Want to Buy or Sell a Business?

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Welcome to Something More with Chris Boyd.

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Chris Boyd is a certified financial planner, practitioner,

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and senior vice president and financial advisor at

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Wealth Enhancement Group, one of the nation's largest

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registered investment advisors.

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We call it Something More because we'd like

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to talk not only about those important dollar

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and cents issues, but also the quality of

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life issues that make the money matters matter.

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Here he is, your fulfillment facilitator, your partner

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in prosperity, advising clients on Cape Cod and

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across the country.

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Here's your host, Jay Christopher Boyd.

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Welcome, everybody.

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Thanks for being with us for an episode

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of Something More with Chris Boyd.

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I'm here with Jeff Perry and Russ Ball.

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We are all of the AMR team at

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Wealth Enhancement Group and glad to have you

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joining us for the show.

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You can always find more about our episodes

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through our team page.

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You can find that by going to somethingmorewithchrisboyd

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.com or we'd love you to follow the

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show wherever you like to listen to your

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podcast so you get all of the good

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ones just like this one.

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We have a great guest lined up for

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our show today.

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Joining us is Doug Cabral.

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He is of Compass Business Intermediaries.

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And Jeff, where you guys are connected, friends,

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I assume it's friends for a long time,

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but who knows.

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Tell us a little bit about Doug and

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give us our introduction.

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I met Doug when we lived on the

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Cape and Doug was a practicing attorney for

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many years.

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I won't dare to guess how many, Doug,

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and actually handled one of my real estate

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transactions as well.

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Got to know him through the community, very

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involved.

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Doug was very involved in the Cape Cod

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community and also ran to, I think we

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ran into each other at an airport as

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we were both heading down to our vacation

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homes in Florida once, didn't we, Doug?

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I believe we did, Jeff.

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So why don't you start off by telling

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us about your transition from the grind of

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running a law firm to helping businesses, business

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owners and business buyers.

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Sure.

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Jeff, happy to.

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As you mentioned, I was an attorney, practicing

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attorney in Massachusetts.

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I did that for about 30 years and

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I enjoyed it.

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But after 30 years, you've been involved, you

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know what a grind it can be.

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I decided it was time for a change.

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So I looked at what I enjoyed.

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I did a lot of transactional work, a

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lot of real estate conveyancing work, also a

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bit of estate planning work.

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And I also worked with a lot of

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small businesses, helping them set up their businesses,

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you know, in corporation, start structuring LLCs.

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And as they grew, you know, helping them

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restructure them at times when they needed them.

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And also when they reached the end or

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when they were looking to expand, helping them

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with purchasing and selling other businesses, you know,

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all from the legal aspect of things.

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And I really enjoyed working with the small

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business owners.

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They were very, you know, very focused on

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what they wanted to accomplish usually.

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And it was just, it was fun to

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be able to help people grow their dreams.

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So when it came time for me to

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find something else, I decided to move into

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the business brokering, small business mergers and acquisition.

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And I had, you know, I've got a

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mentor who is actually a family member.

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He's my wife's uncle, great guy, a real

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interesting backstory on him.

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And he had been doing it for 20

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years.

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And he said, this is what you really

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should be doing.

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You know, it's a lot of fun.

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You get to meet a lot of people

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and you get to help people.

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So that's kind of a little bit of

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my backstory of how I made the transition

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from practicing attorney to business broker.

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Did you happen to buy his business?

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I did not.

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He actually built a very successful brokerage and

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they have an offshoot, which is probably the

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primary business now that specializes actually in mergers

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and acquisitions of property and casualty insurance agencies.

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He's actually left that now.

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He's finally retired.

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He's in his 70s and he is enjoying

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retirement.

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Excellent.

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So Doug, when you had this transition and

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thought about all the ways that you'd like

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to help, are you still practicing in Massachusetts?

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I know you're part-time or full-time

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in Florida.

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What's your geographical region that you're helping people

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in?

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Well, I am physically located in Florida.

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We've been here now full-time for a

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year and a half, but I still have

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a lot of my contacts and I actually

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have active clients in Massachusetts still.

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A couple of legal matters, but my goal

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is to wrap that up and completely move

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out of the practice of law and focus

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strictly on the business brokerage.

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Got a couple of- Where is it

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that you do that activity?

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Is that primarily Massachusetts because that's where your

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contacts are or is it anywhere?

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It's pretty much anywhere.

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Some states have licensing requirements where I'll need

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to work with someone in that state, but

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primarily I've been focusing on Florida and Massachusetts.

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Do you find that people who are business

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buyers tend to be serial business buyers?

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Do you have a lot of repeat business

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as a consequence of people who tend to

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acquire more than one business?

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That does happen.

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There are people, like you've referred to the

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serial entrepreneur, that they buy a business, they

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love the challenge of it, they build it

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up, get it functioning to where they're ready

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to let go because now they're looking for

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a new challenge.

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That does happen.

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You will also get repeat businesses from someone

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who you sold the business to.

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You sell them this business and they run

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it for several years or maybe longer.

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Then when it comes time for them to

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step out, they call you because they've dealt

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with you.

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That makes sense.

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Talk a little bit about- Jeff, you

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were talking about this earlier.

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Maybe you can phrase the question better, but

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the idea of buying a business versus buying

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a job or something along those lines.

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Buyers come in at all different levels, I'm

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sure.

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Doug, some with a lot of money, some

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with no money, some looking to build a

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family legacy and some just looking for a

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job that they can control because they don't

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like working for the man anymore.

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Can you draw that distinction on how you

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help people focus on what they're a buyer

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in this case, what their goals are and

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how they should start?

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Certainly.

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When you're dealing with a buyer, first thing

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is to help them ascertain what it is

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they want.

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Usually, someone is going to come in with

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a certain skill set.

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They know what they know and they know

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what they like.

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Those are usually going to be good people

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who just maybe they've decided to step out

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of corporate life and they just want to

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start off with something that's going to keep

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them busy and make them a little bit

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of money.

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Those are what we refer to as the

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people looking to buy a job.

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That's all well and good and that's great.

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Those are usually going to be your smaller

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businesses, personal things, whether it be something along

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the lines of a locksmith business or maybe

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even some type of small light manufacturing.

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Usually, they're going to be the businesses that

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are going to be on the smaller end

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of the revenue spectrum.

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Then you have other buyers who they're not

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so much looking for a particular type of

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business.

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They may have experience in a certain industry

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and they may want to stick with certain

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industries, but they are looking to buy a

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business not necessarily to physically work in the

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business, but rather they want to work on

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the business.

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They want to manage that business or bring

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in a group of people to manage it

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who are going to basically turn this business

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from being a job into being a revenue

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generating machine.

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That's ideally what the investor is looking for.

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They're buying a business not because it's something

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that they want to do.

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They're buying it because they want the revenue

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or the cash stream that the business generates.

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Neither one is right or wrong.

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It's just what's the preference.

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Let's talk about that for a minute.

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I just think that's really intriguing, the idea

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that someone buys a business, but doesn't necessarily

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have to be immersed in the business, have

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to be an expert in all things of

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that business.

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I think of people who are great business

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people in our region.

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I think of Bill Zamer as an example.

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He wasn't in the kitchen cooking as a

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chef.

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He was running a business that other people

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were doing the actual day-to-day operations

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of what's on the menu this week or

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whatever it is.

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How do people identify what's a business that

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they can operate from that kind of a

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step back as opposed to having to be

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the expert in all things?

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Sure.

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A couple of key things that the investor

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really should be looking at.

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First and foremost, it doesn't hurt to educate

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yourself about the business to understand how it

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operates.

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That's important.

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People who come in cold and have no

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understanding of how a particular type of business

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operates put themselves in a position where they're

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a little bit at the mercy of the

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people running the business.

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It's always good to educate yourself.

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That being said, restaurants are a great example.

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You don't have to be the best cook.

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You don't have to be the one washing

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the dishes.

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You don't have to be the one bringing

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the food to the table, being the server.

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If you understand how things operate and you

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know how to manage and hire good people,

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you can run a successful business.

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You can run a successful restaurant.

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There's every industry.

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The people who can actually be on the

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ground doing that stuff.

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Oh, yeah.

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Right now, and that's not limited to any

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particular industry.

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Right now, finding good people to work is

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not easy.

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When you do find them, you want to

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keep them, but you're constantly looking because people

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do move.

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They move around from business to business.

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That's reality.

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A little bit of our current situation in

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our current society, but it can be done.

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When you find the good people and you

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work with them and you manage things well,

276
00:11:46,520 --> 00:11:48,600
you can run a successful business, even though

277
00:11:48,600 --> 00:11:50,820
you don't do every aspect of it.

