businesses, and quite honestly, to simply prove to myself that the first time wasn’t a fluke. Yeah, what I had learned could result in that. And and so the the premise that I have daymond, and you you call me out on it, if you if you disagree, this whole Sell a Business industry is populated by professionals, who by and large make a living managing complexity for people.
The truth about selling a business tends to be a technical process. There’s a lot of things that can go wrong. There is a there’s a multitude of things that a broker or an agent or those that help need to understand legally tax. It’s a complicated industry. And so it’s quite understandable that most practitioners in the industry focus on the complexity. The problem is, is that most owners, especially small business owners, fail to sell because of very simple things.
They don’t, they don’t they never get to the place where they’re there. They’re screwed up by a complexity because they failed to manage The very simple elements of what a business that has transferable value looks like. And so the idea behind exit Oasis was to create a space where business owners can see content and engage in an education process that will help them understand the 95% of what creates a business that a buyer is going to be interested in. And so that’s really been the focus is the idea is what are the basics? What is what is a sellable business look like? And if you’ll indulge me, I’ll tell you what the answer that question,
Damon Pistulka 20:41
let’s hear it.
Mike Finger 20:43
Number one, your results by your business, right? For almost every small business owner who sells the buyer of that business, is going to use the cash flow of the business to pay for the business. Mm hmm. And so if I don’t have results, that can do that, that can allow my buyer to pay off the loan that they took to buy the business and to buy groceries, I don’t sell my business. So it starts with my results by my business. Then we asked three questions about the results.
And I call it the 3d perspective on your results. Number one, are my results desirable? Number two, can a buyer duplicate my results? And number three, can I document my results? And my premise is, if you as a business owner can answer yes to those three questions. your odds of selling your business have gone up exponentially? Yes, we can’t, it’s almost certainly going to result in an inability to sell your business. Those are pretty simple issues. I we don’t have to get real complex. We don’t have to talk about ratios. You need to be able to answer yes to those three questions. Mm hmm.
Damon Pistulka 22:03
Yeah, that that would be we’ve never talked about those things before. I think those three things are the results by buying my bid or sell my business by my bids wherever you want it. It is it is crazy. It is desirable. Crazy simple. And you’ve hit him right on the head as I’m just sitting here kind of flour gas a little bit actually. Because desirable, can I duplicate them and and document them? Because it is that covers it? Because most most times it’s it’s that because the biggest thing that stops a business transaction is usually the price that you’re going to get paid for the business.
Yep. And if it’s if it’s desirable, and it’s the right amount, basically, you’re going to get paid what you want, if you can duplicate it, or someone can see how they’re going to continue that business and can continue to grow on it. They feel comfortable that de risked that turn that buy for them purchase for them. And then documented is even better. Because if they can see how you know if the financials are clean, and everything else, and they can look through all that, that just makes it even more comfortable with buying. But any one of those three simple things like you said, the rails at all, all the time.
Mike Finger 23:19
Absolutely, absolutely. It’s the and we can talk about derail. And you’re absolutely correct about that. But what people don’t understand is those deals that get derailed are the rare exception, because most have gotten rejected by the broker before they ever get listed.
Right? Yes, it the ones who actually fail at selling their business are the rare ones. Because most of us have failed to create a business that can be sold. I talked to brokers that, you know, it ranges from eight out of 10 to nine out of 10. Sometimes when they’re really when they’re really skeptical, it’s 14 out of 15. But that’s what they tell me the number of calls that they get from business owners the rejection rate, yes, I’m going to pass on eight out of 10.
Sellers, because I don’t want to waste my time with this business because this guy tells me he wants a million dollars for the business but as his tax returns show and lose money every year, but hey, wink, wink, nudge nudge those aren’t the real numbers, right? Or we talked about desirability of results. And again, I know from personal experience that you can work 1000s and 1000s of hours of overtime a year and not take a penny and that the business the mechanics of the business can benefit from that. But that’s not desirable, right? I mean, that doesn’t create an outcome that I as a buyer go who I got to get me some of that.
And that’s what we’re talking about when we talk about desires are not that complicated. I want that life Damon I want your life. Look at this guy. He’s got a You know, 20 hour work weeks, he’s pulling in this kind of cash, he makes really cool people travels or whatever it is that your particular buyer is going to be looking for. buyers are all different about what’s attractive to them. I’m not saying your story has to be identical to someone else. But it has to be desirable. It has to be a result that a buyer can duplicate.
