EP 88: Who Should Own Your Business After You? with Laurie Barkman

Ed Mysogland  0:35  
On this week's podcast, I had the opportunity to visit with Lori Barkman Lori, I'm a super fan of hers. I'm a podcast listener of her podcast success stories. And she is she's just one of those people that that just oozes with advice and guidance. And she's been in the trenches. And she came up with a new book recently, and it's called the business transition handbook. And I'll have certainly a link to that book in this in the show notes. But let me let me share with you a little bit about about her, but she is she is certainly an awesome interview. So Laurie is also known as the business transition Sherpa. She's a former CEO of $100 million company that was acquired by a fortune 50 company. And as a business transition expert and certified m&a advisor, she provides a structured process for business owners to plan successful exits of their company. So she is like I said, the best selling author of the business transition handbook, how to avoid succession pitfalls and create valuable exit options. So this book demystifies, the often overwhelming exit process guiding guiding business owners who are considering leaving their ventures or simply beginning to think about their next steps. Laurie also hosts the award winning podcast success stories where she speaks to hundreds of entrepreneurs who have shared their journeys through the succession. So when I am me talking with her, we're talking about who is the right buyer for your business. So there's a lot in her book, but I wanted to poke a hole, I don't want to say poke holes, I wanted to talk about what and who are the right buyers for for a seller's business as they begin to think about. And Laura did not disappoint it she I knew she'd be great, but she dropped so many different value nuggets. So I hope you enjoy my conversation with Laurie Bartman. Well, welcome to the show, Laurie, and congratulations on your book, this book. There it is, there it is.

Laurie Barkman  2:56  
And it is a pleasure to be with you today.

Ed Mysogland  2:59  
Well, I before he came on, I gave a high level overview of you. But I guess it's always sounds better coming from the person that wrote the book and has the practice. So can you talk a little bit about the book and and, and the practice that you have?

Laurie Barkman  3:15  
Absolutely. Thanks so much again, for having me. I really appreciate you. Yeah, it's my pleasure to talk about it. I call myself the business transition Sherpa for my experience as a CEO that went through an exit. And now on this side of the table. As a deal junkie, I love working with business owners to help make them successful, from transition to transaction from creating value to letting go. And it won't shock any of your listeners. When I say this 100% of business owners are going to leave their company one day, right? No one should be surprised at that. Are they going to leave horizontally or vertically add a question. And I decided to write the book as a continuation of the work that I do not only with consulting and advising, but also the podcast. I have a podcast called succession stories. And you and I met because of the workshop that I do. And I spent three hours talking to business owners about the power of preparing and the impact it can have. And so many horror stories are out there when people don't do these things. And so that was the inspiration behind the book is how can I put together kind of this virtual mentor in the Sherpa, I'm a guide, right? I'm a guide taking you through this journey. And the book is a combination of how to add knowledge, exercises and tools and stories. Right. And the stories are powerful and the stories come from my experience as a CEO and working with clients and then also people's experiences from the podcasts and stories they've shared about the ups and the downs.

Ed Mysogland  4:58  
Well it came came out great. And as a subscriber to succession stories, it's, it's a, it's a great podcast it and I'm envious I'm envious as a fellow podcaster I'm envious of the work you do and the guests that you have and, and you really are a really good interviewer. So I, I'm hoping I can live up to to the for this interview that I can at least I can at least pull a little bit out of it.

Laurie Barkman  5:27  
I'm humbled and appreciative. Thanks. That means a lot to me. Thank you.

Ed Mysogland  5:31  
So the book has a lot in it. And the good news is that you and I talked a week or two ago about what we were going to talk about. And so we're going to focus on page 79. We're going to focus on who are who are the buyers? And and so I guess that's where I'd like to start is, you know, talk about the different types of buyers? Because I don't think I don't think I think a lot of business owners just assume, you know, it's a third party, but there's different transfer channels that that they can be so take it away.