278
00:11:51,460 --> 00:11:54,620
In fact, being that business where the owner

279
00:11:54,620 --> 00:11:56,560
is doing all the aspects and they've got

280
00:11:56,560 --> 00:11:59,980
their fingers in every part of it is

281
00:11:59,980 --> 00:12:01,840
not necessarily a good thing when it comes

282
00:12:01,840 --> 00:12:02,540
time to sell.

283
00:12:03,300 --> 00:12:07,260
If that business is you, what is there

284
00:12:07,260 --> 00:12:07,720
to sell?

285
00:12:08,340 --> 00:12:10,100
It's a lot more difficult to sell a

286
00:12:10,100 --> 00:12:13,040
business when you're doing everything.

287
00:12:13,900 --> 00:12:15,300
Go ahead.

288
00:12:15,520 --> 00:12:15,700
Sorry, Chris.

289
00:12:16,020 --> 00:12:17,040
No, I said that's a great point.

290
00:12:18,760 --> 00:12:19,240
Yeah.

291
00:12:19,240 --> 00:12:23,660
Especially true in law firms or service firms,

292
00:12:23,740 --> 00:12:23,900
right?

293
00:12:23,960 --> 00:12:25,860
Because I go in and I want to

294
00:12:25,860 --> 00:12:29,040
see attorney Doug Cabral or financial services.

295
00:12:29,160 --> 00:12:31,440
I want to go and see Chris Boyd.

296
00:12:31,620 --> 00:12:32,960
If I go to the dentist, I want

297
00:12:32,960 --> 00:12:35,200
to see my dentist, John Smith, right?

298
00:12:35,220 --> 00:12:36,200
The relationship part.

299
00:12:36,520 --> 00:12:36,620
Yep.

300
00:12:36,760 --> 00:12:39,280
I go in and he's not there, she's

301
00:12:39,280 --> 00:12:39,780
not there.

302
00:12:39,860 --> 00:12:43,520
I'm like, oh no, they don't understand me.

303
00:12:43,520 --> 00:12:44,340
Right.

304
00:12:45,060 --> 00:12:45,160
Yeah.

305
00:12:45,220 --> 00:12:48,100
That personal relationship is always the challenge when

306
00:12:48,100 --> 00:12:50,840
you're dealing with working with a professional service

307
00:12:50,840 --> 00:12:54,880
firm, whatever it may be when you're doing

308
00:12:54,880 --> 00:12:55,740
a sale of that.

309
00:12:59,220 --> 00:13:01,560
Before we go on into, I want to

310
00:13:01,560 --> 00:13:04,160
talk about the buyer just for a little

311
00:13:04,160 --> 00:13:06,460
bit longer, then let's talk about succession and

312
00:13:06,460 --> 00:13:09,000
the thought process there.

313
00:13:09,180 --> 00:13:12,320
But when I'm a buyer and someone comes

314
00:13:12,320 --> 00:13:14,600
to you, maybe just start by telling us

315
00:13:14,600 --> 00:13:18,080
a little bit about process, how you identify

316
00:13:18,080 --> 00:13:20,680
what they're looking for, what's the right fit,

317
00:13:20,940 --> 00:13:22,820
is it all about budget, that kind of

318
00:13:22,820 --> 00:13:22,940
thing.

319
00:13:23,360 --> 00:13:27,200
Then I'd be interested in hearing your thoughts

320
00:13:27,200 --> 00:13:30,920
on the question of franchise versus just an

321
00:13:30,920 --> 00:13:34,600
independent business, pros and cons and how that

322
00:13:34,600 --> 00:13:35,080
all works.

323
00:13:35,480 --> 00:13:35,620
Yeah.

324
00:13:35,800 --> 00:13:38,220
Also, do you vet the buyer at all?

325
00:13:39,040 --> 00:13:40,580
You don't want to spend a lot of

326
00:13:40,580 --> 00:13:43,300
time with someone who's really not capable of

327
00:13:43,300 --> 00:13:43,980
buying a business.

328
00:13:44,400 --> 00:13:46,200
Yeah, exactly, Jeff.

329
00:13:46,280 --> 00:13:48,060
You do have to vet buyers.

330
00:13:48,140 --> 00:13:51,240
When you're representing a seller, you're doing a

331
00:13:51,240 --> 00:13:51,760
couple of things.

332
00:13:51,840 --> 00:13:53,820
You're that buffer between the seller and the

333
00:13:53,820 --> 00:13:54,120
buyer.

334
00:13:55,140 --> 00:13:56,860
That's an important role for a couple of

335
00:13:56,860 --> 00:13:57,260
reasons.

336
00:13:57,900 --> 00:14:00,820
One is so that you're not wasting the

337
00:14:00,820 --> 00:14:03,100
seller's time with someone who may be a

338
00:14:03,100 --> 00:14:05,500
wonderful person, but they don't have the financial

339
00:14:05,500 --> 00:14:08,000
ability or they don't have the ability to

340
00:14:08,000 --> 00:14:11,220
get necessary financing as a buffer in keeping

341
00:14:11,220 --> 00:14:14,500
the parties apart, because it's important to maintain

342
00:14:14,500 --> 00:14:19,180
confidentiality between the buyer and the seller.

343
00:14:19,600 --> 00:14:21,760
You don't want it known as a public

344
00:14:21,760 --> 00:14:23,700
knowledge that this business is for sale.

345
00:14:24,040 --> 00:14:24,640
I'm sure, yeah.

346
00:14:24,740 --> 00:14:26,980
That's one of the things that people don't

347
00:14:26,980 --> 00:14:30,780
really think about is how important it is

348
00:14:30,780 --> 00:14:34,000
for them to maintain confidentiality when they're selling

349
00:14:34,000 --> 00:14:34,600
their business.

350
00:14:36,180 --> 00:14:40,540
I don't want to lose all of your

351
00:14:40,540 --> 00:14:41,980
audience because you're thinking about selling.

352
00:14:42,400 --> 00:14:44,800
Well, when you're looking at a sale and

353
00:14:44,800 --> 00:14:48,780
you're considering selling, one of the things, and

354
00:14:48,780 --> 00:14:50,440
I see it all the time when I

355
00:14:50,440 --> 00:14:52,240
go out to put a listing up on

356
00:14:52,240 --> 00:14:55,020
a website like BizBuySell or something like that,

357
00:14:55,320 --> 00:14:57,300
and you see all these businesses that are

358
00:14:57,300 --> 00:14:59,120
listed by the owner, and you can tell

359
00:14:59,120 --> 00:15:01,760
they're being listed by the owner because they've

360
00:15:01,760 --> 00:15:03,360
got the name of the business and the

361
00:15:03,360 --> 00:15:05,320
contact name for the owner and all of

362
00:15:05,320 --> 00:15:08,480
this, and they don't realize what they've done

363
00:15:08,480 --> 00:15:09,040
to themselves.

364
00:15:10,280 --> 00:15:12,380
First of all, they've told all their employees

365
00:15:12,380 --> 00:15:13,440
they're looking to sell.

366
00:15:14,460 --> 00:15:16,360
The employees, they may be great people.

367
00:15:16,480 --> 00:15:18,940
They may be loyal to a fault, but

368
00:15:18,940 --> 00:15:19,840
this is their livelihood.

369
00:15:20,100 --> 00:15:21,600
This is how they put food on the

370
00:15:21,600 --> 00:15:23,500
table for their family, and they're going to

371
00:15:23,500 --> 00:15:24,100
get nervous.

372
00:15:25,360 --> 00:15:25,760
Exactly.

373
00:15:26,960 --> 00:15:28,760
Most of the time, a buyer's going to

374
00:15:28,760 --> 00:15:30,760
want to keep those employees because they're generating

375
00:15:30,760 --> 00:15:33,240
the income, but they don't know that, and

376
00:15:33,240 --> 00:15:35,600
they don't understand what's going on, and they

377
00:15:35,600 --> 00:15:37,880
get panicky, and they start looking for other

378
00:15:37,880 --> 00:15:38,680
places to go.

379
00:15:39,140 --> 00:15:41,920
You lose some key employees, and that's going

380
00:15:41,920 --> 00:15:43,740
to decimate the value of your business.

381
00:15:44,800 --> 00:15:47,440
You're also letting all of your customers know

382
00:15:47,440 --> 00:15:48,740
that you're for sale, possibly.

383
00:15:50,100 --> 00:15:52,780
Customers may love you, but you're providing them

384
00:15:52,780 --> 00:15:54,560
a service they need, and they're going to

385
00:15:54,560 --> 00:15:56,060
look for somebody else to provide that because

386
00:15:56,060 --> 00:15:58,340
they want the security of continuity of it.

