EP 99: Lessons from 100 episodes

Welcome to the defenders of business value podcast. I'm your host, Ed Mysogland. And for the last, gosh, 99 episodes, we've been talking with business owners, business advisors, lenders, and business buyers about value and how to make businesses saleable. And so for those of you that are longtime listeners, you know, that at the end of every podcast, I've always asked the same question. You know, if there's one thing that that a business owner can do today, that would make the biggest impact, what would it be? So that's what this episode is going to be about, we're talking about the the top 10 ish things that that a business owner can do to help in making their business saleable. It's a good, you know, a good reminder of why we do this, there's roughly 10,000 people on my, on my defenders business value newsletter, and if you haven't signed up for that, I strongly suggest that you do. You know, where we talk, you know, this the things that I find interesting about business value about growing businesses, scaling them, you know, each it, you know, and so it's a weekly newsletter doesn't cost anything. So we'll have a link in the show notes for you to sign up if you're not already a subscriber. So okay, let's talk about this. You know, the first thing everybody, everybody always said, was, it's about people, and it really is, so it's about culture, it's about how can people, you know, treat your people right, to help your people grow, and utilize your people instead of yourself. Those, that is the big people thing. And at roughly 80% of, of the respondents, so 80% of the 100 people that I interviewed, all talked about people. And that shouldn't be a surprise to any of us that, you know, people are what makes the make our respective businesses grow, and treating them right. And helping them grow into the, into the people that we, we want them to be will do nothing, but help our own businesses. So the first thing is people, the next thing people brought up, or my guests brought up, was preparing your business for sale, everybody wants everybody, and everybody talks about this, everybody talks about, you know, you have to have your business for sale. And you know, there's a lot of business owners that just don't have the time, energy effort money to prepare their businesses for sale. But what we found was that if you just do even the basics, and when I say basics, that's just learning about what drives value in your business. And that is a, that will help help you, I don't want to say, I don't know the exact statistic, I know, in our office, you know, we can say that we if you do some value work and we do some, some pre sale consulting, you, you change the dynamics, and you're probably 60 to 80% more likely to sell your company, just because you you now know what you're what you're facing. And it helps you tax plan and helps you do all those things. So there's three legs of the stool, when you're doing planning, it's it's number one, it's the business side, how do you prepare the business side? How do you prepare you the financial side, your financial side? And then how do you handle the emotional or the personal side of things. And so all of that, all of that plays into it, that when you go to the deal theater that you are ready to to sell and you know, kind of where you're going to land from a value standpoint and what you're going to do afterwards. So, so the next thing is, is back to valuation. Not that this is any surprise. The podcast is called defenders of business value. But when we start talking about you know, assuming that a business owner or a business buyer is not going to make silly financial mistakes, you know, years ago, you know that it was about negotiation and there's a certain component still is but the business deal has to to pencil out. And when I say pencil out it has to have the attributes for a good deal. It has to pay the owner or somebody to run the business. It has to service the debt Bill that the that the buyer is going to, to, to put on the business in order to pay for it. And it has to provide a return and on on that buyers investment. Those are the three ingredients and from and as we talked about many, many, many times we're talking about value is a three components. Alright, the first component is about risk. Next is expectation. So what's going to what is the future of the business look like? And then lastly, so it's its earnings. And so when we start talking about valuation, those are the components that that make all of this work. And, and again, when we talk about pricing businesses realistically, it is the numbers just have to work. And there's there's no, there's really no way around it. All right, next is, you know, we had Eliot Hollen, he's a quality of earnings consultant out of guardian due diligence out east and, and one of the big things that he brought up was, you got to be transparent with buyers, everybody's going to find out, no matter no matter how slick you think you are, and how buried your skeletons, maybe everybody will find out at some point, whether it's pre sale, or post sale. And if there's post sale, you're gonna say, Well, you know, the deals already done. Well, you know, most buyers are, are becoming more astute where there's some sort of hold back in order to make sure that you know, any kind of, say, discrepancies, but any