Laurie Barkman  6:07  
Yeah. The each chapter begins with a quote, because on my show, I asked everyone if they have a favorite quote. So I'll share this quote quickly because it's funny. And it's Yogi Berra, and we love Him. And so the his quote was, if you don't know where you're going, you will end up somewhere else. And this chapters, you know, smack in the middle of 14 or so chapters. And why I put it in this batting order to reference my friend Yogi Bear is because I don't want us to start out necessarily thinking about this. There's a lot of good work that leads up to this. But for you and I were jumping here, because it's a really important conversation. And in the context of Yogi Berra is, quote, right, if you don't know where you're going, you're gonna end up somewhere else, my encouragement for everyone who's thinking about transfer of ownership someday, which is probably everyone. And there's there's different kinds of succession. And we'll talk we can talk about that as well. The focus of what we're talking about here is ownership succession, and ownership succession in the sense of the word f. Let us do some mind exercises around the what F. And what I like to advocate for with my clients. And of course, in the book is if we can create options for ourselves, and we have enough time to explore those options, then we are in a good place. Now, that's a good thing. No one wants to be pigeonholed to one scenario, especially if it's a bad scenario, right? And when we have the fortune of having time on our side, sometimes things go awry, when it's bad health or divorces and things like that. So we want to avoid those situations. And again, we're trying to be proactive here. So in the sense of the what if minds mindset and what could we think about? There are three main categories of buyers. So we'll start this top level and kind of work our way down the three main categories, what are they, there are strategic buyers, there's financial buyers, and there's related buyers. A strategic buyer in a nutshell, is an organization, they might be in your industry, they might be a big player in your industry, maybe they're doing a roll up, or they could be a competitor to you. They could be an entity that is looking to acquire assets, so that they can stitch them into their current organization. And let go what they don't need. And that's financially, the mechanism of how they are able in general, and this is a very in general comment to pay the most, right, so of these three categories, typically, I could be wrong. And it's not all instances, right. But in many instances, the strategic buyers pay the most and why that is, is because of the math. And then I'm explaining where if they acquire these assets, and they look to stitch them into their current organization, they eventually won't need other pieces of it, which could include people, right and overheads. And so they get leverage and they can get a you know, the return on that investment over time in the fashion that they need. So that's one category which is strategic buyers. The second category is financial buyers and financial buyers can be most commonly private equity groups which are formed by limited partnerships where you have people who are providing funding to the group the investment decisions is made by a smaller group. And then over time, more and more what we call dry powder is put in and available to for follow on investments now out, there's two important flavors for private equity investments. One would be called a portfolio deal. And a portfolio deal and a private equity group means it's a it's like an anchor tenant in a mall, you're going to be Macy's or you're going to be, you know, and so you're gonna occupy a pretty big share of that portfolio's investment. And it's a standalone, it can literally stand on its own and a token or an add on, are some smaller companies or assets that are tucked in folding into our portfolio play. Now, why does that matter? It matters because, like I was describing on the strategic side, on the financial buyer side, private equity groups have a different mechanism for creating value, typically, they'll have a buy and hold and flip strategy and buy hold improve, I should say. And so they're looking to kind of buy low sell high, over a five to seven year time period. Are there exceptions to that? Absolutely. You know, there's definitely private equity firms that have a longer time horizon. And so please don't take this, as you know, a forever statement. But in general, that's what we've see. And so over there five to seven years, it's a sprint to improve the business, you know, scale the business, get it operational the way they needed to, and then sell it. In a talkin situation, where it's an asset that they want to talk into, it's sort of feels a little bit more like a strategic buy. And so financially, the multiples might look more similar to what a strategic would put on the table. Now, the third category, and I'm skipping over some of the subcategories here, just in the spirit of time, we can always come back to it. And then in the third category is related buyers, and related buyers could literally mean they're related, could be family. And they could be fed, they could be management. So use or think about the word related is like insider, the insiders know where the bodies are buried, they know the goods and Bad's of the business. And that can be great for some sellers, who really want to keep it close and keep it in the community as they've defined it. And the pricing is commensurate with that, right? Where people know the risks, because they're very much involved with it, or they have exposure to it. And especially when it's a situation where a family is going to take over ownership, it's probably not the highest market price. Right. So that's how I like to put it in the batting order, because it makes sort of intuitive sense, I think, to think about it that way.

Ed Mysogland  13:00  
Yeah. And in the highest price may not be the best buyer. And yeah, that's right. And, and certainly with with related parties, I mean, I think that we're seeing more and more, more and more family operations, you know, whether they're selling to management, I think they are starting to recognize more, you know, what they did to create the wealth, and, and it reflects in some of their, in some of their structures. What do you Who do you think is the what I guess? What are the advantages and disadvantages of the of the financial buyers versus the strategics?