387
00:15:58,340 --> 00:16:00,120
Your competitors are probably going to help spread

388
00:16:00,120 --> 00:16:00,940
the word too, right?

389
00:16:01,200 --> 00:16:02,280
That's the last thing.

390
00:16:02,400 --> 00:16:04,660
The competitors are going to find out, and

391
00:16:04,660 --> 00:16:06,860
once the competitor finds out you're for sale,

392
00:16:07,800 --> 00:16:10,060
business can be a contact sport.

393
00:16:10,540 --> 00:16:12,840
They're going to look for an advantage in

394
00:16:12,840 --> 00:16:13,000
it.

395
00:16:14,000 --> 00:16:15,920
That's why confidentiality is important.

396
00:16:16,040 --> 00:16:18,780
That's why we vet a buyer when we're

397
00:16:18,780 --> 00:16:22,100
representing a seller, and we always use non

398
00:16:22,100 --> 00:16:23,140
-disclosure agreements.

399
00:16:24,000 --> 00:16:26,580
Anytime we're providing any information to a potential

400
00:16:26,580 --> 00:16:30,040
buyer, to add as much protection to that

401
00:16:30,040 --> 00:16:30,980
seller as possible.

402
00:16:33,360 --> 00:16:35,820
Once you get nervous about an NDA, that's

403
00:16:35,820 --> 00:16:37,540
part of the process when you're going through

404
00:16:37,540 --> 00:16:37,920
this.

405
00:16:38,260 --> 00:16:40,560
You want to keep that information confidential.

406
00:16:41,980 --> 00:16:44,280
When a seller is going to reveal their

407
00:16:44,280 --> 00:16:46,680
details, they want to make sure that that's

408
00:16:46,680 --> 00:16:48,400
not public information.

409
00:16:49,000 --> 00:16:52,480
Absolutely, because when you're in the process, you

410
00:16:52,480 --> 00:16:55,640
have someone who has expressed interest, and they

411
00:16:55,640 --> 00:16:57,220
look like they're a viable buyer.

412
00:16:58,240 --> 00:16:59,440
You're going to be providing them a lot

413
00:16:59,440 --> 00:17:00,040
of information.

414
00:17:00,680 --> 00:17:02,620
You're going to be providing them an overview

415
00:17:02,620 --> 00:17:05,859
of financials at that stage, and the whole

416
00:17:05,859 --> 00:17:07,180
backstory on the business.

417
00:17:08,180 --> 00:17:10,859
It's usually put together in what's referred to

418
00:17:10,859 --> 00:17:13,660
as a confidential information memorandum.

419
00:17:14,640 --> 00:17:17,720
That's something that you circulate once they've executed

420
00:17:17,720 --> 00:17:20,000
the NDA, so that they have an idea

421
00:17:20,000 --> 00:17:21,560
in this business and if it's something that

422
00:17:21,560 --> 00:17:23,420
they are interested in pursuing.

423
00:17:24,020 --> 00:17:24,920
Very good.

424
00:17:26,599 --> 00:17:30,120
Just real quick, you didn't touch on the

425
00:17:30,120 --> 00:17:30,980
franchise question.

426
00:17:31,100 --> 00:17:32,040
Do you care to, or do you want

427
00:17:32,040 --> 00:17:32,460
to move on?

428
00:17:32,560 --> 00:17:33,220
Sure, absolutely.

429
00:17:33,940 --> 00:17:37,540
Franchises are really good in a lot of

430
00:17:37,540 --> 00:17:37,880
ways.

431
00:17:38,540 --> 00:17:40,440
They have upsides and downsides.

432
00:17:40,940 --> 00:17:44,640
With a franchise, you're paying somebody for the

433
00:17:44,640 --> 00:17:49,240
rights to use their logos, their name, and

434
00:17:49,240 --> 00:17:49,800
their process.

435
00:17:50,480 --> 00:17:53,220
The good side to that is that you

436
00:17:53,220 --> 00:17:54,980
do get the process.

437
00:17:55,960 --> 00:18:01,720
That is what makes franchises more successful in

438
00:18:01,720 --> 00:18:04,680
survivability than regular startup businesses.

439
00:18:05,440 --> 00:18:09,020
Franchises will succeed at a higher rate than

440
00:18:09,020 --> 00:18:10,800
most regular startup businesses.

441
00:18:11,820 --> 00:18:14,580
That's because part of what you're paying for

442
00:18:14,580 --> 00:18:17,320
is basically the roadmap.

443
00:18:17,720 --> 00:18:21,020
This franchise tells you, here's how you do

444
00:18:21,020 --> 00:18:21,640
the business.

445
00:18:22,260 --> 00:18:25,880
They bring you along and they do a

446
00:18:25,880 --> 00:18:26,760
lot of marketing.

447
00:18:27,320 --> 00:18:29,160
You're paying for that a lot with your

448
00:18:29,160 --> 00:18:34,780
franchise fees and your advertising fees, but what

449
00:18:34,780 --> 00:18:38,020
you're getting is the knowledge.

450
00:18:40,840 --> 00:18:43,160
You're very good.

451
00:18:45,840 --> 00:18:47,000
Here's how you do it.

452
00:18:47,200 --> 00:18:47,880
There's a manual.

453
00:18:51,300 --> 00:18:52,300
It's proven.

454
00:18:52,660 --> 00:18:56,280
The franchise is interested in your success because

455
00:18:56,280 --> 00:18:58,600
if a franchise doesn't perform well, it looks

456
00:18:58,600 --> 00:18:59,840
bad on the whole organization.

457
00:19:00,900 --> 00:19:03,820
In that process, there's some clarity around the

458
00:19:03,820 --> 00:19:07,760
amount of cash flow, the reserves you got

459
00:19:07,760 --> 00:19:10,340
to come into it with, and so forth.

460
00:19:10,460 --> 00:19:13,340
They tell you everything that you need to

461
00:19:13,340 --> 00:19:13,900
know.

462
00:19:14,600 --> 00:19:16,420
You pay for it.

463
00:19:17,040 --> 00:19:21,680
If you're a really innovative entrepreneur, a franchise

464
00:19:21,680 --> 00:19:23,340
might not be right for you.

465
00:19:25,120 --> 00:19:26,120
It may not be.

466
00:19:26,340 --> 00:19:30,300
If you're the type of person who likes

467
00:19:30,300 --> 00:19:33,260
to do things your own way, then maybe

468
00:19:33,260 --> 00:19:34,880
a franchise is not so good for you

469
00:19:34,880 --> 00:19:36,480
because it is going to be very structured.

470
00:19:37,660 --> 00:19:40,660
Let's talk about succession a little bit.

471
00:19:45,200 --> 00:19:47,340
There's a lot of people who own businesses.

472
00:19:48,300 --> 00:19:51,820
They start to think about, how do I

473
00:19:51,820 --> 00:19:55,180
extract value from my business at some point

474
00:19:55,180 --> 00:19:55,740
in time?

475
00:19:57,320 --> 00:19:58,860
When's the right time to do that?

476
00:19:59,180 --> 00:20:03,200
A lot of times, you talked about involvement

477
00:20:03,200 --> 00:20:04,660
with professional services.

478
00:20:05,200 --> 00:20:06,260
A lot of times, people think, well, I

479
00:20:06,260 --> 00:20:08,880
can keep doing this a long time and

480
00:20:08,880 --> 00:20:11,980
maybe I don't need to sell the business.

481
00:20:12,120 --> 00:20:14,940
I'll just keep working, but there's maybe missed

482
00:20:14,940 --> 00:20:17,960
opportunity if they have some value in that

483
00:20:17,960 --> 00:20:18,440
business.

484
00:20:21,340 --> 00:20:24,960
Let's talk about the internal versus external succession

485
00:20:24,960 --> 00:20:25,480
planning.

486
00:20:27,140 --> 00:20:29,000
What's your role in that process?

487
00:20:29,240 --> 00:20:31,920
Do you help people when they're dealing with

488
00:20:31,920 --> 00:20:33,040
internal succession?

489
00:20:34,280 --> 00:20:35,180
Yeah, at times I do.

490
00:20:35,620 --> 00:20:37,640
Usually, that's going to be more of a

491
00:20:37,640 --> 00:20:38,860
consulting situation.

492
00:20:39,760 --> 00:20:43,440
When you're dealing with the internal type of

493
00:20:43,440 --> 00:20:45,940
succession, it's usually going to be one of

494
00:20:45,940 --> 00:20:46,420
two ways.