kind of Sins of the the owner, whether it's intentional or unintentional, those there, there's a way and a mechanism to offset some of that purchase price. Alright, the next thing is to be flexible. That's our, our, our number four thing is that flexibility in a transaction is always the most important thing is that, you know, your, your highest price may not be your best offer. It may be you know, we're in my world, we're more interested in what you're putting what you put in your pocket more so than the top line, you know, egos about toppling, and I'm more interested in post tax post BS, what do you put in in your pocket. And so you being flexible and understanding, you know, there's a bunch of levers that that deal people have have at their disposal to make the deal work. And if you understand where the buyers coming, and the buyer understands where the seller is coming, that's all we need is to motivate a party somehow, some way we'll figure this thing out, that mitigates the risk on the buyer side and maximizes the value on the seller. Those are the, that's the flexibility that we're looking for. So number five is patience. Patience is, is another one of those key tenants where it just takes time. You know, there is a while you know, we market, you know, with direct mail, digital print, you know, all of these, all of these things that attract buyers. And remember, we have three different types of buyers, we're looking at, we're looking at individuals or financial buyers, we're looking at Dziedzic buyers, and we're looking at private equity groups, depending on the size of the business. And so when we do that, you have to remember it takes time to do that. So being prepared, like we said on number on the first on tenant, number one is that the more prepared you are, the faster the deal will go. So your your, the deal process will take anywhere from

Ed Mysogland  8:44  
six to 12 months, probably. And you have to remember you have a pre sale portion where you're planning, let's just say that six months, and then on the backside, there's going to be a trailer where you have to transition the business. So So from my standpoint, I think everybody should anticipate that it's a one to two year sales process to be totally out. Alright, and then, you know, let's, let's talk about a few others that people brought up. The first is, is kind of every business is unique. And you may say, well, it's really not, you know, my, my business is we just make widgets, that's all we do. Yes and no, you make widgets, but you know, you're there is something unique about your business and there's a reason why people do business with you. And to me that is what you you want to to focus on is what is your unique value proposition because if the if a buyer will can can see and adopt and implement, you know, how they would take what you've started and carry on. It makes the business more saleable. Alright, the next one is, you know, somehow someway you have to get Get the business into its best, profitable condition. And that means showing profits. So if you're, if you're minimizing taxes, I'm all for it, you just have to document document document, because there's good like I was telling you about Elliott Holland, on quality of earnings, he, he comes in, and he gives you a, you know, a mini audit or, you know, quasi colonoscopy at to find all of the skeletons that, you know, that that are there. And so, when you start burying so much of your personal, you know, your personal benefit of owning the business into the income statement, it's hard to extract that, and bankers don't like it. And nor do nor do buyers. And so. So my recommendation, or the recommendation of my guess, is, you know, what, you probably need to show some profit, if you have the runway, and you can shoot, you can come along, and you have some time, show some profit, because it's really going to benefit you. Alright, next is bolster the management team. All right, we talked about people upfront, but now it's management. And when we talk about management, it's about how do we, how do we get the managers in, we have a level of management, that's not us, as business ours. Alright, so how do we bring up that next that next generation are the that the people that are? Just below us? Do we have anybody on the bench that can buy it, because you got to remember, there's all kinds of opportunities for, for employees or key employees to find money through the SBA. And by the company, I can tell you that this year alone, we've done three or four deals where the key employee bought the business and sometimes it's been without any money down, I mean, that grind the the employee is going to have to, you know, have the can workers to, to personally guarantee a lot of money, depending on the size of the business, but nevertheless, they have, you know, they did not have to put any money into into the deals. So, my point is that don't if you have the runway and you have the time you look at you can look at the at the composition of the people that work for you. And maybe there maybe there can somebody in there as a candidate to buy the business. Now you're gonna see, I'm gonna get emails about Aesop's. Well, Aesop's are fine. I was I was recently at a an event. I mean, Aesop's were the big thing and everybody was pushing for Aesop's. I'm not certain that that it takes. I'm not certain