Laurie Barkman  13:43  
Well, of course, this isn't that this is very subjective, you know, it's up to the seller. And this is a big part of the conversation that I have with clients because I want them to, to think about different options. So while a strategic buyer might make a ton of sense, there could be a financial buyer that's out there that we just haven't met yet. And it's worth understanding, you know, what their what their fit might look like, on the on the pros and cons for for related buyers. Let's start there because maybe that's quote unquote easier to time to talk about. Just because someone's related to you doesn't mean they're a good fit to be your CEO. And it doesn't necessarily mean they're a good fit to own the business. So there's the there's the capabilities and skills side of that statement. The other side of that statement is is that what they want so the the aspect of whether or not family or management are a fit is definitely a two way street. And I encourage people if this is something you're considering, think about it as strengths, motivations and fit, strengths, motivations and fit. If they do not have the core capabilities and skill set. Stop. Don't even continue right. Don't pass Go Just stop. If they do have the skills and capabilities and you they can be coached and mentored and grow. And you think they can get there one day, great, keep going, keep having this conversation and find out from them, if this is something they want to do, many people do not want it, they do not want the crown, it weighs heavy, and they just want to do their thing. They don't want to do your thing, they want to do their thing. So figure that out enough time. And again, that could be your second and command as well as your was your you know, sibling or were child. And when it comes to financial versus strategic, I do have a table in the book that kind of compares the two and I don't give ProCon on it because again, it's very subjective as to whether or not it's a fit for your business. So I just go in with eyes wide open and say what strategics look more like this. And this is why it could be more of a fit for you versus versus the, whether it's a platform deal or tuck in? Sure. I was working with by side by side deal. It was a private equity group, and they're doing a roll up of every specific niche. And so I was I was helping them with getting, you know, opening doors and having conversations with owners who weren't necessarily thinking about selling. And what was really interesting about the model, and the opportunity was that the sellers would they're very they were small, right? These are sub 1 million companies, again, in a very specific service category. And here was this financial opportunity for them to stay on with the business. And if successful, this roll up would get them probably 100x. Right? What that would mean, versus today. And has that math work? Well, because they were going to roll over a piece of equity, let's say 30%, or 25%, into this parent organization, this private equity group kind of global structure. And if that structure sells in five to seven years, it's going to be worth a heck of a lot more than their small business that was under a million in revenue. And for some people, they really saw the opportunity, and they were hungry for it. And it was a great fit, because they wanted to stay on. They wanted to be part of the success. And they were excited about that second bite at the apple. There are other buyers that said, No, thank you. That's not for me, I'm not interested in that I want to retire punch out. And I don't want to be part of, you know, this ongoing organization. So that's why fit really is very subjective. Because Company A said, Yeah, this is awesome. Let's go for it. Company B said No, thanks. I'm good.

Ed Mysogland  17:53  
Yeah, you know, the the funny thing is, I think how you how it's how its positioned and the buy in of the strategy of how it works. I think you we both seen buyers that behave in a manner that you can see clearly see the strategy versus, versus Hey, this is why you should go with me because you're gonna you're gonna have some equity, and then we can we can build together. And and I think the the latter is inferior to the former. I think that you you see that those those and this is where I'm going next on this this 520 rule, because I think that is you can get superior buy in when when you have some critical mass to the of the acquiring entity. Yeah, it lowers that risk. So, so the 520 rule. What is it? Yeah, what is talking about that?

Laurie Barkman  18:51  
Let's talk about it. The five and 20 rule is something that John Warlow from Built to Sell and the value Builder System talks about. And I included it in my book, because I think it makes a lot of sense. And I've seen it and I've seen it practically speaking also from my experience, where essentially a company that could afford is one part of it afford to acquire you slash have the interest in acquiring you. That's that's the sort of the five and 20 rule would be that they are between five times 20 times larger in revenue than you are. So if your company is a million dollars in revenue, a company that would potentially be interested or and or have the capability to buy you would be 5 million to 20 million in revenue. So that's that's kind of heuristic. Is it always the case? No, of course not. Because what you can say, well, Laurie, does that mean that a big publicly traded company would never buy a small business that's 20 million in revenue. And the answer is of course it happens. It does. Absolutely. Is it rare? Sure. Why? Because it has to do with bandwidth right? Do you think about these big, big companies that are requiring the juice has to be worth the squeeze for them? Now, that was my experience, right? We were acquired by FedEx and, and it was a significant deal. But it was still small for FedEx, right? It's FedEx, right, they have a lot of capabilities. In other situations, and I had this happen, I was doing a sell side engagement for a civil engineering firm. And I was running a bid process and inviting inviting parties to the table, both strategics and financial buyers. And I had a great corporative conversation with a firm who was a great fit. And the corp dev group said, they're too small, it's not worth the time for us, we gotta we gotta go hunt for larger things that make more impact. Because remember, the math we talked about earlier, they're looking for the math to work out. They're looking for deals that are creative, they're looking for deals, that'll make a difference to their earnings per share, etc, etc. So I think in all cases, can you know, can there be exceptions? Absolutely. Does that mean you should not knock on their doors? No, I think you should, but I want you to be realistic about it. So if we think about targets, literally as like a bull's eye and concentric rings, we might do this analysis based on different criteria. And one of them is going to be the ability to have the financial capabilities to buy you, the team to have the focus and interest and then focusing on the integration is we could talk about it, we could talk about post, you know, post deal integration all day long. If they have not been able to plan for an integration, then what are the light, what's the likelihood the deal will succeed longer term, and these companies that have a playbook or they've done this before, and they're looking for certain things, they're experts at it, they know what they want, and they're going after it, and how can you get on their radar. And that's typically, you know, you'll see that in both the, certainly the PE side and the strategic side, but on the p side, too, I mean, they're seeing a lot of volume, they have to they have a they have to feed the base, they have sure, you know, these investments, they need to put it into into use. And they're always looking at deals. And so there, they have a process where they need to do that. And so you might get more airtime, maybe from private equity groups to have meetings and so on. Whereas corp dev might say, that doesn't meet our needs and Ivanka,