495
00:20:46,520 --> 00:20:50,220
It's usually going to either be continuation with

496
00:20:50,220 --> 00:20:53,100
the next generation of the family or it's

497
00:20:53,100 --> 00:20:56,560
going to be transferring ownership to a key

498
00:20:56,560 --> 00:20:59,580
person, someone who's been working with you for

499
00:20:59,580 --> 00:21:02,460
years and they've decided that they would like

500
00:21:02,460 --> 00:21:04,220
to take over the mantle and you're ready

501
00:21:04,220 --> 00:21:04,960
to let it go.

502
00:21:05,860 --> 00:21:09,120
Both of them have their advantages.

503
00:21:09,780 --> 00:21:12,320
They both have potential downsides as well, though.

504
00:21:12,320 --> 00:21:12,840
Yeah.

505
00:21:13,020 --> 00:21:17,780
When you're dealing with family successions, it's like

506
00:21:17,780 --> 00:21:19,140
that business owner's dream.

507
00:21:19,520 --> 00:21:21,240
They built this business and now they want

508
00:21:21,240 --> 00:21:22,900
to pass it along to their children.

509
00:21:23,720 --> 00:21:25,560
When it works, it's great.

510
00:21:26,060 --> 00:21:29,400
The downside to that is that there's a

511
00:21:29,400 --> 00:21:31,300
lot of potential pitfalls there.

512
00:21:32,480 --> 00:21:35,140
I'll just touch on that.

513
00:21:35,740 --> 00:21:37,840
A lot of times, there's not a lot

514
00:21:37,840 --> 00:21:40,060
of cash flow in terms of the buyer

515
00:21:40,060 --> 00:21:41,480
doesn't really come into this.

516
00:21:41,640 --> 00:21:44,240
That's probably true with most internal succession.

517
00:21:44,820 --> 00:21:46,980
The buyer doesn't come into this with a

518
00:21:46,980 --> 00:21:47,720
big budget.

519
00:21:49,180 --> 00:21:50,420
Yeah, they usually don't.

520
00:21:50,520 --> 00:21:53,020
That's the first question is, how is this

521
00:21:53,020 --> 00:21:54,040
going to get paid for?

522
00:21:54,700 --> 00:21:57,440
Are you going to be taking a significant

523
00:21:57,440 --> 00:21:59,100
discount because it's family?

524
00:21:59,760 --> 00:22:00,920
Can you afford to?

525
00:22:02,120 --> 00:22:05,860
Many people don't realize how large of a

526
00:22:05,860 --> 00:22:08,740
portion of their personal net worth their business

527
00:22:08,740 --> 00:22:09,440
owner's is.

528
00:22:10,740 --> 00:22:14,280
That's something they may need for their future

529
00:22:14,280 --> 00:22:15,260
retirement goals.

530
00:22:16,620 --> 00:22:18,580
How is it going to be structured?

531
00:22:19,060 --> 00:22:21,100
Is it going to be structured as a

532
00:22:21,100 --> 00:22:22,840
loan coming from an outside source?

533
00:22:23,280 --> 00:22:24,580
Or is it going to be, in essence,

534
00:22:24,660 --> 00:22:27,780
seller financed and all of the risks that

535
00:22:27,780 --> 00:22:28,880
go along with that?

536
00:22:30,000 --> 00:22:33,440
Usually, the biggest issue I find dealing with

537
00:22:33,440 --> 00:22:35,640
some of these business owners whose plan is

538
00:22:35,640 --> 00:22:37,240
that it's going to be passed through the

539
00:22:37,240 --> 00:22:39,740
family, they haven't talked to their children.

540
00:22:40,200 --> 00:22:42,860
They haven't actually sat down with their children

541
00:22:42,860 --> 00:22:45,680
and asked them, is this what you want

542
00:22:45,680 --> 00:22:46,060
to do?

543
00:22:46,320 --> 00:22:50,100
They assume that, sure, my kids are going

544
00:22:50,100 --> 00:22:50,780
to want to do this.

545
00:22:51,260 --> 00:22:53,040
Many times, the children don't.

546
00:22:53,880 --> 00:22:55,620
They may not want to do this.

547
00:22:55,680 --> 00:22:58,640
They don't have the passion for that business

548
00:22:58,640 --> 00:23:00,160
that their parent did.

549
00:23:01,080 --> 00:23:02,140
That's a red flag.

550
00:23:03,660 --> 00:23:06,460
Sometimes, they just don't have the skill set.

551
00:23:07,100 --> 00:23:09,000
They may have been around this business, but

552
00:23:09,000 --> 00:23:11,160
they may not have actually physically been involved

553
00:23:11,160 --> 00:23:12,220
in it all that much.

554
00:23:12,780 --> 00:23:14,380
They may not have the skill set to

555
00:23:14,380 --> 00:23:17,120
continue to manage and run this business successfully.

556
00:23:18,420 --> 00:23:20,280
The last thing that people don't really think

557
00:23:20,280 --> 00:23:21,860
about is, how is it going to impact

558
00:23:21,860 --> 00:23:22,680
the family dynamic?

559
00:23:23,780 --> 00:23:28,700
You may have one child and that's great.

560
00:23:28,900 --> 00:23:31,080
There's no sibling rivalry there.

561
00:23:31,820 --> 00:23:34,740
What happens when you have multiple children?

562
00:23:35,380 --> 00:23:38,100
Three kids, one's really involved, one's peripherally involved,

563
00:23:38,260 --> 00:23:39,820
and one's not involved at all.

564
00:23:40,300 --> 00:23:41,340
How do you deal with that in a

565
00:23:41,340 --> 00:23:42,200
way that's fair?

566
00:23:44,160 --> 00:23:45,980
In terms of ownership, the one who's really

567
00:23:45,980 --> 00:23:47,240
involved wants to be the owner.

568
00:23:47,360 --> 00:23:49,300
The one who's peripherally involved has a job,

569
00:23:49,480 --> 00:23:51,940
but hey, I'm still involved.

570
00:23:52,100 --> 00:23:54,000
Then the one who's not involved at all,

571
00:23:54,760 --> 00:23:56,620
what's their part in the estate?

572
00:23:56,980 --> 00:23:58,580
How do you deal with this in a

573
00:23:58,580 --> 00:23:59,480
way that's equitable?

574
00:24:00,680 --> 00:24:01,720
Equal is not fair.

575
00:24:01,720 --> 00:24:01,820
Exactly.

576
00:24:01,900 --> 00:24:02,940
How do you balance this out?

577
00:24:03,640 --> 00:24:05,300
Equal is not necessarily fair.

578
00:24:05,800 --> 00:24:08,820
Do you give one of the siblings the

579
00:24:08,820 --> 00:24:12,400
business and other assets to the others?

580
00:24:13,520 --> 00:24:15,180
Business does really well.

581
00:24:15,280 --> 00:24:16,940
That can raise some issues.

582
00:24:18,160 --> 00:24:20,960
Or do you just decide that you're going

583
00:24:20,960 --> 00:24:22,080
to give it to all of them?

584
00:24:22,900 --> 00:24:26,840
Now you have a contest between the kids

585
00:24:26,840 --> 00:24:29,560
where one's running the show and only getting

586
00:24:29,560 --> 00:24:31,060
a third of the benefit or whatever.

587
00:24:31,080 --> 00:24:33,100
One's waiting at the mailbox at the beach.

588
00:24:34,040 --> 00:24:34,480
Exactly.

589
00:24:34,820 --> 00:24:36,700
The one who's maybe never been involved in

590
00:24:36,700 --> 00:24:38,360
the business, who doesn't understand it, thinks they

591
00:24:38,360 --> 00:24:39,340
know how it should be run.

592
00:24:39,860 --> 00:24:41,900
You run into all of these issues.

593
00:24:42,680 --> 00:24:43,940
There certainly are things.

594
00:24:44,520 --> 00:24:46,520
One of the things I like to always

595
00:24:46,520 --> 00:24:49,080
warn my clients when I'm dealing with that

596
00:24:49,080 --> 00:24:52,280
type of situation, the family succession, is what

597
00:24:52,280 --> 00:24:53,860
is going to be best for your children?

598
00:24:54,340 --> 00:24:57,140
Is it best to leave them the business

599
00:24:57,140 --> 00:24:59,840
and make the transition to ownership to them?

600
00:25:00,340 --> 00:25:04,600
Or is selling the business and leaving the

601
00:25:04,600 --> 00:25:07,000
money ultimately to them, which is going to

602
00:25:07,000 --> 00:25:07,820
be best for them?

