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Exit Your Business with Style, Grace & More Money · Business Roundtable

• 0:31
  Speaker 1: Welcome back to the Business Roundtable podcast once again. I'm
• 0:34
  Speaker 1: your host, David Carr of Stewards your Business bringing teams
• 0:37
  Speaker 1: and people together to accomplish great things. We do that
• 0:40
  Speaker 1: every week. We have another brand new guest here, John Marnika,
• 0:44
  Speaker 1: who is here and it is going to share some
• 0:46
  Speaker 1: great insights about how do you exit a business with
• 0:49
  Speaker 1: style grace. He is the escape artist and I'm super
• 0:53
  Speaker 1: excited to have him here to bring different insights that
• 0:57
  Speaker 1: I don't have. And I love having the conversations here
• 0:59
  Speaker 1: on the Business round podcasts so that you the listener
• 1:01
  Speaker 1: can benefit from hearing about other business owners leaders and
• 1:05
  Speaker 1: helping you show up and run your business effectively. And
• 1:08
  Speaker 1: so welcome to the podcast.
• 1:10
  Speaker 2: John.
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  Speaker 1: Great to have you here, Oh glad to be here. Yeah,
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  Speaker 1: you have written books, you have been on other podcasts.
• 1:18
  Speaker 1: You and I have connected, and I feel like you
• 1:20
  Speaker 1: have such an important message out there to help business
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  Speaker 1: owners really prepare themselves for a graceful, hopefully profitable exit
• 1:29
  Speaker 1: without losing their legacy or their people in the process.
• 1:32
  Speaker 2: And that's what we're going to unpact today.
• 1:33
  Speaker 1: But before we get into the meta that John, I
• 1:35
  Speaker 1: always like to invite guests to take us on.
• 1:38
  Speaker 2: A little journey of where they came from.
• 1:41
  Speaker 1: Why are they passionate about what they're what they're doing,
• 1:43
  Speaker 1: and and you know, why did you become the escape artist?
• 1:47
  Speaker 3: If you will, Well, let's take those in a little
• 1:49
  Speaker 3: bit of a reverse order. So these artists came from
• 1:53
  Speaker 3: a Mastermind group I was in a number of years ago,
• 1:57
  Speaker 3: and we're you know, we're there to help each other,
• 2:01
  Speaker 3: you know. You know when you talk about what I
• 2:02
  Speaker 3: do is helping people. You know, if they're if it's
• 2:06
  Speaker 3: an individual, they're buying a business, they're escaping their job.
• 2:09
  Speaker 3: If it's an owner and they're selling their company, they're
• 2:12
  Speaker 3: they're escaping their business. And I say, to the next
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  Speaker 3: great adventure in life, and it's just you know, the
• 2:17
  Speaker 3: back and forth, and it just came up. You know,
• 2:20
  Speaker 3: you're here, you should be the escape artist.
• 2:22
  Speaker 2: There you go.
• 2:23
  Speaker 3: In twenty fourteen, I got into this business, you know,
• 2:31
  Speaker 3: whether you call it buying and selling or a serendipity.
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  Speaker 3: I was in a small rotary club in Kirkland, Washington,
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  Speaker 3: where I live, and there's a brand new club and
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  Speaker 3: I was encouraged to join by a manager at the time,
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  Speaker 3: and my veterinarian both of the events is you're a
• 2:52
  Speaker 3: joint rotary and here's a new club and you'll fit
• 2:54
  Speaker 3: right in. And you know this is I can tie
• 2:58
  Speaker 3: this to something later when we're talking about businesses and
• 3:03
  Speaker 3: things that make them valuable. But you know, I'm a
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  Speaker 3: young guy and I get into the Rotary Club and
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  Speaker 3: I you know, most everyone in the club was a
• 3:10
  Speaker 3: lot older than me, and and you know, they said, okay,
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  Speaker 3: we're going to raise some money, you know, for our
• 3:16
  Speaker 3: good work. So we're going to do an auction with
• 3:17
  Speaker 3: another rotary club, and everyone has to go out and
• 3:19
  Speaker 3: raise a thousand dollars of donations or more. And you know,
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  Speaker 3: the naive young guy I was, I ran on and
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  Speaker 3: raised over a thousand dollars of donations. Most of the
• 3:27
  Speaker 3: old guys and gals did they didn't, And you know
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  Speaker 3: they're sitting back there going, oh, okay, so we're gonna
• 3:33
  Speaker 3: do something. Look at this guy. Well, they said, get
• 3:36
  Speaker 3: on the board. And a couple of years later, I
• 3:37
  Speaker 3: was president and the guy who was president after we
• 3:40
  Speaker 3: hit it off pretty well. And a couple of years
• 3:43
  Speaker 3: after that, he said something to me along the lines
• 3:46
  Speaker 3: of I've always thought you'd be good. In his business,
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  Speaker 3: and the timing was right. There's a lot of things
• 3:51
  Speaker 3: in life, so you know, I call it serendipity. I
• 3:56
  Speaker 3: like it. I really like it because I don't have
• 4:01
  Speaker 3: the attention span of an engineer that can work on
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  Speaker 3: the same section of a bridge for a year at
• 4:05
  Speaker 3: a time. I bounce around from doing things like this
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  Speaker 3: talking to you, to meeting with prospective clients or clients,
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  Speaker 3: looking at spreadsheets or writing or you know, whatever it takes.
• 4:18
  Speaker 3: Is it different, different segments of the day. No day
• 4:22
  Speaker 3: is the same, no, no hour is the same. And
• 4:25
  Speaker 3: that that suits me very well. Plus we're helping people.
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  Speaker 3: It's usually the biggest transaction or deal of their life.
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  Speaker 3: Say you buy a house, but problem chances are you
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  Speaker 3: if you've got a good business, it's worth more than
• 4:43
  Speaker 3: your house.
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  Speaker 2: Yeah, hopefully.