Right? I mean, that’s. So what what I’ve, you know, when I talk about this, and it’s hard to talk about it without without sometimes it seeing it seeming insulting. But this is the elementary school of sell your business. That’s what exit Oasis is designed to be. It’s not designed to be super complicated, because it doesn’t have to be. In fact, the more people spend time on the complexities unless they’re in a middle market size business or something. I think learning how to sell a business is a waste of time.
It’s a waste of time for business owner, I talked to business owners who just got done with their four hour Aesop luncheon, where they took a deep dive on this very narrow, particular way of selling their business. And it’s never going to happen for them, right. I mean, it’s, but somehow they feel they’ve educated themselves towards their exit, when in fact, all they’ve done is reinforced the myth that we have that our businesses are sellable.
Damon Pistulka 26:29
Yeah. Yeah. Well, we’ve got Sherry Lally, he’s got a question here. So let’s inventory brand and past performance. And I, I let you elaborate a little bit on to, you know, when he talks about past performance, when I when I look at past performance, and we look at financials, right, I always think when I say past performance, its financials. Maybe there’s other things she’s thinking, but that to me just sets the price, if you can sell it, yeah, if you can sell, right. So if I make a million dollars, or I make $100, really doesn’t matter.
There’s there’s some sort of mythical multiple that, that valuation people or brokers will put on that. And, and that’s in a perfect world, if you could sell it. But it really is about the things.
Whether you can sell or not, is the is the thing. Really, it’s go nogo, more than, you know how much until you get past these simple things, like you said, Is it a business that somebody else would like to work in? And like, you hit it so well? Can they continue selling the way you are? or making more money? And then, is it is it all easy to to show that you’re actually doing it? And the documentation in that thing? And I think, yeah, you know, past performance is important, because that sets the price. But if you don’t have, like you said, it’s desirable business, that that’s easy to keep the sales coming like they are in the profits going, it’s not going to go anywhere.
Mike Finger 28:01
That’s right. That’s right. It’s a and to me, it speaks to some of the other challenges that we have as owners to overcome in terms of knowledge in this area, because you and I both know that value is is a big buzzword in business sales right now. will maximize your value will increase your value do these things to improve the value of your business? And I get it, the problem that I have is that all of that implies that there’s some value there to begin with.
Yeah, and again, if 80% of small businesses will never sell, that tells me that in most of those cases, the value there is min minimal, right. I mean, our stuff is always worth something, right? We sell our stuff. Yeah. But when people talk about selling their business, they’re not talking about selling their stuff for 20 cents on the dollar. They’re talking about taking 30 grand of equipment that somehow produces $350,000 of sellers, discretionary earnings. That’s the kind of business that a buyer wants to buy.
And so it’s it’s overcoming that understanding or that that that sometimes it feels like a tidal wave of misinformation. And again, I don’t think it’s done intentionally. Like I said, I think this is an industry, I believe it’s an industry. It’s an industry defined by complexity really sucks when you hear the story of somebody who, whose deal fell through because the broker forgot to do such and such, or the banker couldn’t get this element of it, right. I mean, that’s the scary stuff that we hear. What we don’t hear about is the eight out of 10 owners that get hung up on by the business broker, because the broker thinks, why would I waste my time?
Damon Pistulka 29:57
Mike Finger 29:59
I’m trying to Speak to the eight out of 10.
Damon Pistulka 30:01
Yeah, and we have those calls every week, we have those calls, or my partner does, we have them every week. And in when you when you look at that, and you, you know, it’s the same thing and, and when you sit down with somebody, and you talk to them about their business, it’s my back as well, it’s their baby. And there’s nothing worse in my mind in business than when I would sit down with somebody or my partner would and Andrew and he’d sit down, and we talked to him, we say, listen, Mike, your business is worth $300,000 $3 million, doesn’t matter what the number was.
And it’s, you know, you can just tell in their eyes, when they hear that number, it is way less than they thought or, or need. And that that is why when, when we first met, and I saw exit away aces, I was like, wow, there’s somebody else that kind of connected with me on that part of it, because that’s what drove us to do what we do. And to and to really talk to these, these business owners about this as much as we can. And then even if they’re willing to, at a certain point, help in different ways.