603
00:25:08,260 --> 00:25:10,580
That's a decision that owner's got to make,

604
00:25:10,940 --> 00:25:13,560
but as long as they've opened their eyes

605
00:25:13,560 --> 00:25:16,280
and they've looked at it rationally and reasonably

606
00:25:16,280 --> 00:25:19,040
and really thought about it and talked to

607
00:25:19,040 --> 00:25:22,480
the children, whatever they want to do is

608
00:25:22,480 --> 00:25:23,620
what's right for them.

609
00:25:24,620 --> 00:25:28,540
Let's say for discussion's sake that internal succession,

610
00:25:29,060 --> 00:25:31,680
the longer the runway, the better because it

611
00:25:31,680 --> 00:25:33,260
takes a while to get that money out

612
00:25:33,260 --> 00:25:36,060
of the business, usually because it's not coming

613
00:25:36,060 --> 00:25:40,240
as quickly and better for a longer runway.

614
00:25:40,900 --> 00:25:46,340
Let's talk about the external transition, an external

615
00:25:46,340 --> 00:25:48,420
succession of finding a buyer.

616
00:25:49,380 --> 00:25:52,800
How long should one do some planning in

617
00:25:52,800 --> 00:25:57,440
preparation for that, ideally versus what do you

618
00:25:57,440 --> 00:25:58,400
see the most common?

619
00:25:58,980 --> 00:26:01,520
Is it something that suddenly people have or

620
00:26:01,520 --> 00:26:04,120
an unexpected illness or death?

621
00:26:04,120 --> 00:26:05,720
It could be a disability or a death,

622
00:26:05,840 --> 00:26:07,000
divorce, something like that.

623
00:26:07,260 --> 00:26:09,120
Things of that sort that prompt it or

624
00:26:09,120 --> 00:26:11,740
is it something where, hey, most people plan

625
00:26:11,740 --> 00:26:13,960
sufficiently and here's what's the right amount of

626
00:26:13,960 --> 00:26:14,840
time for planning?

627
00:26:15,700 --> 00:26:16,340
Talk about that.

628
00:26:16,900 --> 00:26:17,380
Sure.

629
00:26:17,700 --> 00:26:22,480
Well, when we're dealing with your smaller businesses,

630
00:26:22,920 --> 00:26:26,480
five million in revenue and less, probably about

631
00:26:26,480 --> 00:26:28,900
two-thirds of them really don't engage in

632
00:26:28,900 --> 00:26:29,920
much, if any, planning.

633
00:26:33,080 --> 00:26:37,800
It's a scary issue because the owner isn't

634
00:26:37,800 --> 00:26:38,200
prepared.

635
00:26:39,600 --> 00:26:42,240
That's a lot of what we end up

636
00:26:42,240 --> 00:26:45,260
doing is working with them to prepare them

637
00:26:45,260 --> 00:26:45,860
for a sale.

638
00:26:47,920 --> 00:26:51,500
I like to work with a business owner

639
00:26:51,500 --> 00:26:54,660
who says that, I'm thinking of this.

640
00:26:54,840 --> 00:26:56,060
I'm not there yet.

641
00:26:56,480 --> 00:26:58,380
Maybe I'm a couple of years out.

642
00:26:58,900 --> 00:27:00,720
That's a great time to start talking to

643
00:27:00,720 --> 00:27:01,940
them for a couple of reasons.

644
00:27:02,800 --> 00:27:05,320
One, you can help them prepare for it.

645
00:27:05,660 --> 00:27:07,400
You can help them get their books in

646
00:27:07,400 --> 00:27:07,680
order.

647
00:27:07,840 --> 00:27:09,860
You can help them get their processes in

648
00:27:09,860 --> 00:27:10,360
order.

649
00:27:11,200 --> 00:27:14,620
You help to prepare them emotionally because a

650
00:27:14,620 --> 00:27:18,460
lot of people, they don't realize that what's

651
00:27:18,460 --> 00:27:22,880
stepping away from this business that they've poured

652
00:27:22,880 --> 00:27:25,280
their heart and soul into for years is

653
00:27:25,280 --> 00:27:25,660
going to mean.

654
00:27:29,720 --> 00:27:31,940
You hit on a couple of things there,

655
00:27:32,120 --> 00:27:36,420
that emotional transition, the books, but you talked

656
00:27:36,420 --> 00:27:37,160
about process.

657
00:27:37,420 --> 00:27:40,140
I'd like you to elaborate on the importance

658
00:27:40,140 --> 00:27:43,400
of that because most small businesses, I think,

659
00:27:44,180 --> 00:27:50,860
don't necessarily have as thorough a detailed documentation,

660
00:27:51,280 --> 00:27:53,140
at least, of their process.

661
00:27:53,280 --> 00:27:55,460
They might have a process, but it's not

662
00:27:55,460 --> 00:27:56,440
particularly you mentioned.

663
00:27:56,580 --> 00:27:58,200
I'll share with you just anecdotally.

664
00:27:58,800 --> 00:28:00,760
I have a client who you talked about

665
00:28:00,760 --> 00:28:02,800
professional services and insurance business.

666
00:28:03,380 --> 00:28:06,460
This guy is semi-retired, but he has

667
00:28:06,460 --> 00:28:07,500
an insurance business.

668
00:28:08,060 --> 00:28:12,860
And his wife said that everything's on note

669
00:28:12,860 --> 00:28:13,260
cards.

670
00:28:13,980 --> 00:28:18,520
It's not really computerized and all the rest

671
00:28:18,520 --> 00:28:18,740
of it.

672
00:28:18,820 --> 00:28:24,560
It works for him, but that makes it

673
00:28:24,560 --> 00:28:26,120
harder to sell in that scenario.

674
00:28:26,560 --> 00:28:29,240
Talk about process a little bit.

675
00:28:29,800 --> 00:28:30,320
Sure.

676
00:28:30,460 --> 00:28:34,220
Every business and every industry has its methodology.

677
00:28:34,840 --> 00:28:36,340
They have their way of doing things.

678
00:28:37,220 --> 00:28:41,920
And you really want to have that, if

679
00:28:41,920 --> 00:28:45,920
not standardized, at least clearly set out for

680
00:28:45,920 --> 00:28:46,880
a couple of reasons.

681
00:28:47,020 --> 00:28:51,140
One, for operation purposes, it makes it easier

682
00:28:51,140 --> 00:28:53,500
when you're onboarding new people.

683
00:28:54,000 --> 00:28:56,740
You're able to explain what the role is,

684
00:28:56,740 --> 00:28:58,940
what the tasks are, how they all interconnect.

685
00:28:59,900 --> 00:29:03,940
From the perspective of a sale, one of

686
00:29:03,940 --> 00:29:05,760
the things you have to realize is when

687
00:29:05,760 --> 00:29:09,540
you're looking to sell your business, what you're

688
00:29:09,540 --> 00:29:13,440
looking to sell is its ability to generate

689
00:29:13,440 --> 00:29:13,820
income.

690
00:29:14,500 --> 00:29:19,220
And it does that by doing certain things.

691
00:29:19,900 --> 00:29:24,940
And those processes are what that buyer is

692
00:29:24,940 --> 00:29:26,240
paying, or at least part of what that

693
00:29:26,240 --> 00:29:26,980
buyer is paying for.

694
00:29:27,300 --> 00:29:30,340
It's analogous to the franchise.

695
00:29:30,940 --> 00:29:33,460
When you buy a franchise, you're buying the

696
00:29:33,460 --> 00:29:36,300
process and the right to use all of

697
00:29:36,300 --> 00:29:38,680
the name and trademarks and all of that.

698
00:29:39,240 --> 00:29:43,380
When you're buying an established business, you're doing

699
00:29:43,380 --> 00:29:45,420
much the same, just on a little bit

700
00:29:45,420 --> 00:29:46,540
smaller scale.

701
00:29:46,900 --> 00:29:51,300
You're not dealing with a national entity that

702
00:29:51,300 --> 00:29:54,040
tells you how to do everything, but you're

703
00:29:54,040 --> 00:29:56,740
dealing with an owner who's run this business

704
00:29:56,740 --> 00:29:59,200
for a number of years to get it

705
00:29:59,200 --> 00:30:00,540
to the point where it's mature.

706
00:30:01,140 --> 00:30:03,120
And now he's looking to sell this.

707
00:30:03,880 --> 00:30:05,840
And that's kind of important, especially when you

708
00:30:05,840 --> 00:30:09,740
consider survivability of startups, the rates that startup

709
00:30:09,740 --> 00:30:10,620
businesses fail.

710
00:30:11,360 --> 00:30:15,160
You know, I think the SBA puts out

711
00:30:15,160 --> 00:30:15,880
some statistics.