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  Speaker 3: Yeah. And I say we because my daughter Jessica joined
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  Speaker 3: about seven years ago and it's been very rewarding and
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  Speaker 3: fun to have her working with me and learning a lot.
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  Speaker 1: Oh that's wonderful, I mean, and we're going to get
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  Speaker 1: into a little by that that too, about only businesses
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  Speaker 1: and whatnot and what does that look like. I love
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  Speaker 1: that it came from a place of John you giving
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  Speaker 1: you being part of the Rotary Great organization, and I
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  Speaker 1: find that I've been a part of other nonprofits as well, John,
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  Speaker 1: and I find that there's just draws a certain great
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  Speaker 1: caliber of people that want to help, they want to
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  Speaker 1: give back, And you got this experience and opportunity and serendipitously,
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  Speaker 1: all these years later, here you are and you're continuing
• 5:28
  Speaker 1: to help others in your business, which is a beautiful thing.
• 5:33
  Speaker 3: Yeah, I agree, I mean it. You know, there's deal
• 5:37
  Speaker 3: saying give to get and a lot of people that
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  Speaker 3: I work with and know are very much into giving back,
• 5:44
  Speaker 3: you know, at different levels.
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  Speaker 1: Yeah, absolutely, No, I mean I think that's one of
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  Speaker 1: the reasons it grew us here. And I love having
• 5:51
  Speaker 1: folks like you on the podcast, John, because that's the
• 5:53
  Speaker 1: whole foundation of the Business round Table podcast.
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  Speaker 2: We're giving, we're showing value.
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  Speaker 1: We want to help our listeners to find an advocate,
• 6:01
  Speaker 1: somebody that they can learn and listen and take this on.
• 6:04
  Speaker 1: And so to do that, we're going to dive into
• 6:07
  Speaker 1: the specific uh discussion about exit strategies and and why
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  Speaker 1: why do we need to have them, Why what do
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  Speaker 1: we need to be thinking about as a business owner.
• 6:17
  Speaker 1: I'm my steward of your business is about going on
• 6:19
  Speaker 1: three years here? What do I need to be considering
• 6:21
  Speaker 1: where I'm at in the life cycle of the business.
• 6:23
  Speaker 2: So I'd love to but.
• 6:25
  Speaker 1: Maybe we can start and pull back where you have
• 6:27
  Speaker 1: John maybe seen owners up, maybe waited too long.
• 6:30
  Speaker 2: They weren't taking a strategy, they weren't thinking about that.
• 6:33
  Speaker 2: You don't have the name names, of course, but just
• 6:35
  Speaker 2: you know, why are you know? What have you seen?
• 6:38
  Speaker 1: And people you know not having an exit strategy they're
• 6:40
  Speaker 1: waiting too long? What have you seen there?
• 6:43
  Speaker 3: Well, first of all, what you talk about, David is
• 6:46
  Speaker 3: very is very common. And my analogy is a light switch,
• 6:51
  Speaker 3: a dimmer switch, and not many owners get up and say,
• 6:56
  Speaker 3: you know, I want to sell in three years. So
• 6:58
  Speaker 3: let's raise that dimmer switch up. Business is bright and shiny.
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  Speaker 3: When the buyers look at it, they're going to be impressed.
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  Speaker 3: They get up and go, you know, honey, it's been
• 7:08
  Speaker 3: not it's not been what it used to be. Flip
• 7:10
  Speaker 3: the switch, get me out, and then we get into
• 7:13
  Speaker 3: you know, the things that I like to talk about
• 7:15
  Speaker 3: is some of the key factors that increase value. And
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  Speaker 3: if you don't have them there, you are you are.
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  Speaker 3: First of all, you mentioned you know my book, and
• 7:25
  Speaker 3: it's exit style, grace and more money. Obviously the more
• 7:29
  Speaker 3: money part, but you want to the style and grace
• 7:33
  Speaker 3: means that the company can will keep going, it will
• 7:37
  Speaker 3: thrive because you're in a position to sell to a
• 7:41
  Speaker 3: really good buyer. Buyers didn't look at it and say
• 7:45
  Speaker 3: things like, you know, the financials are a mess, or
• 7:48
  Speaker 3: you know there's going to be a lot of capital
• 7:50
  Speaker 3: expenditures coming up, or yeah they got they got eight
• 7:53
  Speaker 3: really key people and they're all over sixty. So you
• 7:58
  Speaker 3: got to look at those things and take care of them,
• 8:00
  Speaker 3: because it's not just making more money. If you have
• 8:03
  Speaker 3: the systems, the processes, you know you have, you know,
• 8:09
  Speaker 3: good equipment, even just name the whole list, you're going
• 8:12
  Speaker 3: to sell for a higher multiple of earnings than someone
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  Speaker 3: who doesn't have that. One of the biggest things I
• 8:20
  Speaker 3: see and advisors I talked to you see and it's
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  Speaker 3: getting I think it's getting out there more and more,
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  Speaker 3: is when the owner is too much of the business. Yeah, yeah,
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  Speaker 3: owner dependency. It's not just very small businesses. It's about
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  Speaker 3: a year ago I went to a professional group meeting
• 8:45
  Speaker 3: and it was a it was a discussion about One
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  Speaker 3: of the people on the panel was a partner, one
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  Speaker 3: of two owners in a business that had recently sold
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  Speaker 3: for seventy million dollars. It's a lot of money. It's
• 8:59
  Speaker 3: a big company, you know. Do you know about that
• 9:02
  Speaker 3: in sales? He said, during due diligence, he and his
• 9:05
  Speaker 3: partner realized they were way too important to the day
• 9:08
  Speaker 3: to day operations than they should have been.
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  Speaker 2: Mm hm mm hmm.