To to get their businesses ready to sell, if there’s something there to, you know, and, and quite honestly, the worst part is most people wait too long. And they physically, mentally, whatever it is, they can’t do like you did in the business, they the first business you’re able to get out of and take that five years and do whatever you’re going to do and and get it prepared and actually exited. They’re just like, there’s no way I’m going to do this, I’m going to change my life. I’m going to stay in my business until I physically can’t stay in it anymore. Right? And then my family’s probably going to have to deal with it after I’m gone. That’s right.
Mike Finger 32:01
Yeah. It’s it’s a devastating place to be I I’ve had so many of those conversations where you’re talking with someone, and you are literally watching their retirement plans disintegrate before you, right? Yeah, my business is worth 3 million, that’s going to get us to Florida and the place that we want to buy and data. And you can watch as they and and again, we’re talking about businesses in these examples where the number is lower than they want it to be. But there’s still a number,
Damon Pistulka 32:40
there’s still a number. Yeah,
Mike Finger 32:41
right. Right. But again, that 80% Now, obviously, in that 80%, or some people that wouldn’t accept a sellable price, but that’s part of that. That’s, that’s one of the frustrating things here is how many of us as owners get educated about this stuff, by the marketplace, right? You you hear the stories of the people who list at a certain price, only to get an offer to at half that price, which in reality is a fair offer for the business, but because of their expectations, or because of the fact the broker wanted to buy the listing, they would they they lose out on on real opportunities.
But again, my my passion place is is for those owners who were who are where I was, right, by all outward appearances, a successful business, but just not no transferable value, nothing there that was going to create a situation a buyer, not only would want to come into but could right I mean, what we forget about is that most buyers are going to be talking to the banker, or they’re going to be talking to someone else that’s going to bring restrictions to the table.
Damon Pistulka 34:00
Men are that
Mike Finger 34:01
that are going to be a hard No. So it doesn’t matter if the buyer loves the business. Yes, it’s hard. No. Yes.
Damon Pistulka 34:09
Yes. And that’s that’s the other thing that you brought up a couple things in there. And one of them is is that in the in a lower market, lower middle market, you know, the sub 1 million business. I mean, if you talk to three people that are going to sell your business, and one person says that they can sell it for a million, and everybody else says they can sell it for 500 400 600.
That person isn’t going to do anything special a sell for a million dollars. It’s math. Yeah. It’s math. At the end of the day, you can call I call bullshit on that every single minute and I will do it till my deathbed is that it’s bullshit because nobody has a secret buyer that’s gonna pay double the money for a business because the math is very simple. As you said before, I have to buy that business. I have to pay that loan back And get a return on my money.
Mike Finger 35:03
Yeah. And and it’s, I mean, part of the part of the program we have is labeled the simple approach. And the premise is this, you know, Damon, if I challenge you and I asked you to pick what you know a couple things that you need to do if you want to be healthier, I don’t know anything about your medical history. But pick one or thing, two things that you want to do, you’re going to tell me I’m going to eat right. And I need to exercise right? We both know that everything else in our world can go screwy.
But if I do those two things, I’m going to be healthier than I was. Where’s the eat right and exercise of Sell a Business? Right? It’s its complexity. It’s, oh, well, you know, here’s private equity requirements. And then then if you actually study, right, if you actually look at the numbers for the special buyers, right, the private equity, that the Aesop’s these, it’s such a miniscule sliver of the market that ever gets to experience any of those things.
Damon Pistulka 36:01
Mike Finger 36:02
What are the rest of us who buys our business? An individual who needs to make payments on the loan, and buy groceries for the family? Right? Those are the things if I can’t do those things, I can’t buy your business.
Damon Pistulka 36:16
Yeah, yeah. And that’s, that’s exactly right. And even if you do have a business that’s in the size range that an individual buy it, there’s there’s two things that come with that one. Familiarity, the buyers become a lot more savvy in the buying process. And so there are no stupid money buyers in a larger business, they know the value, they’ve got a very clear, they know this.
And the second thing is, they’re far more risk averse than someone’s going to buy than an individual is going to buy it because Damon knows construction. Damon’s been a contractor, Damon’s work, you know, maybe even run another construction company, he’s buying another, another competitor, whatever it is, at that level, I’m risking my money.
But when someone’s risking investors money, it’s like your, your, your nine year old grandmother’s last 50 bucks. And if you don’t make that into 60, she’s gonna you know, she’s not making it past Tuesday. That’s, I mean, just that’s that’s the that’s the way you got to think about it when you look at risk and all these other things. So I think there there’s no, my point is there’s no easy money and so on the business anywhere, it has to substantiate it. And it has to meet those three basic criteria that you said. I think it’s a little those are golden.