712
00:30:16,100 --> 00:30:18,300
I think like 80% of businesses, new

713
00:30:18,300 --> 00:30:20,520
startups may make it past the first year.

714
00:30:21,080 --> 00:30:23,460
But by the time you get to the

715
00:30:23,460 --> 00:30:25,460
five year, only about half of them have

716
00:30:25,460 --> 00:30:25,980
survived.

717
00:30:26,800 --> 00:30:29,780
And to make it to 10 years, only

718
00:30:29,780 --> 00:30:32,640
about 20 to 25% of them make

719
00:30:32,640 --> 00:30:33,440
it to 10 years.

720
00:30:34,400 --> 00:30:38,680
So when you're buying an established business, you're

721
00:30:38,680 --> 00:30:39,760
buying that knowledge.

722
00:30:39,840 --> 00:30:41,340
That owner is the one who's already made

723
00:30:41,340 --> 00:30:44,280
the mistakes and they figured out, okay, this

724
00:30:44,280 --> 00:30:46,660
is how this business makes money.

725
00:30:47,560 --> 00:30:51,380
And that's the process, the how it's done.

726
00:30:51,540 --> 00:30:54,880
And that should be documented or it should

727
00:30:54,880 --> 00:30:56,500
be easily to explain.

728
00:30:57,920 --> 00:31:01,300
The more documented it is, the less transition

729
00:31:01,300 --> 00:31:04,000
period that seller is going to have to

730
00:31:04,000 --> 00:31:04,640
be involved in.

731
00:31:04,640 --> 00:31:07,180
Doug, before we run out of time, I

732
00:31:07,180 --> 00:31:09,880
want to focus on maybe the most important

733
00:31:09,880 --> 00:31:12,680
question for a seller is how much is

734
00:31:12,680 --> 00:31:13,380
my business worth?

735
00:31:14,900 --> 00:31:15,380
Yep.

736
00:31:15,380 --> 00:31:17,300
That's usually a great starting point.

737
00:31:17,480 --> 00:31:20,560
Actually, when someone is thinking about, maybe I

738
00:31:20,560 --> 00:31:23,200
want to sell my business, that's where you

739
00:31:23,200 --> 00:31:23,680
should start.

740
00:31:23,780 --> 00:31:24,940
What is my business worth?

741
00:31:25,700 --> 00:31:27,700
And there's a lot of different ways to

742
00:31:27,700 --> 00:31:28,900
value a business.

743
00:31:29,800 --> 00:31:32,540
Accountants will tend to value a certain way,

744
00:31:32,660 --> 00:31:34,660
looking at the book value of the assets

745
00:31:34,660 --> 00:31:38,420
and looking at what's the revenue of this.

746
00:31:39,180 --> 00:31:41,640
What I do when a client comes to

747
00:31:41,640 --> 00:31:43,560
me and says, I want to start looking

748
00:31:43,560 --> 00:31:45,360
at this, what do you think my business

749
00:31:45,360 --> 00:31:45,920
is worth?

750
00:31:46,180 --> 00:31:48,660
I take it from the perspective of if

751
00:31:48,660 --> 00:31:50,820
you were going to sell your business today

752
00:31:50,820 --> 00:31:53,900
in its current condition, what would it sell

753
00:31:53,900 --> 00:31:54,260
for?

754
00:31:55,360 --> 00:31:58,680
And to do that, we basically start off

755
00:31:58,680 --> 00:32:02,480
with their finances, go through ideally three, maybe

756
00:32:02,480 --> 00:32:05,480
five years worth of their finances, tax returns,

757
00:32:05,620 --> 00:32:10,220
P&Ls, looking for what we refer to

758
00:32:10,220 --> 00:32:14,620
as either seller's discretionary earnings or EBITDA.

759
00:32:15,260 --> 00:32:17,820
And that is basically a measure of profit.

760
00:32:18,400 --> 00:32:22,680
What does that owner actually get from the

761
00:32:22,680 --> 00:32:23,160
business?

762
00:32:23,160 --> 00:32:25,840
And we alluded a little bit to when

763
00:32:25,840 --> 00:32:29,840
we're talking in planning out this, what about

764
00:32:29,840 --> 00:32:31,760
these businesses who put a lot of expenses?

765
00:32:31,920 --> 00:32:33,500
They run a lot of expenses through their

766
00:32:33,500 --> 00:32:33,960
business.

767
00:32:34,600 --> 00:32:36,100
Those are some of the things we're looking

768
00:32:36,100 --> 00:32:36,560
for.

769
00:32:37,060 --> 00:32:39,400
Because when you're the owner of the business,

770
00:32:39,960 --> 00:32:42,220
you may get, depending on how it's structured,

771
00:32:42,380 --> 00:32:44,460
you may get a salary or you may

772
00:32:44,460 --> 00:32:46,540
get a draw from this business, but you

773
00:32:46,540 --> 00:32:48,520
may also be running your personal vehicle through

774
00:32:48,520 --> 00:32:50,960
the business, or you may be running your

775
00:32:50,960 --> 00:32:52,300
cell phone through the business.

776
00:32:52,460 --> 00:32:54,020
I've got a friend who's got all those

777
00:32:54,020 --> 00:32:55,520
kids on the payroll.

778
00:32:55,720 --> 00:32:56,060
Exactly.

779
00:32:57,560 --> 00:33:00,320
And that's all part of what that business

780
00:33:00,320 --> 00:33:01,400
generates for the owner.

781
00:33:01,920 --> 00:33:04,680
So we're doing a recast of the financials,

782
00:33:04,700 --> 00:33:06,040
looking for all these items.

783
00:33:06,440 --> 00:33:08,440
And people who are serious about buying businesses,

784
00:33:08,440 --> 00:33:09,560
they understand that.

785
00:33:09,920 --> 00:33:12,260
And when you explain to them that, yes,

786
00:33:12,420 --> 00:33:14,140
this is actually a benefit to the owner,

787
00:33:14,300 --> 00:33:16,940
it's an expense, but this is actually something

788
00:33:16,940 --> 00:33:19,840
that's benefiting the owner directly, they get it,

789
00:33:19,900 --> 00:33:20,860
they understand it.

790
00:33:21,540 --> 00:33:23,660
So we come down, we break that down

791
00:33:23,660 --> 00:33:25,700
to find out what that business is actually

792
00:33:25,700 --> 00:33:27,300
generating for that owner.

793
00:33:28,020 --> 00:33:32,560
Then we go to various databases looking for

794
00:33:32,560 --> 00:33:36,580
other businesses that are like this, similar size,

795
00:33:36,740 --> 00:33:40,160
similar revenue, and what have they sold for?

796
00:33:41,180 --> 00:33:43,220
And there are stats out there that will

797
00:33:43,220 --> 00:33:48,180
show, let's say you're running an accounting practice,

798
00:33:48,180 --> 00:33:49,360
because I've done this for a couple of

799
00:33:49,360 --> 00:33:50,160
accounting practices.

800
00:33:51,200 --> 00:33:55,660
An accounting practice that generates this much in

801
00:33:55,660 --> 00:33:58,520
EBITDA, or this much in seller's discretionary earnings,

802
00:33:58,800 --> 00:34:01,680
usually sells for a certain multiple.

803
00:34:02,400 --> 00:34:05,020
Maybe it's one and a half times, or

804
00:34:05,020 --> 00:34:08,199
maybe it's two times those discretionary earnings.

805
00:34:09,040 --> 00:34:12,500
Those are stats that come from deals all

806
00:34:12,500 --> 00:34:13,280
across the country.

807
00:34:13,960 --> 00:34:16,260
And they're usually pretty accurate, and they're going

808
00:34:16,260 --> 00:34:17,360
to have a wide variety.

809
00:34:17,960 --> 00:34:20,120
So you do a little looking at it,

810
00:34:20,139 --> 00:34:23,020
you do a little bit of art form

811
00:34:23,020 --> 00:34:24,600
on it, and you come up with a

812
00:34:24,600 --> 00:34:26,560
number that, okay, this is what I think

813
00:34:26,560 --> 00:34:29,340
that is the proper multiple for this business.

814
00:34:29,980 --> 00:34:32,260
And this is what your discretionary earnings are.

815
00:34:32,780 --> 00:34:35,860
So I think you would sell for 1

816
00:34:35,860 --> 00:34:39,699
.5 times discretionary earnings or whatever that may

817
00:34:39,699 --> 00:34:39,860
be.

818
00:34:41,100 --> 00:34:44,120
The other important thing to doing that is,

819
00:34:44,719 --> 00:34:49,179
each business also has a certain benchmarks.

820
00:34:50,380 --> 00:34:52,040
Every industry is a little different.