that every business is a candidate for an ESOP. And if you listen to my episode with Andy Mantua, from catnapper, Miller, you'll find that that's, that's the he has the same kind of position, or, you know, here's the things that you need to consider if you're going to be a good candidate for ESOP. And it has a lot to do with what's on payroll as well, as you know, do you have the the on going out appetite to do what it takes to maintain an ESOP. Alright, next is, you know, there are going to be other professional advisors, the whole deal team, you know, you on the sell side, you got it, perhaps you have a broker, an investment banker, you have accounts attorney, state planner, tax guy, insurance guy lender, now, though, that's your deal team, and times two on the buy side, and you have to remember that everybody, everybody is trying to look out for their clients, best interest and keeping that in mind. You know, it's, it's important, it's important that it's good to play nice with others. And, and a couple of my guests have brought that up that you know, what, ultimately, as the business owner, if you're, if you're really thinking about selling, you're in the driver's seat, you get to control the people that are advising you. That's all they are. They're providing advice, they aren't making the decision. And if you're not in a position to make that decision, then perhaps now's not the right time to sell and that's okay. But not being able to control the people that you know, that are helping you sell that's, that is a that's a challenge, because they'll scuttle your deal. And, and again, it's not intentional, it's just that's what happens. So working with professional advisors is is certainly critical and an optimal in order for you to be successful in in the sale. And then lastly, and this is this is probably the most important tenant, so to speak, is you don't have to sell ever. And there is nothing wrong with that. And I think, you know, from a, from a, from a Deal Guy standpoint, you know, we sit and we talk about, you know, sure we want to sell your business. But at the end of the day, there is nothing wrong with you saying, You know what, I am going to die with this business, or I'm going to run this business until I can't run it, or until it stops running. And there's absolutely nothing wrong with that. And there, you know, I think a lot of the business owners that we talked to, you know, there's an ego about it, that they successful as their business. But at the same time, you know, I know a lot of 7075 year old business owners that are totally killing it, and they're having the best time of their life, and there's no reason to sell if they don't have to. So you know, like, God bless you, if you want to keep keep going, all I ask is that you you talk to your family about, you know, this is what I'm going to do, rather than, then, you know, then then surprise them, you know, because at some point, and this is the this is the other side is that at some point help health sneaks up on you. And you know, there's a, there's a, you know, an emergency or a tragedy, and now all of a sudden, the family's got to figure out what in the world to do. So my only ask of you is, you know, just plan for that, you know, I've looked, I'm gonna run this business, and if something should happen to me, this is what you need to do. And the quicker that the family or the or whomever is in that role to, to support the business owner there, that's what they're to do is, you know, here's the playbook. If something happens to me, this is what you do with the business and the faster it can be implemented, the more value you get retained. Okay, so, so those are my 10 tenants that I learned over the 100 episodes. And so as we move into the next 100, you know, it's still the same, you know, buyers are becoming more sophisticated and sellers, sellers, I don't know, if they're, if they're, they're adopting and understanding, you know, the whole sales process, I can tell you that when When sellers are going to the market, they're outgun terribly against the buyers, the buyers have will have looked at many, many more businesses than the sellers have sold. And so when you when when the seller reaches that deal theater, they need to be in a position that kind of levels, the playing field. And that's what the goal of defenders business value is. We want to level that playing field that, you know, everybody's going to everybody's looking for a great deal. Sellers are looking for it buyers are and collectively, you know, every business seller wants that buyer to succeed. Everyone I should say there, certainly there's bad actors. But generally speaking, the seller wants to maximize the value, the buyer wants to minimize the risk. And that's all that's, that's just the name of the game. And but I can tell you going forward,

Ed Mysogland  18:14  
we're going to continue talking to those people that that help business owners and advisors, as well as buyers, you know, in this sale business sale process. So thanks for being a listener. I know it's probably been hard a few times, but I'm sure grateful for for these 100 episodes. So like I said earlier, if you aren't a subscriber to my podcast, you need to do that. And if you're not a subscriber to the newsletter, you sure better do that. So again, thanks so much for listening, and we'll see you next week.