Mike Finger 37:42
And it’s such an interesting reality of the marketplace that those that are in the Sell a Business industry, make money from businesses that get sold. They don’t make money from this majority of the marketplace that we’re talking about here, write that down sellable business, and it’s such a negative term, unsellable business. I’m a big believer in the positive outcome of owners being negative about their chance to sell. Because I don’t think that we have a tendency to change something until we’re aware of it, right? We as business, we, as small business owners, we’re doers, man, we’re going to get stuff done. But it’s only the stuff that we choose to do something about. And the truth about selling a business, is there are no outside advocates, right?
If you’re a business owner sitting behind your desk, I guarantee there’s employees coming to you to talk about the benefits program, I guarantee that clients have complaints, I guarantee the IRS is going to drop a letter on your desk, all of these things are going to screen for your attention. Tell me who advocates for you getting yours when it comes time to leave your business? Only? That’s it, right? I mean, who else who else has a vested interest in that. And so we have a tendency to put it off. And we put it off because this is more important, or this is this is happening now. And I’m not ready to sell anyways, we and what happens is we wait. And then we fail.
That’s the formula that most small business owners use. When it comes to selling their business. We wait and then we fail. And it is a brutal place to be either as a participant and or a viewer of others. Or again, getting to that place myself and realizing how much work I had to do from a place of burnout. I worked hard. I made good decisions. I made bad decisions. But there’s no question I got dumb lucky. Because I know people who are smarter than me and work harder than me that were in that place and weren’t able to make the changes because it wasn’t they waited and then they fail.
Damon Pistulka 39:52
Mike Finger 39:54
So how do we do a daemon? How do we get owners to engage this time before they’re ready to sell their business,
Damon Pistulka 40:06
you know, that’s a good question. Because I think it’s it’s almost like retirement planning, right? Nobody wants to do retirement planning till it slaps him in the face and they go, damn, I should have been doing retirement planning my whole life or whatever. You know, I think it’s some of that is that and, and because we are optimists and we’re, generally better snobs are optimistic, they’re doers, they’re worried about the task at hand.
They’re not thinking about the end. Because it does signify the end to I really think there’s a lot of the psychological in that, because once I embrace the fact that I’m going to be doing something after my business, I there is an end to it. Yeah. And the only thing that I can think of when when I when I try to conceptualize This is, there’s two ways to end something. You see people that have they retire from a job and and it’s daymond didn’t come to work yesterday. Or today. Damon doesn’t go to work today. And nobody knows. Damon’s just not at work today. But there’s another way is the day that Damon’s done.
There’s a big party. And we have a lot of fun. We reminisce over the time that Damon had at this business. And I’m I get to hug everybody. And I get to say thank you so much. And this is a great thing. And I’ve been just lucky, I’ve been here for 25 years and everyone and just feel like family and you can leave like that. And party eating cake. Having a beer, whatever the heck floats your boat. We should think about doing it like that. Because the fading off in the sunset. Nobody wants that. Really I don’t think maybe I’m a weirdo. But it I think that but we don’t think about it like that we don’t think about it can be a party, it can be a challenge.
And that’s the other thing. I think it can be a true challenge. Because if you’re sitting here like you were in your desk at that time, and we got to get to the other ones, too, because I think it’d be fun. But you’re sitting there at your desk that time. Feuer just said, Listen, I’m here today. I’ve accomplished all these other things. I’ve had this business for this long. Let’s get it to there. And when I get there, my my reward is I get out. And I think that’s another way to do it is because we are doers to set it but but again, they have to be have to be ready to think about it.
Mike Finger 42:38
They do and it has to be an informed goal. Because Damon, what you just described? I did. The problem is is that I did it based on faulty information. I did it based on a revenue goal. Yeah, because I thought that’s what my exit was going to be built on. And yeah, but you’re absolutely right. I mean, again, I I don’t want to dismiss the value I had created. It wasn’t transferable value. Yeah. Yeah, I certainly had a an infrastructure and a business and all of that stuff to work with when I finally started to convert, but when we build towards uninformed outcomes, it’s brutal, right?