821
00:34:52,699 --> 00:34:56,080
But usually for certain businesses, the payroll is

822
00:34:56,080 --> 00:34:57,840
going to be a certain percentage of revenue,

823
00:34:58,240 --> 00:34:59,800
or it should be.

824
00:35:00,480 --> 00:35:03,960
Your occupancy costs are going to be a

825
00:35:03,960 --> 00:35:05,380
certain percentage of revenue.

826
00:35:06,260 --> 00:35:08,460
And when we see something that's out of

827
00:35:08,460 --> 00:35:12,400
whack, that's an opportunity to advise this business

828
00:35:12,400 --> 00:35:15,220
to help them improve their numbers and improve

829
00:35:15,220 --> 00:35:16,420
their valuation.

830
00:35:18,160 --> 00:35:19,920
That's a little bit what we do and

831
00:35:19,920 --> 00:35:21,640
why I like working with people before.

832
00:35:23,240 --> 00:35:25,380
That owner comes in, I'm done.

833
00:35:25,500 --> 00:35:26,400
I need to get out.

834
00:35:26,520 --> 00:35:27,660
I want to sell now.

835
00:35:28,000 --> 00:35:28,380
Great.

836
00:35:28,640 --> 00:35:29,380
Happy to help you.

837
00:35:29,380 --> 00:35:31,860
But when they come in and say, I'm

838
00:35:31,860 --> 00:35:33,580
a couple of years out, I'm thinking of

839
00:35:33,580 --> 00:35:36,660
this, that gives us an opportunity to work

840
00:35:36,660 --> 00:35:39,500
with that owner, help them improve their business,

841
00:35:39,900 --> 00:35:43,060
help them improve their finances sometimes, and help

842
00:35:43,060 --> 00:35:44,780
them boost their valuation ultimately.

843
00:35:45,520 --> 00:35:48,440
Doug, you mentioned the accounting practice.

844
00:35:49,980 --> 00:35:51,300
That's an intriguing one.

845
00:35:51,760 --> 00:35:54,740
Is that considered a one-time revenue or

846
00:35:54,740 --> 00:35:55,500
recurring revenue?

847
00:35:56,080 --> 00:35:58,580
Most people go back to their tax person

848
00:35:58,580 --> 00:36:00,800
year after year, but not all.

849
00:36:01,180 --> 00:36:04,000
But how is that treated when it comes

850
00:36:04,000 --> 00:36:05,160
to thinking about that?

851
00:36:07,300 --> 00:36:10,500
Maybe just to elaborate for our listeners, recurring

852
00:36:10,500 --> 00:36:13,660
revenue is generally preferable over one-time revenue

853
00:36:13,660 --> 00:36:15,160
when it comes to the business.

854
00:36:16,120 --> 00:36:16,640
Yep, absolutely.

855
00:36:16,860 --> 00:36:19,640
And it plays a role in those multiples.

856
00:36:21,800 --> 00:36:25,480
Businesses that have recurring revenue insurance agencies are

857
00:36:25,480 --> 00:36:26,140
great for that.

858
00:36:26,760 --> 00:36:28,980
How often do people change their insurance agent?

859
00:36:29,080 --> 00:36:29,840
Not very often.

860
00:36:30,760 --> 00:36:33,720
It's all residual income, which is why a

861
00:36:33,720 --> 00:36:35,840
lot of the bigger investment companies and the

862
00:36:35,840 --> 00:36:39,220
bigger PE companies really got very interested in

863
00:36:39,220 --> 00:36:42,380
insurance agencies over the last 15 years or

864
00:36:42,380 --> 00:36:42,600
so.

865
00:36:44,020 --> 00:36:46,980
When you're dealing with a business that's got

866
00:36:46,980 --> 00:36:50,400
recurring revenue, it's usually going to be factored

867
00:36:50,400 --> 00:36:52,540
into that multiple that they're getting.

868
00:36:53,620 --> 00:36:56,420
A lot of people will say, oh, accounting

869
00:36:56,420 --> 00:36:57,600
firms, one-time revenue.

870
00:36:58,800 --> 00:37:01,940
That's not necessarily true, though, because just because

871
00:37:01,940 --> 00:37:05,160
something has a higher revenue doesn't mean it's

872
00:37:05,160 --> 00:37:06,040
a better business.

873
00:37:07,080 --> 00:37:09,720
I like to tell people, which business would

874
00:37:09,720 --> 00:37:11,000
you pay for more?

875
00:37:11,280 --> 00:37:14,080
The business that's got a million dollars of

876
00:37:14,080 --> 00:37:17,220
revenue, but has got 900,000 of expenses,

877
00:37:17,680 --> 00:37:20,040
or the business that's only got 500 in

878
00:37:20,040 --> 00:37:23,460
revenue, but only has 200,000 in expenses.

879
00:37:24,560 --> 00:37:29,160
It's really the profit that drives the valuation.

880
00:37:30,600 --> 00:37:33,420
When you're looking at these businesses and the

881
00:37:33,420 --> 00:37:36,880
kind of practices in particular, the fact that

882
00:37:36,880 --> 00:37:40,700
they generally are recurring revenue certainly helps boost

883
00:37:40,700 --> 00:37:42,260
those values.

884
00:37:42,920 --> 00:37:46,320
The downside, however, when you're dealing with professional

885
00:37:46,320 --> 00:37:48,740
services firms, and you mentioned this earlier, Chris,

886
00:37:49,060 --> 00:37:53,660
is it's the personal relationships, which is why

887
00:37:53,660 --> 00:37:56,880
usually when you're dealing with a professional services

888
00:37:56,880 --> 00:37:59,320
firm, the transition period is going to be

889
00:37:59,320 --> 00:38:00,360
extremely important.

890
00:38:00,980 --> 00:38:03,180
It may be a little longer than some

891
00:38:03,180 --> 00:38:03,860
of the business.

892
00:38:04,060 --> 00:38:07,420
It's not uncommon for a selling accountant to

893
00:38:07,420 --> 00:38:11,240
stick with that business for a year to

894
00:38:11,240 --> 00:38:13,960
help with that transition, make sure that those

895
00:38:13,960 --> 00:38:16,980
clients are introduced to the new firm and

896
00:38:16,980 --> 00:38:20,080
things are brought along slowly, so you don't

897
00:38:20,080 --> 00:38:21,360
get a sudden drop off.

898
00:38:22,420 --> 00:38:25,040
Also, there's usually going to be provisions in

899
00:38:25,040 --> 00:38:28,580
the purchase agreement to deal with what happens

900
00:38:28,580 --> 00:38:30,340
if clients drop off.

901
00:38:31,600 --> 00:38:32,060
Good point.

902
00:38:32,620 --> 00:38:36,840
Hey, Doug.

903
00:38:37,760 --> 00:38:39,580
One question I had.

904
00:38:40,520 --> 00:38:43,380
Let's say someone's thinking about selling their business.

905
00:38:44,420 --> 00:38:47,080
Rather than creating that biz by sell account

906
00:38:47,080 --> 00:38:49,740
and just putting their business up there, what

907
00:38:49,740 --> 00:38:52,760
can they do to get organized and get

908
00:38:52,760 --> 00:38:54,320
everything in order before giving you a call

909
00:38:54,320 --> 00:38:55,640
and starting the whole process?

910
00:38:56,440 --> 00:38:56,540
Okay.

911
00:38:57,620 --> 00:39:01,540
If they want to start organizing themselves, first

912
00:39:01,540 --> 00:39:04,800
thing they want to do is they want

913
00:39:04,800 --> 00:39:07,140
to go through and make sure that all

914
00:39:07,140 --> 00:39:08,780
of their records are in order.

915
00:39:09,700 --> 00:39:12,840
If they're a corporation or LLC or all

916
00:39:12,840 --> 00:39:15,960
their annual reports filed, are they actually in

917
00:39:15,960 --> 00:39:16,400
existence?

918
00:39:17,100 --> 00:39:19,980
People sometimes don't file their annual reports and

919
00:39:19,980 --> 00:39:21,760
then find out a couple of years down

920
00:39:21,760 --> 00:39:23,180
the line that they were dissolved by the

921
00:39:23,180 --> 00:39:24,120
Secretary of State's office.

922
00:39:26,320 --> 00:39:28,200
How are their financial books?

923
00:39:28,500 --> 00:39:31,320
Oh, I've seen a lot of it.

924
00:39:32,380 --> 00:39:34,020
What about their financial records?

925
00:39:34,140 --> 00:39:36,520
Are their financial records in good order?

926
00:39:37,860 --> 00:39:40,140
Are they not co-mixed with their personal

927
00:39:40,140 --> 00:39:40,660
records?