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  Speaker 3: And what does what that can manifest in a number
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  Speaker 3: of ways. And if you're selling to a professional buyer
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  Speaker 3: like they would to a private equity or family office,
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  Speaker 3: what what are you going to hear? Hey, we want
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  Speaker 3: you to stick around for ex years. You're not getting
• 9:27
  Speaker 3: out here in six months.
• 9:29
  Speaker 2: Mm hmm. Yeah, No, that's that's so important.
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  Speaker 1: I mean, you know, and you know I've talked before
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  Speaker 1: we started recording the podcast. You know, my passionate, his
• 9:37
  Speaker 1: organizational health, the people, the team, you know, And like
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  Speaker 1: you said, if you're not developing that team in, you
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  Speaker 1: can't just do the switch right I can't just find great,
• 9:47
  Speaker 1: amazing people and just plug them in right away. It
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  Speaker 1: takes time to integrate them, develop them, to understand the systems.
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  Speaker 2: Like you said, the processes. And so as a business owner,
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  Speaker 2: what is.
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  Speaker 1: Your what is your plan to do that in a
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  Speaker 1: and like you said, in a raceful way. And I
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  Speaker 1: feel like yeah, because I know where business owners can
• 10:04
  Speaker 1: just get stuck in the day to day and they're
• 10:05
  Speaker 1: not sticking up their head and looking further ahead like
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  Speaker 1: you said, John, and that that I like that that
• 10:11
  Speaker 1: analogy of the dimmer switch, like how to be like
• 10:13
  Speaker 1: we need to dial this up or it can't just
• 10:15
  Speaker 1: be up or down.
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  Speaker 2: It's that's that's a tough that's tough.
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  Speaker 3: Yeah, And you know it's with what you do, David Uh.
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  Speaker 3: You know you're you know, you got to get the
• 10:25
  Speaker 3: owners to shed duties management. And it's not easy because
• 10:32
  Speaker 3: especially if it's a founder who said, well, I I'm
• 10:35
  Speaker 3: not what created this. You know, I got this thing
• 10:36
  Speaker 3: up to I don't care if it's five million or
• 10:40
  Speaker 3: ten million or twenty million in sales or whatever it want.
• 10:43
  Speaker 3: They've done a good job. And but you know it's
• 10:46
  Speaker 3: a Marshall Goldsmith book, what got you here? What got
• 10:50
  Speaker 3: you here? Won't get you there? Yes, sometimes you have
• 10:53
  Speaker 3: to be changed. And they are smart people around that
• 10:56
  Speaker 3: they you have they have to delegate to and trust them. Hm,
• 11:01
  Speaker 3: you know, be the safety net, not the overlord.
• 11:05
  Speaker 2: Yeah.
• 11:06
  Speaker 1: Well, and I see that too, John, I mean Pictuo
• 11:09
  Speaker 1: smaller businesses where they it's just just the owners or
• 11:13
  Speaker 1: I found this too during WA They don't have redundancy.
• 11:15
  Speaker 1: They have like key people, and if that person leads,
• 11:18
  Speaker 1: it's like a pillar, like they know all the information
• 11:20
  Speaker 1: they're they're kind of holding it in. And sometimes you know,
• 11:23
  Speaker 1: it's not a healthy thing because it's like, well, I
• 11:26
  Speaker 1: don't want to I want to have control here, and
• 11:28
  Speaker 1: and the business owners have allowed certain employees to almost
• 11:31
  Speaker 1: take that control in an unhealthy way. And there's nobody
• 11:34
  Speaker 1: else that understands the processes or systems, like you said,
• 11:38
  Speaker 1: and again it almost feels hostage.
• 11:40
  Speaker 2: To your business envy. Yeah.
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  Speaker 3: Yeah, let's back up a little though, and you know
• 11:45
  Speaker 3: when the business is young and it's growing, yeah, the
• 11:48
  Speaker 3: owner needs to do all those things. You know. Let's
• 11:51
  Speaker 3: not just say they can't just hire everyone right.
• 11:53
  Speaker 2: Away, they can't just outsource it all.
• 11:55
  Speaker 3: Yeah. Yeah, but when you grow and you have the resources,
• 12:00
  Speaker 3: you know, it's not just about hey, I'm I'm going
• 12:03
  Speaker 3: after every dime I can. It's I'm making I'm making
• 12:08
  Speaker 3: a good living. We're growing and I'm working less. Yes,
• 12:12
  Speaker 3: I have work free time because you know, time is
• 12:15
  Speaker 3: one thing we can't control. We can't make more of it.
• 12:19
  Speaker 2: Absolutely yeah.
• 12:20
  Speaker 1: And what's what's the saying you don't want to trade time?
• 12:24
  Speaker 1: You know, money for time? I mean there's that that
• 12:26
  Speaker 1: you don't want that one to one and so you
• 12:28
  Speaker 1: have the option, I think is where your accent where
• 12:30
  Speaker 1: I hear John, and I hope people are encouraged as
• 12:32
  Speaker 1: a business owner that you have the ability that you
• 12:35
  Speaker 1: can choose to work, not that you have to work.
• 12:37
  Speaker 1: You come in and out of the business in a
• 12:39
  Speaker 1: healthy way, like you said, to live the life and
• 12:41
  Speaker 1: to create that that space. And it gets to the
• 12:44
  Speaker 1: kind of the point where I want to get you know, asked,
• 12:46
  Speaker 1: so how do we do this in a in a
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  Speaker 1: graceful way? And I love that term? How you said
• 12:51
  Speaker 1: do this with style and grace?
• 12:52
  Speaker 2: Office? Who we want to make more money? But you know,
• 12:55
  Speaker 2: how can we do that in a in a in
• 12:57
  Speaker 2: a very thoughtful way?
• 12:59
  Speaker 1: And I know there's different types of exits you're to consider,
• 13:02
  Speaker 1: but let's just unpack that a little bit.
• 13:04
  Speaker 2: John, what have you seen?
• 13:05
  Speaker 3: You know?
• 13:05
  Speaker 2: So if we if we can get this.