Ed Mysogland  22:28  
well, I'll tell you the size. And it's and it's funny that a lot of the business sellers just just think that, you know, that the you know, even though there are a strategic buyer, that if they're roughly the same size, it's they believe it's a one plus one equals three, and they fail to understand that the the risk associated with the acquiring entity and, and pulling in someone of nearly equal size, that is just a rest, it's just a, it's just such a huge bite. And and then they when they receive letters of intent or indications of interest, and they and they're disappointed in, in in the value that they're receiving, but they fail to understand that it's related to the risk associated with you know, we're, we're to roughly equals it just financially, the risk just doesn't make sense. Yeah. Which brings me to my next question. On you started to talk about post sale integration. And I think everybody has, has seen the study by Harvard, where what 87% of mergers, you know, don't shake out the way they originally intended. And I guess, especially with, with culture, you know, we've developed a culture here. I'm curious to know, you know, have you seen any, anything that would, that a seller could look at and say, you know, I could see these guys working well, with our, with with our team, you know, so can you talk a little bit about post sale integration and culture and, and how to identify that? Yeah,

Laurie Barkman  24:15  
absolutely. And by the way, if you're starting to think about integration, and it's, they're signing the deal too late, right, you should really be thinking about the strategy for the acquisition of the integration as you're working on the deal. And I saw a really good example of this with my client when they were acquired by a strategic because before the deal was signed, we were having meetings about the team, the roles, the expectations, and though that's strategic and tactical to do that, right, and I think that it was important because it also helped my client who was the seller in making that mental leap to Yeah, you know, I'm not gonna be the owner and running this and More I'm going to be a member of right, I'm going to be leading this unit. And so that kind of emotional transition is important to acknowledge. As far as culture goes, you know, it's hard to really put your finger on what is it, I was just talking to a client earlier today, that it's it's values and his belief systems. And my opinion is that it's values and belief systems that the company has. And we want fit, which means that people need to feel that their their values and belief systems fit with that you can't have discord, you can't have incongruence, or else, we as humans can't work, it will be very unsatisfied, very frustrated, we can't survive in that environment, it has to line up. So what if a company has not done a good job? Or articulating its core values and beliefs? Within What are you comparing it against? Which is why in the work I do with the businesses is, you know, some, sometimes it's very fundamental. We've not written down what our core values are, I have a client where it's a family lead, and they they've been around for a long time, and they just keep doing what they're doing. And I said, What are your core values? She was having some employee issues, and she said, you know, we don't have them written down. I said, Let's just talk. Okay. So she started talking, and I wrote them down, and I put full sentences there. And all of a sudden, we have a core values document. She goes, Oh, my God, this is fantastic. And she was using it in performance reviews, and helping give guideposts. That's what what culture ultimately is our behaviors and beliefs. And if you're a buyer, or you're a seller, and you're looking at fit, well, what are you going, what are you comparing? So you can say, we like this about ourselves, we want to maintain these things? Well, if one of those things is being family owned, well, guess what, if you're being sold, you're not going to be family on but what might really matter is community and how we treat each other and how we feel like family. And then it doesn't really need to be family on to have that value. So I think that it's a great exploration for matching the fit on culture. But culture can be very territorial also. And so a watch out is maybe an owner doesn't really want to sell. And they're using culture as a wall. Like my company has won awards, and we won, we win prizes for culture, and no one's going to be able to do what we do. And if someone buys us, my team is going to leave. Okay, so where does that leave you in 50? years? All right, and where does it leave your people? You know, what's the bigger picture here? So as far as acquisitions go on the Fit side? Yeah, I think it's a, it's an important thing to think about, probably more so on the giant traps, or the giant incongruency is less so on the margins.