Damon Pistulka 43:21
Yeah. Yeah. Well, and you make a great point and bring up before is, you can be set into the business, pulling down half million dollars live in great, and you can’t sell that thing. You can’t sell it, there’s no way in hell, you’re gonna sell it. Because it’s not transferable, as you said. And I think that that being really informed, as you said, is so important. Because just because you’re making money just because your business is a certain size. You know, we had someone we’re working with last year, it was a $40 million business.
And they didn’t get half of they wouldn’t have gotten half of what they wanted on the open market because the way that they were set up in the business. And and these are, these are things that people deal with all the time. And I think you you come back to being informed and I think that’s part of it, and how it’s still a mystery to me, but we try to crack it every day.
Mike Finger 44:22
I try when i when i when i have conversations like this when I you know, I put content out on LinkedIn and when we write an article or something like that, the audience that I keep in my mind, is me at your nine and a half of that of that first business right or me at at six or seven years of that first business where I wish someone had come in and shook me by the lapels and said, Listen, you’re not you’re not getting it, you’re not there.
And that again, Problem is, is that that owner in that place has so many people walking into their office figuratively grabbing them by the lapels to say we need different health benefits or this client is going to quit or whatever it is. But nobody does it with this topic. Mm hmm.
Damon Pistulka 45:20
Yep. Yeah, I think I think you’re right. I think you’re right. So I have a couple quick questions, because we’re getting up on 45 minutes here, but you you’ve done four exits, man, and I still come back to that, and I go, most people haven’t got one done. And I can see where you did you got your one with what you did. So when you did two, three and four, was it like to was a little bit harder? I know, not the physical work in the business or the mental work in the business. But did you have a roadmap? So like, by the time you’re in number four, it’s like, Hey, I know what I’m doing. I’m rolling down the road with this thing.
Mike Finger 45:57
Yeah, the it’s funny that there was overlap on the first two sold at the same time, they were sister companies. Okay. And so taking that into the, to the next to the the interesting thing, when I look back at it is is this curriculum we use on the site now when we talk about desirable results, duplicatable document that really defined how I approached this? And I’ll give you a simple example. I’m when we know that if you look nationwide, at the average multiple for the sale of a small business, it averages around 2.5.
Sellers, discretionary earnings, right? That’s some are higher, some are lower, that’s where they land in the middle. So I would approach my business from the perspective of I want an exit at 2.5. What is my sellers, discretionary earnings need to be to get there? What steps can I take to make that happen? And it’s really a weird thing, because I’m wanting to exit changes everything, right? I mean, suddenly, there’s decisions, that would be good decisions, if you’re going to run the place for 20 years, that aren’t good decisions anymore.
A real quick, simple example I, I bought this, this business and I had an energy audit done. And it you know, it was a facility with a with a lot of lighting, right, and they were old lights, and they were sucking electricity. And the guy came back and said, here’s what it’s going to cost. Here’s your ROI. Well, that’s the right decision to make. Except the ROI was well beyond when I wanted to own the thing. Yep. And I knew that there was no way I was going to say to a buyer. Listen, the average value is 2.5. But you should pay me 2.8. Because I changed these fixtures three years ago.
Yeah, but we as owners do that all the time. So it was about taking an approach. It’s funny, I, when I when I when I coach, owners, we talk about that stuff. And what I remind them is, listen, the fact that you’re aware of this and you’re building towards it doesn’t mean you have to execute that way, right? Because you’re planning for a 2.5 doesn’t mean you have to list it at 2.5. Hey, listed at three and a half, if if it floats your boat, if you think that the market will bear great, but be ready to exit in a race, you know, in a reasonable place, and know that you’ve built a business that justifies that?
Damon Pistulka 48:39
Yeah, yeah. And it’s good that you bring that out, because when I talk to business owners, and we’re coaching them in our business, we call it redzone. thinking, I, you know, anyone knows football, you play different inside the 20, than you do in the rest of the field. And it’s it’s super simple. It’s like you said, I’m not going out and buying a new million dollar CNC machine in the last three years, because that’s gonna take me 10 years to get my money out of it, because I won’t make any more money for the business unless it’s going to increase my profitability to more than pay for the million dollars.
So you really have to rethink the way you’re doing those things in the last few years ownership with large capital purchases. The other the other thing I see too, is somebody, some people are fixated on really nice vehicles. And if you got fleet of vehicles, right, good, well maintained vehicles are just as valuable as I go in and trade them in every 12 months, you know, two, three years.