• 13:07
  Speaker 1: In place and work with you to get a strategy
• 13:09
  Speaker 1: in place. How does that strategy show up and and
• 13:13
  Speaker 1: manifest itself when we exit with grace and style.
• 13:17
  Speaker 3: Well, it's it's doing the little things. Uh. You know,
• 13:21
  Speaker 3: the big things are out there, but it's doing little
• 13:24
  Speaker 3: little things behind the scenes. And you know, you know
• 13:27
  Speaker 3: we talk, you talk before. I mentioned you know, like
• 13:29
  Speaker 3: systems and processes, and when you have those, you're almost
• 13:36
  Speaker 3: getting to a plug and play kind of thing.
• 13:38
  Speaker 2: Mm hmm.
• 13:39
  Speaker 3: If you think about good franchises, especially good franchises, they've
• 13:45
  Speaker 3: got that business in a box. That's someone who maybe
• 13:49
  Speaker 3: isn't an experienced manager or leader can have their own business.
• 13:53
  Speaker 3: And some of yeah, some of them are absentee or
• 13:58
  Speaker 3: like a hobby business, and some of them, you know,
• 14:00
  Speaker 3: they work in the business as much as on the business, uh.
• 14:05
  Speaker 3: And others end up, you know, with multiple territories, locations
• 14:09
  Speaker 3: and they have a real business. And you're trying to
• 14:13
  Speaker 3: create that little bit of a franchise internally that you know,
• 14:17
  Speaker 3: if Sue isn't here, Bob can do her job today
• 14:21
  Speaker 3: because you have systems that are in place and you
• 14:25
  Speaker 3: know he's been you know, at least somewhat trained on it,
• 14:31
  Speaker 3: so that that's a that's a big part of it.
• 14:34
  Speaker 3: You know, you deal with people. You know, another key
• 14:39
  Speaker 3: factor is you know we talk about delegating and who
• 14:42
  Speaker 3: do you delegate to? Well, you want to be able
• 14:44
  Speaker 3: to hire and retain good people, great people.
• 14:47
  Speaker 2: M hm.
• 14:48
  Speaker 3: And this isn't ill also say that goes to the
• 14:50
  Speaker 3: advisors that businesses use. You know, the CPA who just
• 14:56
  Speaker 3: crunches out taxes, does a good job taxes, they may
• 15:00
  Speaker 3: not be the one to go for advice on growth
• 15:04
  Speaker 3: and cash flow management like a CFO is. It's it's
• 15:09
  Speaker 3: internal and external. And you know when you talk about
• 15:13
  Speaker 3: the key employees and it can be that pillar they
• 15:16
  Speaker 3: can hold the business hostage. To go back to my
• 15:19
  Speaker 3: story about the rotary and the auction, you know, the
• 15:22
  Speaker 3: here's the young guy excited, goes out and does it.
• 15:26
  Speaker 3: Employees want career advancement. They want to do what they
• 15:31
  Speaker 3: want to help. You know, we're not talking about college
• 15:35
  Speaker 3: kids working their work six months and go get another job.
• 15:38
  Speaker 3: We're talking about people if that's their career and they're
• 15:39
  Speaker 3: supporting their family, they want advancement. So the owner it's
• 15:43
  Speaker 3: back and says, well, either I'm going to do it,
• 15:45
  Speaker 3: but more likely says you know, I'm happy making the
• 15:48
  Speaker 3: money we're making. I don't want to do anymore. I
• 15:52
  Speaker 3: don't want to go into a new market, get a
• 15:54
  Speaker 3: new piece of equipment, hire more do marketing. I'm happy.
• 15:57
  Speaker 3: You know that X dollars a year. Right, and the employee,
• 16:00
  Speaker 3: you get it. You're gonna get good employees. You're gonna say,
• 16:03
  Speaker 3: but we're not right.
• 16:05
  Speaker 2: Where's where's my where's my Yeah?
• 16:07
  Speaker 1: I was in that place, John, You're bringing up a
• 16:10
  Speaker 1: scenario where I was at a great, good company. I just
• 16:12
  Speaker 1: didn't see my where where where's my future? I was
• 16:14
  Speaker 1: there for nine years. I didn't see where. I just
• 16:18
  Speaker 1: wasn't clear to me, like you said, And then you
• 16:21
  Speaker 1: lose there. They're going to go somewhere. They're going to
• 16:23
  Speaker 1: go somewhere, right, they stay with you, or they're going
• 16:25
  Speaker 1: to find somewhere else. And you've invested a lot of
• 16:27
  Speaker 1: time and money right getting them to where they are
• 16:29
  Speaker 1: in the company.
• 16:31
  Speaker 2: I've been there for years, and if.
• 16:33
  Speaker 3: They stay, they may they may realize, hey, I don't
• 16:36
  Speaker 3: have to be as productive as I could be because
• 16:39
  Speaker 3: nothing else is going to happen.
• 16:41
  Speaker 2: Mm hmm, Right, the productivity starts to go down, they
• 16:44
  Speaker 2: start to become more disengaged, and then you're you're like,
• 16:48
  Speaker 2: why are we making as much money?
• 16:49
  Speaker 1: Or what what's what's off here that Like you said,
• 16:51
  Speaker 1: I think that's really important John, that you're bringing up
• 16:56
  Speaker 1: do the do the business owners have a plan for
• 16:58
  Speaker 1: those folks.
• 17:01
  Speaker 2: And we're going to get into a minute.