928
00:39:41,080 --> 00:39:43,240
Are they not co-mixed with their personal

929
00:39:43,240 --> 00:39:43,660
records?

930
00:39:44,580 --> 00:39:47,280
I've run into some businesses where you have

931
00:39:47,280 --> 00:39:51,060
a business owner who has one corporation, but

932
00:39:51,060 --> 00:39:53,160
he's running two businesses under it.

933
00:39:53,940 --> 00:39:55,420
That's always fun.

934
00:39:56,060 --> 00:40:00,600
A lot of times the accountant may not

935
00:40:00,600 --> 00:40:04,360
care because the corporation balances out and that's

936
00:40:04,360 --> 00:40:05,160
what they're reporting.

937
00:40:06,080 --> 00:40:08,760
But these two businesses may be co-mingling

938
00:40:08,760 --> 00:40:10,880
expenses and co-mingling income.

939
00:40:11,760 --> 00:40:15,120
That makes for an interesting process and unraveling

940
00:40:15,120 --> 00:40:15,680
all that.

941
00:40:16,840 --> 00:40:19,040
And the other thing too, the most important

942
00:40:19,040 --> 00:40:22,120
thing too, is don't be afraid to call

943
00:40:22,120 --> 00:40:24,740
someone to help, whether it be a business

944
00:40:24,740 --> 00:40:27,700
broker or have a sit down with your

945
00:40:27,700 --> 00:40:31,100
financial advisor or your accountant and say, here's

946
00:40:31,100 --> 00:40:31,920
what I'm thinking.

947
00:40:32,540 --> 00:40:33,740
What should I be doing?

948
00:40:34,120 --> 00:40:35,680
Who should I be talking to?

949
00:40:37,420 --> 00:40:39,480
I believe in the team approach.

950
00:40:39,980 --> 00:40:41,300
I'm not an accountant.

951
00:40:42,280 --> 00:40:44,420
I may be an attorney, but I don't

952
00:40:44,420 --> 00:40:47,080
necessarily want to do both the broker work

953
00:40:47,080 --> 00:40:48,340
and the attorney work.

954
00:40:49,080 --> 00:40:53,340
I think that having that team approach is

955
00:40:53,340 --> 00:40:55,500
a good way to go because every situation

956
00:40:55,500 --> 00:40:56,100
is different.

957
00:40:57,280 --> 00:41:01,560
Some businesses may have real estate, some don't.

958
00:41:02,180 --> 00:41:04,840
Do they want to sell the real estate

959
00:41:04,840 --> 00:41:06,240
as well, or do they want to hold

960
00:41:06,240 --> 00:41:07,880
onto that and maybe lease it back to

961
00:41:07,880 --> 00:41:09,580
the business for an additional cash stream?

962
00:41:10,040 --> 00:41:13,220
Each situation is different, so you really want

963
00:41:13,220 --> 00:41:14,720
to work with that owner and work with

964
00:41:14,720 --> 00:41:16,860
their team to find the right solution for

965
00:41:16,860 --> 00:41:17,060
them.

966
00:41:20,590 --> 00:41:22,650
Well, it's been a really interesting discussion.

967
00:41:24,030 --> 00:41:26,110
We probably went a little longer than planned,

968
00:41:26,230 --> 00:41:29,530
but there's so much to talk about and

969
00:41:29,530 --> 00:41:31,110
I'm sure we could probably plan to have

970
00:41:31,110 --> 00:41:33,210
you back in the future, Doug, because it's

971
00:41:33,210 --> 00:41:34,970
been- We'd be happy anytime, Chris.

972
00:41:35,490 --> 00:41:35,910
All right.

973
00:41:36,850 --> 00:41:40,370
Anything, Jeff, you wanted to add as we

974
00:41:40,370 --> 00:41:40,870
wind down?

975
00:41:40,870 --> 00:41:43,250
I'd just like to give Doug an opportunity

976
00:41:43,250 --> 00:41:46,350
to share his contact information on how he

977
00:41:46,350 --> 00:41:48,410
would like, if someone's listening, a buyer or

978
00:41:48,410 --> 00:41:50,430
seller and might want to have that initial

979
00:41:50,430 --> 00:41:52,470
conversation, what's the best way to reach out

980
00:41:52,470 --> 00:41:52,870
to you, Doug?

981
00:41:53,630 --> 00:41:53,890
Sure.

982
00:41:54,090 --> 00:41:56,730
Best way to reach out to me, give

983
00:41:56,730 --> 00:42:01,390
you a couple of ways, email dougatcompassbusiness.net.

984
00:42:02,330 --> 00:42:08,470
Phone, I've got a mass number, 508-375

985
00:42:08,470 --> 00:42:13,350
-7196 and a Florida number as well, that's

986
00:42:13,350 --> 00:42:17,110
321-378-4038.

987
00:42:18,150 --> 00:42:21,650
If you have questions, if you're thinking about

988
00:42:21,650 --> 00:42:24,950
it, you're thinking of selling your business or

989
00:42:24,950 --> 00:42:27,670
you're thinking about buying a business or maybe

990
00:42:27,670 --> 00:42:30,390
you've got an existing business and you're looking

991
00:42:30,390 --> 00:42:31,830
to expand through acquisition.

992
00:42:32,310 --> 00:42:34,470
Be happy to talk to you and see

993
00:42:34,470 --> 00:42:35,170
if I can help you.

994
00:42:35,950 --> 00:42:36,810
Thank you, Doug.

995
00:42:37,030 --> 00:42:37,390
Great job.

996
00:42:37,650 --> 00:42:38,230
Thanks, Doug.

997
00:42:38,310 --> 00:42:38,970
Appreciate it.

998
00:42:39,010 --> 00:42:39,390
Thank you.

999
00:42:39,850 --> 00:42:40,330
Conversation.

1000
00:42:40,570 --> 00:42:40,810
All right.

1001
00:42:40,890 --> 00:42:42,730
With that, everybody, thanks for being with us

1002
00:42:42,730 --> 00:42:43,650
for another episode.

1003
00:42:44,110 --> 00:42:45,870
If there's anything you need for help from

1004
00:42:45,870 --> 00:42:49,110
us with your financial planning and portfolio management,

1005
00:42:49,250 --> 00:42:50,490
don't hesitate to reach out.

1006
00:42:50,530 --> 00:42:53,010
Until next time, keep striving for something more.

1007
00:42:54,110 --> 00:42:56,110
Thank you for listening to Something More with

1008
00:42:56,110 --> 00:42:56,810
Chris Boyd.

1009
00:42:57,150 --> 00:42:59,290
Call us for help, whether it's for financial

1010
00:42:59,290 --> 00:43:03,210
planning or portfolio management, insurance concerns, or those

1011
00:43:03,210 --> 00:43:05,250
quality of life issues that make the money

1012
00:43:05,250 --> 00:43:06,350
matters matter.

1013
00:43:06,730 --> 00:43:09,970
Whatever's on your mind, visit us at somethingmorewithchrisboyd

1014
00:43:09,970 --> 00:43:13,170
.com or call us toll free at 866

1015
00:43:13,170 --> 00:43:16,830
-771-8901.

1016
00:43:16,910 --> 00:43:20,710
Or send us your questions to amr-info

1017
00:43:20,710 --> 00:43:22,670
at wealthenhancement.com.

1018
00:43:22,770 --> 00:43:24,790
You're listening to Something More with Chris Boyd

1019
00:43:24,790 --> 00:43:27,370
Financial Talk Show, Wealth Enhancement Advisory Services, and

1020
00:43:27,370 --> 00:43:29,530
Jay Christopher Boyd provide investment advice on an

1021
00:43:29,530 --> 00:43:31,110
individual basis to clients only.

1022
00:43:31,270 --> 00:43:33,250
Proper advice depends on a complete analysis of

1023
00:43:33,250 --> 00:43:34,450
all facts and circumstances.

1024
00:43:34,730 --> 00:43:36,530
The information given on this program is general

1025
00:43:36,530 --> 00:43:38,550
financial comments and cannot be relied upon as

1026
00:43:38,550 --> 00:43:40,130
pertaining to your specific situation.

1027
00:43:40,350 --> 00:43:42,330
Wealth Enhancement Group cannot guarantee that using the

1028
00:43:42,330 --> 00:43:44,330
information from this show will generate profits or

1029
00:43:44,330 --> 00:43:45,430
ensure freedom from loss.

1030
00:43:45,630 --> 00:43:47,810
Listeners should consult their own financial advisors or

1031
00:43:47,810 --> 00:43:49,910
conduct their own due diligence before making any

1032
00:43:49,910 --> 00:43:50,730
financial decisions.