Ed Mysogland  28:00  
I get it. So along those same lines, and I and I wanted to add this to my list of questions, but you know, we're seeing so many EOS based companies, are you seeing a dupe? I've always wanted to know, if there's any case studies and in the research in your book, maybe you have it, I don't know. But do EOS driven companies and those that have kind of that that underlying platform do they sell superior to, to just regular old operating companies that don't have, you know, these are our rocks for the quarter and the like.

Laurie Barkman  28:39  
It's such, it's so funny. I literally recorded an episode this morning, of succession stories. And with my guests, I literally said those words out loud that if anyone has data on that, too, please reach out to me. Maybe we should commission our own study. I'm curious, too, I would think that there is a correlation, a positive correlation, because the good work that a business owner is going to do to implement a system like EOS or anything like similar to it, where it's organizing processes and teams and people to get all the oars in the water at the same time at the same pace. I mean, ultimately, that should produce better business results, which should drive better outcomes on valuation. So, you know, intuitively, I would assume you the answer is yes. But I do not need on that.

Ed Mysogland  29:26  
Well, it's funny. So the folks that own ELLs are just up the street. And you would think that that, you know, they're they're within a stone's throw. And, and so I think that's that's an excellent conversation, though, that we're trying to commission some sort of study to figure out whether or not EOS driven companies are more valuable. I intuitive. Intuitively, I agree with you, I think I think they probably are. Yeah, that moves us to Aesop's. Let's talk about an ESOP. So everybody, everybody believes that an ESOP is D way to get out of business. And I guess I'm curious to know your thoughts about this path, because I know in our practice, and we're what we're we're recording this at the end of May, I'll bet you we've had three, three clients, or three prospective clients show up trying to unwind their ESOP that somebody jammed an ESOP into. It was just the wrong tool. So So I'm curious to know what your thoughts on on people doing Aesop's and and how that is a transition option.

Laurie Barkman  30:36  
The number one thing to know about an ESOP is that it is government regulated, and it's part of, you know, the overarching laws ERISA, and it is, for that reason, one of the benefits is a your entity when you sell your company to an ESOP. It's, it's it's a transaction like every other transaction, that's how do you think how you should think about it, you're selling it to an ESOP trust, and that trust is a tax free entity. And so the company is be then becoming tax rates, and which is a major benefit, right? And it's very attractive, because you can think, Oh, my goodness, what would I do with another 30% of cash in the bank, and companies who have an eye towards growth, use that many of them use the funds to acquire other companies and continue to grow. And that can be very, very exciting. It's also, you know, again, a mechanism for an owner to take chips off the table, they don't have to sell 100% of their stake, they can sell a minority stake, they can sell majority. So that's up to them. And they could also do it over time. So is this somewhat flexible. I have a client that's very much interested in a Saab. And he's been doing a lot of research on it. And he's even gotten educated on it. He's taken an additional class and getting certified. And he's really taking an interest. And I'm helping introduce him to others who are important stakeholders on an adviser side. And he's doing his research. And at the end of the day, I'm helping him as well as others to make a good decision. Yeah, there are people who rush into things and you know, kind of get the goal, you know, this little carrot tax free. And why isn't that amazing? And isn't this wonderful? And whereas you're right, maybe it isn't a fit for them. There are requirements for for things that once you become an ESOP, or the ESOP trustee trustee, you've got to have the right partners on your side to help make sure that everything is done annually that needs to be done, and that you're compliant with the law. So that's important. The other really big thing to think about, of whether or not any stuff is a fit for you, I do think is the size of the business to start. Now, there's debate, you know, are there some heuristics around this? I just talked to a friend the other day, who's in a similar space as us and he said, Ah, company has to have at least two and a half million of EBIT da or is not worth it at all. And I said, Well, that's interesting. I've heard, you know, one and a half 2 million, no, no, no, he says, it's got to be larger, it's just not worth it. Like, okay, so there's no one hard and fast rule. But for my research for the book, and what I put in here, with a couple of, you know, general general statements is that it could be a good fit for a company that is, has a demographic diversity, where not everyone's the same age, not everyone's going to be retiring at the same time, because essentially, an ESOP is a future payment to an employee that's vested in this program, upon leaving the company, so if everyone leaves at the same time, you got a pretty major liability. And so not only is it the upfront math and financial analysis on what's this gonna cost me, and what's my general ROI, which, you know, one rule of thumb is about three years payback. So, okay, but what happens in the future? What's this future liability look like? And and what's the census of my organization? Am I going to have an issue or not, and how to pay this and fund this and all yadda yadda. You have to plan for that. So if you don't have a good advisor or tax advisor, you know, whether it's an ESOP advisor who's experienced in this as an intermediary, or if it's a tax and accounting firm that has a soft experience, I would highly recommend doing both sides of that financial analysis, just so you understand what this could look like.