• 17:02
  Speaker 1: I'm gonna I want to talk about employee buyouts or
• 17:04
  Speaker 1: that around that, But do they have a plan so
• 17:06
  Speaker 1: that you know they know how to to transition or
• 17:13
  Speaker 1: are they thinking about those things or like you said,
• 17:14
  Speaker 1: if employees and or like you mentioned, who is your
• 17:17
  Speaker 1: other who's your your outside team? Like you, John, do
• 17:21
  Speaker 1: you have other consultants or people that are helping you
• 17:23
  Speaker 1: along the way. Are you just being isolated and just
• 17:26
  Speaker 1: kind of you know, in an echo chamber. I think
• 17:29
  Speaker 1: it's really important to find key advisors that they're coming
• 17:33
  Speaker 1: alongside you, like yourself, John or myself, where we are
• 17:36
  Speaker 1: like looking at the company and help helping them improve
• 17:39
  Speaker 1: and work and make sure they're paying attention to these things.
• 17:42
  Speaker 1: I would I like I use like I could use
• 17:43
  Speaker 1: the car analogy of like doing the maintenance, changing the oil,
• 17:46
  Speaker 1: making sure the tires are looking at everything so that
• 17:49
  Speaker 1: it keeps going, it's able to you know, go the distance,
• 17:52
  Speaker 1: or is it going to break down somewhere you know,
• 17:55
  Speaker 1: and then you're like, it's really not worth very much, right,
• 17:58
  Speaker 1: Like I don't really you know, but if you take
• 18:00
  Speaker 1: care of it and maintain it and you're doing like
• 18:02
  Speaker 1: I think you said, those little things make a big
• 18:05
  Speaker 1: difference of the long haul.
• 18:07
  Speaker 3: Yeah. I had someone I noticed, see he was a
• 18:13
  Speaker 3: president of one of the major divisions at Expedia, and
• 18:16
  Speaker 3: he had a great line. He said, growth hides a
• 18:19
  Speaker 3: lot of operational awards and then you go back and
• 18:23
  Speaker 3: fix the worts.
• 18:24
  Speaker 2: Mm.
• 18:25
  Speaker 3: And so when you want to grow, and then you
• 18:27
  Speaker 3: can take care of those things that the details like
• 18:30
  Speaker 3: we were just talking about.
• 18:32
  Speaker 1: So yeah, so you know, I've seen this firsthand where
• 18:36
  Speaker 1: there's been some transitional challenges of you know, when there
• 18:42
  Speaker 1: has been a sale of a company, maybe there's been
• 18:44
  Speaker 1: team confusion, they weren't understanding about the ownership changes. And
• 18:49
  Speaker 1: I'd love to talk a little bit more about how
• 18:52
  Speaker 1: you know, as again leading with grace and style here
• 18:55
  Speaker 1: he is a business owner, how can you you know,
• 18:57
  Speaker 1: prepare your team for that transition or some of them
• 19:01
  Speaker 1: will say, well, I'm interested, I want to I want
• 19:03
  Speaker 1: to buy the company. I mean, you know, how how
• 19:05
  Speaker 1: have you advisors company owners to look at that transition
• 19:10
  Speaker 1: and with their team, with their people.
• 19:11
  Speaker 3: John Well, first of all, it has to be the
• 19:14
  Speaker 3: size of company that an individual or a few individuals
• 19:18
  Speaker 3: can buy, because it gets to be larger and they're
• 19:23
  Speaker 3: just not going to be able to afford it. Banking
• 19:25
  Speaker 3: rules change when you get out of the SBA loan
• 19:31
  Speaker 3: guarantee program at the banks, so more doubt payment, shorter
• 19:36
  Speaker 3: amortization period, things like that. So it just depends on
• 19:42
  Speaker 3: the size of the business.
• 19:43
  Speaker 2: Mm hmm.
• 19:45
  Speaker 3: Then it's just like any other buyer. Are they motivated,
• 19:47
  Speaker 3: because there's three things that really make a buy sell
• 19:50
  Speaker 3: deal come together. You have to have motivated buyer and
• 19:53
  Speaker 3: sell it if the buyer is not motivated. And I've
• 19:56
  Speaker 3: seen numerous cases and uh the fact I worked on
• 20:00
  Speaker 3: the deal after this happened where the owner went to
• 20:04
  Speaker 3: the management team and said you want to buy me,
• 20:06
  Speaker 3: I want to buy my company, and they said, oh, yeah,
• 20:09
  Speaker 3: that'd be great. And then they found out what we
• 20:11
  Speaker 3: got to sign a bank loan, we got to put
• 20:12
  Speaker 3: up collateral, personal guarantees. You know, yeah, all of that,
• 20:18
  Speaker 3: and you know, change is the change the whole dynamic.
• 20:22
  Speaker 3: So are they willing? Not only are motivated, but are
• 20:26
  Speaker 3: they willing? And I said, there's three things that get
• 20:28
  Speaker 3: to a deal. Motivation, relationship, assume there's a good relationship
• 20:31
  Speaker 3: with employees, and then education, things like yes, I am
• 20:34
  Speaker 3: going to have to sign on a bank loan or
• 20:37
  Speaker 3: to all buyers and sellers. I will be frustrated along
• 20:40
  Speaker 3: the way. This is not not something like buying a car.
• 20:44
  Speaker 3: I okay, I went online, I saw the price, I
• 20:46
  Speaker 3: bought the car, and I got it the next day. Yeah,
• 20:49
  Speaker 3: there's a lot of moving parts going on there.
• 20:52
  Speaker 2: So yeah, yeah, yes, I've.
• 20:55
  Speaker 3: Worked on a succession plan about a year and a
• 20:58
  Speaker 3: half ago. This brings up another point. I talked about
• 21:03
  Speaker 3: the employee age. Three owners. I'd known one of them
• 21:06
  Speaker 3: for many years. He's come on in. It's my brother
• 21:09
  Speaker 3: and I and a third partner, all equal owners. Sit
• 21:14
  Speaker 3: down there, they're all at we'll just say a certain
• 21:19
  Speaker 3: age that would associated with wanting to retire, and they
• 21:24
  Speaker 3: for one of the first things they said was we
• 21:27
  Speaker 3: all want to be out in two years. And my
• 21:30
  Speaker 3: response right away was that ain't going to happen. They
• 21:34
  Speaker 3: were all important to the day to day operation. And
• 21:41
  Speaker 3: we ended up they had someone in mind and this
• 21:45
  Speaker 3: was a construction company and brought him in. We put
• 21:49
  Speaker 3: we put in a plan for him to buy in. Uh.