I mean, you know, I’ve been in situations where the service companies have 100 vehicles, and it’s like, Listen, you don’t need to train them every year or every 18 months or something, figure out where they run out of, you know, where the maintenance curve hits the bell curve, whatever the heck you’re supposed to do there. replace them then because that’s just wasted money. That’s They’re that you have no transferable extra value in that.
Mike Finger 50:04
Absolutely, absolutely. Again, it’s a, it’s a, you have to put on a weird perspective. And yeah, it’s one of the one of the cheats that I that I tell business owners on my encouragement is that every small business owner talks to a broker once a year. I suggest that is what translates to, for me, I say, steal an education from a broker, listen to them go through their process, it’s going to take you a couple hours each year to give them the financials to get their intake. They’ll tell you what they think the business is worth, they’ll tell you about strengths and weaknesses, shake their hand, thank them, and then a year later, call a different broker and do the exact same thing.
Yep. On 10 years down the line, you’ll be 40 hours into your education about the biggest transaction in your life, you’ll have talked with a bunch of different brokers so you know, who you like. And it will get you to a place where there’s less surprises when you actually go to execute again, I look back on that, I think how, how did I not do it? And the thing is, is that most brokers will be fine with that you call a broker and say, Listen, I’m not ready to sail. I’m learning. I’m interested in learning a little bit more about the process. Could you take Are you willing to take a look at my business when I when I when I do that? You know, you might be my guide. But let’s let’s sit down and yeah.
Damon Pistulka 51:34
Yeah, yeah. Well, we got some comments coming in from IRA IRA asked about staffing, and should we be ballclub or be lean on the staff? And I think, you know, really, to me, it’s right sizing them. And then he commented again, about the brokers will educate you and Sherry came on said still an education from a broker. And that’s what you’re saying, I think it is a great, great, and Sherry actually lives in Chicago, kind of near you.
And then, and then she says, this is a great, great learning opportunity. And it is and you can talk to brokers, and, and and really get a lot of information from that. Because if you put it into play, like you said, it’s not the complexities that kill deals or not make it so you can’t sell your business and do what you want to after it is the it are the since it is the simple things.
Mike Finger 52:26
That’s right. That’s
Damon Pistulka 52:28
Mike Finger 52:29
And they are changeable. They are modifications you can make to your business. And usually it doesn’t take big things, right? It’s, I have to approach this slightly differently. Because I’ve got an 18 month or a 36 month timeline. You know, that little adjustment over time makes a huge difference. And usually the journey along the way, and ends up giving you a business that’s easier to own right, because, again, we bought we know that a business that’s easy to sell as a great business to own. Yes, desirable results. It’s not dependent on the owner.
Right? I mean, all of that stuff. Leads feeds us as well, again, I’m not a believer that every business owner can get their business here, right, you’ve got to reach survivability, before we start talking about this stuff. And I know that there’s a lot of businesses that we never get there. I’ve owned those businesses, and that’s okay, that’s part of the process. But if you’ve built a business that is surviving, it’s time to look at this topic.
Damon Pistulka 53:38
Yeah. Yeah, that’s good stuff. Well, Mike, it’s been awesome to talk to you and and, you know, I don’t I don’t think we even got into it. But that’s tell us how you’re helping people nowadays with exit oasis.
Mike Finger 53:52
It’s about the the education, the content, everything on the site is free. I do some coaching on the side. But truthfully, primarily, what this is, is a Passion Play for me trying to engage owners who are interested in making a bit of a change in their business that can result in a fabulous change in their life. Damon, the sale of my first businesses, was a life do over for me, it was an incredible miracle in my life. And my hope is that we can help other business owners achieve that same thing.
Damon Pistulka 54:31
Yeah. Yeah. Well, it’s, it’s been great to have you on Mike and you know it. Every time I talk to you, when I get on the exit Oasis side is exit voices.com. Right, exit oasis.com. Yeah, great articles, great information. It’s always it’s just like, boom, another piece of practical information that you can use and if you haven’t gone there already or haven’t heard about To get on an exit Oasis, reach out to Mike and you know because it is something that you can you can change. You can change your destiny if you want to.
Mike Finger 55:10
So, absolutely. My pleasure to be here, Damon
Damon Pistulka 55:13
event. Well, thank you everyone. We’re going to sign out now from the eggs era live. And we’ll be seeing you on Thursday of this week. Thanks a lot. Bye