Ed Mysogland  34:41  
Well, and the debt surrounding the the origination of the ESOP. I mean, the sellers is probably going to be the garret one of the guarantors of that debt. And I don't think that while they they are certainly able to get in get, you know, the equity out of the business or, you know, have a fractional in, you know, the fractional equity out of the business and they're still you still have maintained the liability. So if it while it's an excellent mechanism to get get, you know, move the move the equity into other shareholders or employees. You know, I think that this is it's not the always the right tool and and, and it just like said it, like you're saying that the the census of of the composition of who's going to be part of the ESOP, I think is the most important thing that you said, because that really is, is probably more forward thinking that the that the business owner should consider as opposed to the tax benefit. So I'm,

Laurie Barkman  35:55  
the tax benefit could be a mechanism. So that's a mechanism of paying back the loan. Which is why I think three years is generally a benchmark that the launch should be paid back, because of the tax savings, you're using that money, the company is using that money to pay back the loan. And, you know, again, then the owners taking some taking the chips off the table, which is, which is probably a good thing to diversify their, their net worth.

Ed Mysogland  36:19  
Yeah, that's good. So I got a couple more questions. So we everybody wants to know, the timing, you know, it's impossible to time the market. But how do you time this kind of event? It because it is so hard? And and I know, it depends on on who the seller is. But at the same time, you know, is there anything that triggers the here's some of the tripwires that? You know, you know, it's time? Can you talk a little bit about that?

Laurie Barkman  36:51  
Yeah, I mean, one of the things is just to look in the mirror and be honest, right. And one of the things could be your health. And if you've been having health issues, or maybe your business partners having health issues, that's not a great situation. No one wants that at all. But it also can be detrimental to the value of your business. So that's why I advocate to try to work on this when we're all in good health in mind, right? So that's sort of first and foremost. We never know when the music's gonna stop, right? We're playing musical chairs, and we never know. And so it's really good should be ready and have a set a business that's ready for sale at any time. Because you never know when someone's going to be approaching you that it is the right font fit. And if you have a ready to sell business, then that's just a good thing. Right? It's just your that means you're running a good healthy business anyway. There's all kinds of sob stories when people have missed that opportunity to sell Rand Fishkin has a famous story, lost $200 million by not selling the HubSpot. And so it's a fascinating story. And so somebody like Rand Fishkin is always going to have the regret of Oh, woulda, shoulda, coulda, right. There's probably other people that are thinking about the economy and thinking, Oh, I'm going to time the market, I'm going to, you know, I'm going to be either peak seller and try to sell at the peak, which is very, very challenging. And I have some data on this, the basically, if we'd look at the data from around 2008 2009, and if you sold your business at the peak, and let's just ignore taxes for a second, but like, if you sold at the peak, and then what did you do you need, you took your proceeds, and you invested it in the market where you were investing in the market at the peak. So if you take somebody who if at that same time, sold their business for less Norton around 2009, let's say excuse me, they sold it in the lowest point in the economic cycle. So here we are coming out of the recession, right, it's a kind of a crappy time, they, they probably got a little bit more than seller a right, they probably got a little bit more on the price. Because for them, they're now buying into a low point in the portfolio. And so And from a buy and hold standpoint, if you compare those two over the next 1012 years, whatever it is, the second seller that sold at the that lower point is going to be better off in a total portfolio standpoint. So what's the what's the upshot? The upshot is, look, guys, it's really hard to time the market and your money is going to have to go somewhere after you transact anyway, unless you're rolling it into, you know, a 1031 exchange or something. And so, it's really difficult to say I'm going to sell at a peak or I'm going to time at this and that. So what I would I would rather us think about is being ready, just being ready. Because of that little bluebird knocks on your door and says, I'm interested in your business. And you want to have that conversation and it turns out my goodness, this is my moment. I don't want to miss it. Yeah, yeah. Have that have that I'm open mindedness to pursue it. And because you just don't know, your business might be a great business and a golden goose. And it might feel scary to not have that income coming your way. But if if it's worth it to transact, diversify your what is probably the largest part of your net worth, you know, it's probably worth doing it. If you find yourself in your business too. I just want to add this one point. If you find yourself in your business, that you're complacent, and you just want to coast, that's a dangerous zone. And I think that's a huge tripwire, that's a good point. Because this downward coasting, and taking your foot off the gas, where you're just you're comfortable, you're complacent, you know, eventually customers start to drop, what's going to happen to your valuation. So it might feel great to just sort of coast a little bit and take some pressure off yourself. But big picture, you're going to be hurting your valuation. My advocation is to capitalize on your winning streak. If your business is hot, and you're on the upswing, that's the best time to sell don't mind the market. It's when your business is doing great things. And health is for key people is good. And there's no, you know, tragedies happening. Because listen, buyers buy when they're ready. Okay, so will you be ready. And that's the main thing.