• 21:53
  Speaker 3: Started at twenty five percent I think it was twelve
• 21:56
  Speaker 3: or thirteen one year, twelve or thirteen in the second year,
• 21:58
  Speaker 3: and then he would own twenty five percent incial payment
• 22:02
  Speaker 3: and he made plus some financing and then it was
• 22:06
  Speaker 3: his bonus. Bonuses would go towards buying buying shares from
• 22:11
  Speaker 3: the path. Uh. And so it can be done, but
• 22:15
  Speaker 3: they've got to be willing. Yeah, Well, a lot in construction, Yeah,
• 22:22
  Speaker 3: some other industries, well a law firms, often accounting firms.
• 22:27
  Speaker 1: I like what you brought up, because I was brought
• 22:28
  Speaker 1: up as far as, like you said, putting the bonus
• 22:31
  Speaker 1: if they're willing. So one in the one company, and I
• 22:34
  Speaker 1: love your feedback of the one one one company that
• 22:36
  Speaker 1: I was working with.
• 22:37
  Speaker 2: They wanted to be an employee owned company.
• 22:40
  Speaker 1: And so basically what they did with John was, like
• 22:42
  Speaker 1: I said, are they willing, so they would give the
• 22:44
  Speaker 1: option to just you know, put take the take your
• 22:48
  Speaker 1: bonus if you will directly or put it in an
• 22:50
  Speaker 1: escrow account for them essentially so that when there's the
• 22:53
  Speaker 1: opportunity to buy into the company. And so that basically
• 22:56
  Speaker 1: was then indicator like, no, I'd rather just take the money. Well,
• 22:59
  Speaker 1: then you're really not interested in being an owner, and
• 23:01
  Speaker 1: that's fine. We just got to know your interest and
• 23:04
  Speaker 1: where do you want to go here with us so
• 23:05
  Speaker 1: that we can plan accordingly. And there's certain eligibility rules
• 23:08
  Speaker 1: and things like that within the company allows them to
• 23:11
  Speaker 1: buy in. But I do think it's important that we
• 23:13
  Speaker 1: don't assume just because they've been loyal and been part
• 23:16
  Speaker 1: of the company doesn't doesn't necessarily mean they're like you said,
• 23:20
  Speaker 1: able or maybe even capable of quite honestly, to actually
• 23:23
  Speaker 1: run the business in that other capacity.
• 23:25
  Speaker 2: Can considering all that, right.
• 23:28
  Speaker 3: That's what runs in when you run into ESOPs, which
• 23:30
  Speaker 3: I don't want to get into. In an employee stock ownership,
• 23:33
  Speaker 3: it's a it's a you know, another control department of labor.
• 23:38
  Speaker 3: But there has to be a management team in place
• 23:42
  Speaker 3: and what you're talking about, and there are other ways
• 23:47
  Speaker 3: to do it and just be bonuses. There's we just
• 23:51
  Speaker 3: had a deal closed and to the two key management
• 23:55
  Speaker 3: people had phantom stock program, so they and it owns shares,
• 24:01
  Speaker 3: but they own the value of those shares when the
• 24:06
  Speaker 3: company sold and not before. So it wasn't distribution. And
• 24:10
  Speaker 3: this company did it the right way. And I've heard
• 24:13
  Speaker 3: of companies if they don't do it the right way.
• 24:15
  Speaker 3: Here's what happens. So in looking at the company's tax returns,
• 24:20
  Speaker 3: it was an LLC and you saw k ones for
• 24:23
  Speaker 3: the owner and you saw k ones for the two
• 24:26
  Speaker 3: phantom share holders. But it showed no share of profits.
• 24:30
  Speaker 3: It said zero. So what that means is when the
• 24:34
  Speaker 3: company sold, they got to pay capital gains. Oh not
• 24:39
  Speaker 3: if they did not have a K one. If it
• 24:40
  Speaker 3: was just like heah, here's an agreement. When I sell,
• 24:42
  Speaker 3: you get five percent. Uh, it would be ordinary income
• 24:46
  Speaker 3: in text, could be could be double or close to it.
• 24:51
  Speaker 1: So this is where you know you're creating a team, John,
• 24:54
  Speaker 1: and a plan, and I think you know there's so
• 24:56
  Speaker 1: many moving parts. Like you said, you're not going to
• 24:59
  Speaker 1: get up in two years. You got to think about
• 25:00
  Speaker 1: all these elements. There's there's agreements, there's financials, there's other
• 25:04
  Speaker 1: whole different things in there. You're talking about grooming the
• 25:07
  Speaker 1: right internal leaders. If they want to become, like you said,
• 25:09
  Speaker 1: owners and identifying them, how do we get them into transition.
• 25:13
  Speaker 2: This all takes time, is what I'm hearing, you know,
• 25:17
  Speaker 2: and they.
• 25:17
  Speaker 3: If they're not if they're not doing it. So also,
• 25:23
  Speaker 3: you know, we were talking about bonuses and money. Two things.
• 25:28
  Speaker 3: One is I think at least I think four. I
• 25:31
  Speaker 3: don't know about the fifth one. Four of the last
• 25:33
  Speaker 3: five deals we have worked on, the seller had set
• 25:37
  Speaker 3: aside money for key people from one of them told
• 25:43
  Speaker 3: the employees, I've got a formula based on seniority and
• 25:46
  Speaker 3: pay and all this, and fifteen percent of his price
• 25:49
  Speaker 3: went to you know, scroll for them payable at the
• 25:53
  Speaker 3: end of one year, two years, and I think three years.