Ed Mysogland  41:29  
Yeah, and I think I think business has just failed to, to, to fail to understand what it means for that illiquid asset to become liquid. And, and it's, it's not just stock market call up your stockbroker, and, and all of a sudden, three days to catch up, it doesn't work that way. And the likelihood of that is that it works out, you know, and again, you talk about it in your book on preparation and how and the things you need to do that, that facilitate the marketability that increases the likelihood of a liquidity event. And that's the that's, I think, one of the key takeaways that that you've, you've said in the book. Yeah, it is about liquidity. And I don't think that they, I think I'm hoping from, from our conversation that that's what they'll take away from this is that it's just it is truly about the liquidity not, you know, there's there may be value penalties you may have, there may be you may be paying for sins of the past. But nevertheless, the look, you know, that you can't help how the buyer looks at what you can do is, is find a pool of buyers that look at it a different way, and then you have the option to select. Yeah. So there's tons of noise right now. I was reading a study that the average search fund, they're going through, over 100 Sims. So the end for our listeners, that means the confidential information memorandum, it's the marketing information that typically goes to a buyer that's qualified and has executed the appropriate confidentiality agreements. So they have 100 Sims, they've submitted seven ello eyes in order to get one deal. That is, I guess, where I'm heading, and this is along the same lines in that I hope your book provides the reader is that there are guns going into this process? You know, and that's a because they're, they've had tons of reps, how you only sell your business once. So I guess that's what I'm, I'm hoping to. I'm hoping that you can talk a little bit about how do you differentiate the noise from the signal when you start getting cuz people, you know, the, and I'm certain your clients are getting to where they're getting so many calls so many emails, so many letters every single day of people saying, Boy, I really would like to take a look at your business. So how do you how do you how do you separate that?