• 25:56
  Speaker 3: So they stuck around. The other ones did some thing
• 26:00
  Speaker 3: similar to one I talked about with the phantom shares.
• 26:03
  Speaker 3: He also put a chunk of money in for the
• 26:07
  Speaker 3: next level of management, about five or six people that
• 26:10
  Speaker 3: they would they would share after the close. And so
• 26:16
  Speaker 3: you know, the financial part is obviously important, which brings
• 26:19
  Speaker 3: up one other thing. That is with small businesses, I
• 26:25
  Speaker 3: use the term all the time when people say what
• 26:27
  Speaker 3: about this on the financial statements or that, and I say,
• 26:30
  Speaker 3: it's small business accounting. It is not follow any rules.
• 26:34
  Speaker 3: There's no gap, you know, generally, I did a county principles,
• 26:39
  Speaker 3: nothing like that. Companies do it differently. They write things
• 26:44
  Speaker 3: off differently. I've seen balance sheet items on the income statement.
• 26:52
  Speaker 3: I just saw one statement with a company I referred
• 26:56
  Speaker 3: on to someone to help them and nowhere near ready
• 26:58
  Speaker 3: to sell and m hm, basically in a little bit
• 27:01
  Speaker 3: of trouble. But they get customer deposits and the record
• 27:05
  Speaker 3: it as a negative receivable and it's just, oh my goods,
• 27:09
  Speaker 3: it's just you know, it's just stupid.
• 27:12
  Speaker 2: Yeah.
• 27:12
  Speaker 3: So you know, one of the best things, top things
• 27:15
  Speaker 3: any owner can do is make sure they've got good
• 27:18
  Speaker 3: financial systems and accurate financial statements.
• 27:22
  Speaker 2: Yeah.
• 27:22
  Speaker 1: Absolutely, I mean you have to be able to look
• 27:24
  Speaker 1: at the facts, make sure you know it all makes sense.
• 27:27
  Speaker 1: And like you said, depending on the on the business
• 27:30
  Speaker 1: you know model, what does.
• 27:31
  Speaker 2: That look like? You know, a cruel cash all of
• 27:34
  Speaker 2: these things, how is it showing up? I agree?
• 27:38
  Speaker 1: Yeah, And I've worked in the environmental consultings based john
• 27:41
  Speaker 1: for many years and I know what can be considered
• 27:44
  Speaker 1: you know, project related and what is you know, over overhead?
• 27:47
  Speaker 2: How are you classifying all these things. You know, right
• 27:50
  Speaker 2: that that's important. You have to have somebody to look
• 27:52
  Speaker 2: at these things and give you honest feedback as to
• 27:55
  Speaker 2: what the reality is, uh and really hold the mirror,
• 27:58
  Speaker 2: because I I mean, I would be one. I'm curious, John.
• 28:01
  Speaker 2: I mean, I would assume most business owners think, you know,
• 28:05
  Speaker 2: more highly than what their business is actually worth. I
• 28:08
  Speaker 2: don't know the magnitude, but my guess would be most
• 28:10
  Speaker 2: of them think it's worth much more, perhaps multiples than
• 28:13
  Speaker 2: when you look at it. And you're saying, well, if
• 28:15
  Speaker 2: I just looked at this today, this is what I
• 28:17
  Speaker 2: think would sell for what you're going to experience.
• 28:20
  Speaker 3: I think you're right, they for many of them. And
• 28:25
  Speaker 3: it goes and it goes both ways because every so
• 28:29
  Speaker 3: often I hear hear someone say, you know, my contents
• 28:32
  Speaker 3: said that my business is worth the book value, which
• 28:35
  Speaker 3: you know, tell me the company doesn't know anything about
• 28:37
  Speaker 3: by sal but yeah they do. And you know, I've
• 28:40
  Speaker 3: had owners say, well, you can't apply the same you know,
• 28:44
  Speaker 3: multiples or metrics to my business because we're so special
• 28:48
  Speaker 3: or different. Yeah. No, it's these things. These businesses sell
• 28:56
  Speaker 3: in a pretty standard range. And I'll give you a
• 29:01
  Speaker 3: quick story. It was a number of years ago. It's
• 29:03
  Speaker 3: a week and fourth of July, and I am, I'm
• 29:07
  Speaker 3: may be the only person working in the near you know,
• 29:10
  Speaker 3: anywhere near where I am not yeah, I literal hyperbole.
• 29:14
  Speaker 3: But I get a call from an attorney and he says,
• 29:16
  Speaker 3: I got a fraud case and we got a company.
• 29:20
  Speaker 3: It supposedly makes five million dollars a year. I and
• 29:24
  Speaker 3: other attorneys had all kinds of consumer fraud case judgments
• 29:27
  Speaker 3: against them, and they sold big ticket items I can't remember.
• 29:32
  Speaker 3: It's like you know, boats or r vs or this,
• 29:34
  Speaker 3: you know, and they, you know, they were just breaking
• 29:37
  Speaker 3: the law. And he said, but they sold it to
• 29:41
  Speaker 3: like their CFO or a family member for like three
• 29:44
  Speaker 3: hundred and fifty thousand. So do a study. What would
• 29:46
  Speaker 3: a company making five million sell ware company sun for
• 29:49
  Speaker 3: three fifty What kind of profit would they probably have?
• 29:52
  Speaker 3: And I did the report. That didn't, you know, get
• 29:54
  Speaker 3: all kinds of comparable deals. And is a week of
• 29:56
  Speaker 3: fourth of July. I start, I got nothing to do.