Laurie Barkman  44:18  
Yeah, I'm a certified mergers and acquisitions advisor. And as a professional, one of the things that I pride myself on is if I have a bison client, and I'm doing outreach on behalf of that biocide client to try to find proprietary deals, which are the deals that are not on the market yet. Everybody wants the proprietary deal. There's good reason for that. But if I'm doing that outreach, and they say I'm reaching on behalf of a client, and they're paying my fee, by golly, I have a client. Yeah. And there could be some people that say what I'm saying but they don't have the client lined up because they want to open the door with that mechanism. I don't do that again if I'm I'm for Have an ethics standpoint, there is a client behind my email. And it leads to conversations. So I think one of the reasons why I'm calling this out is because many buyers will say to me, yeah, you know, I don't know if these are real. One of my clients sent me one of them. And he said, Is this real? And I say, and I looked them up, and yeah, it was, it was legit. It was a real firm, and it was a real client they had and, you know, it just doesn't feel it just doesn't feel it feels weird, I think to for these buyers for this for the sellers, because they're getting all this outreach. They don't know what to do with it. A lot of people say, Yeah, I haven't I create a folder and I just save these messages. And I say, great, you know, when I'm going to work with you, and represent you on the sell side, let's let's look at those. Let's see who's come to you organically, let's take a peek. But I say what do you do with them, and they say I ignore them, and just ignore them. I don't know what to do now. Because I do sell side work. And by side work, I like to, you know, talk about both sides, I think it's really valuable to understand both sides. And I like to try to find Win Win deals. So the best thing as a seller is to try to see your business from a buyer's perspective, right? If we can, if we can see its flaws, then we're not going to be shocked when they're pointed out to us and someone tells their baby's ugly, we're not going to get upset. We're gonna say, Yeah, we're work. We're working on that, here's how we're working on that. You're not going to be shocked by it, right? We're not hiding things and diligence. A company that's been preparing and has a realistic sense of where its strengths are and where its opportunities are. Well be more prepared to have its financials ready for review for discussion. That's like, Hi, how are you? Yeah, what are your financials? Right? It's like a handshake, it's you just have to have them prepared. I've had so many of these proprietary, reach out just die on the vine, because the sellers how que they have QuickBooks, but they're not that organized. And the wife's busy, and she can't get them together and yada yada, but it just goes nowhere. And that's horrible. So if we can just be organized and consistent with our financials, yay, like step one. Okay. You don't have to anything have anything more complicated than that? Like I was saying earlier about working with a P group on the buy side, we would joke and he'd say, look, it's a back of the napkin conversation. If I can get a napkin, I'm happy. I mean, at some level, the financials being consistently reported and accurate is like table stakes. It just makes everything go smoother from there. As far as the search funds, uh, yeah, I mean, I've bumped into them quite a bit. I've had a couple folks on my show, and I get it ever. They're looking for this perfect job. Everybody wants the million dollar plus EBIT da and these sectors and then ended on cash flow, you know, cashflow, positive and recurring revenue. Yeah. Everybody wants that. So they're all fishing in the same ponds. And it is tricky, because it's imperfect information. And it's a it's a very interesting buy side sell side kind of deal. We don't have the giant mls of the states. And, you know, but we are brokers. And we're trying to, we're trying to find buyers and sellers for for these things. And, yeah, for sellers, they only sell their business once and I, you know, here of putting my sell side hat on and representing sellers, I'll say this, I, I even if someone comes to you, and you think it's a good fit, I would recommend that you still get someone on your side as an m&a advisor. So for example, with my role with stony Hill, we do what we call facilitation deals. So let's say, I haven't found the buyer, the buyer for you, they have found you and they are there now, you know, you've established contact. But there's so many potential pitfalls in you negotiating this deal directly. And not even all the emotional stuff. But just all the details that need to happen. Plus a lot of it's easy for things to go wrong. Step one. Did you have an NDA signed? Like just the basics? You'd be surprised how often the answer is no. And so my my advocacy here is that if someone's approaching you to buy your business, and you think that you want to pursue it, please still have someone on your team to advise you on the deal.

Ed Mysogland  49:07  
Yeah, and you know what, just having that exploratory conversation will, will get you miles ahead, but but recognizing that, that these buyers have many, many, many more reps than you do at looking at businesses than you have selling. Alright, well, I know I'm bumping up on time. So I want to I want to be sensitive to it. And in your case, you do quotes, you know, in my case, I have one. I asked this every time and I am fairly certain I know the quite the answer, but I'm going to ask it anyway. So if you had one piece of advice that you would give business owners that would have an immediate impact on the saleability of their business, what would it be?

Laurie Barkman  49:50  
I have two things. I'll take. Yeah, well, the main the main idea is to be able to look in the mirror and just be really take a fresh look at your business. So I Have a business assessment. And I think a tool like that, where you can really take a fresh look at your business to understand what its strengths are, what its potential risks are, is table stakes. Like you really should do that and check in. And if you're able to do a business valuation to understand the value of business today, great, let's just get a baseline. Because we need to build from there. If you don't know what your business is worth, and you don't know what risks and pitfalls you might have, you can't work on them. So I guess there's three things. The third thing would be just start the process. You don't have to sell you're not making any decisions. And everything you do is going to help you run a more a more profitable, more enjoyable business. So why wouldn't you do it anyway? It's all good. Good work? Yeah.

Ed Mysogland  50:46  
All right. Well, what's what's best way we can get in touch with you?

Laurie Barkman  50:50  
My website is the business transition sherpa.com. And you can set up time with me there. And LinkedIn is awesome. Connect with me on LinkedIn, let me know, let me know that you heard me on Ed's show. And we'd love to have a conversation. And if you're interested in the assessment that I mentioned, absolutely, we'd happy to connect you for that.

Ed Mysogland  51:10  
And the other important, the other book, the book, the business transition handbook, and we can we can go to your website and get that or do should we go to Amazon, we don't want to pay Amazon fees. You can pay

Laurie Barkman  51:24  
Amazon that's fine. My book page on my site, but I'm gonna pass this on as well. But yes,

Ed Mysogland  51:29  
all right. Well, Laurie, you know, I'm so grateful for the time I was, you've heard you were everything I had hoped you'd be. So thanks.

Laurie Barkman  51:38  
Thank you. And it was my pleasure. Thank you so much.

Transcribed by https://otter.ai