• 29:58
  Speaker 3: I started playing with numbers in all these databases and
• 30:02
  Speaker 3: it come to the conclusion there are set ranges based
• 30:05
  Speaker 3: on size of business, and we're not talking about ass
• 30:07
  Speaker 3: businesses because that's a whole other world. But the business
• 30:11
  Speaker 3: and individual is going to buy and it's probably going
• 30:15
  Speaker 3: to sell. Well. The numbers, the stats, I'll say four
• 30:19
  Speaker 3: times EBIDAH with the coefficient variance of was a little
• 30:25
  Speaker 3: over twenty five percent, meaning three to five times. You
• 30:28
  Speaker 3: move up away from that SBA loan range that it's
• 30:31
  Speaker 3: going to be four to six and maybe at some
• 30:33
  Speaker 3: places five to seven. You know, it creeps up. You
• 30:36
  Speaker 3: still have a standard range. Because one company may have,
• 30:41
  Speaker 3: you know, a dominant customer doing fifty seven percent. Your
• 30:45
  Speaker 3: competitor has no customer over three percent. You know you're
• 30:49
  Speaker 3: going to get a higher multiple on that second one.
• 30:51
  Speaker 3: We talked about the employees, We talk about supplier concentration, landlord. Oh,
• 30:58
  Speaker 3: all the things were at least is Uh. We went
• 31:02
  Speaker 3: for brunch on Sunday, the last day of a restaurant
• 31:06
  Speaker 3: in where we live. Uh. The owners it's a second restaurant.
• 31:10
  Speaker 3: He's but he's he's he's getting out, he said. The
• 31:13
  Speaker 3: landlord raised his rents so much he could not it
• 31:16
  Speaker 3: did not justify keeping it going. And all the effort
• 31:21
  Speaker 3: that goes into it absolutely exist. Other restaurant, All those
• 31:26
  Speaker 3: things come into play when you say, what's the business worth?
• 31:31
  Speaker 2: Mm hmm.
• 31:32
  Speaker 3: And in these days, I call it the three eyes,
• 31:36
  Speaker 3: and it's I P and I are the first two.
• 31:39
  Speaker 3: If you've got I P, you better protect it. I've
• 31:43
  Speaker 3: got three trademarks. You know, your copyrights. Most of them
• 31:47
  Speaker 3: happen automatically when you put something out there. But if
• 31:51
  Speaker 3: you've got a you know, a patent, a product that
• 31:55
  Speaker 3: you could get a patent on, it makes sense to
• 31:57
  Speaker 3: get a patent. Yes, you know trademark things you you
• 32:03
  Speaker 3: protect your.
• 32:04
  Speaker 2: IP, yes, absolutely.
• 32:06
  Speaker 3: And you know I just got the other day, I
• 32:09
  Speaker 3: got this phishing email. Oh. We have two companies. One
• 32:14
  Speaker 3: my daughter owns half of, but originally wants Martinka consulting.
• 32:17
  Speaker 3: And I said, someone wants Martinka consulting, you better protect it.
• 32:21
  Speaker 3: I can help you protect the name, you know, But
• 32:23
  Speaker 3: an IP attorney I know said you don't have to
• 32:25
  Speaker 3: do that. That's your website.
• 32:27
  Speaker 1: No one's gonna Yeah, there's people that are being sneaky
• 32:30
  Speaker 1: about that. You're right, and to your point, it t yep.
• 32:37
  Speaker 3: You know, if we looked every day, every hour, we'd
• 32:41
  Speaker 3: see some kind of thing about an IT problem somewhere,
• 32:45
  Speaker 3: crash of phishings ransomware. You pay attention to your I T.
• 32:52
  Speaker 3: I saw a company company we were working with lost.
• 32:56
  Speaker 3: We lost a great buyer because this is a great
• 32:59
  Speaker 3: good story to their managed service provider. So overseeing all
• 33:05
  Speaker 3: their tech for like fifty people got hacked. My client
• 33:13
  Speaker 3: deals with sensitive information, financial information, bank account numbers, social
• 33:17
  Speaker 3: security numbers, things like that. MSP gets hacked, they get
• 33:21
  Speaker 3: into his system. Ransomware him no, got ouded a ransomware.
• 33:27
  Speaker 3: But between that and that, he got about five hundred
• 33:30
  Speaker 3: thousand dollars of penalties from federal government California, Washington and Wow,
• 33:42
  Speaker 3: because his MSP got hacked.
• 33:44
  Speaker 1: Yeah, and we we kind of because they're not you're right, John,
• 33:49
  Speaker 1: I mean investing in these MSP or you mentioned IP two.
• 33:52
  Speaker 1: I've had a number of attorneys on with podcasts in
• 33:55
  Speaker 1: recent episodes, John, and we were talking about how to
• 33:58
  Speaker 1: protect yourself and doing the legal groundwork, hopefully from the
• 34:02
  Speaker 1: very beginning, so that you're not getting sideways like you're saying, John,
• 34:06
  Speaker 1: and having good reputable folks that are looking after you,
• 34:09
  Speaker 1: that are being advocate for you. Finding those good people
• 34:12
  Speaker 1: that's probably have the Business Round People podcast that you
• 34:14
  Speaker 1: could experience and see and you know, meet folks like yourself, John, knowing,
• 34:19
  Speaker 1: knowing these things and helping guide people so that they
• 34:21
  Speaker 1: avoid these pitfalls.
• 34:23
  Speaker 3: Yeah, you're right, So that you have to have that
• 34:27
  Speaker 3: you got to take care of that stuff.
• 34:28
  Speaker 1: M hm.
• 34:30
  Speaker 3: You know, it's you know, it's a combination of seeing
• 34:33
  Speaker 3: the big picture and paying attention to the little stuff.
• 34:37
  Speaker 2: Yeah, so so so important.
• 34:41
  Speaker 1: We're getting close to the episode of the podcast here, John,
• 34:45
  Speaker 1: so we're going to make sure that everybody gets you know,
• 34:48
  Speaker 1: access and links to you. You and I are connected
• 34:50
  Speaker 1: on LinkedIn. We'll make sure links to your book Exit
• 34:53
  Speaker 1: with Style, Grace and more money. I want to check
• 34:56
  Speaker 1: that out. But as we're wrapping up, just last thoughts
• 35:00
  Speaker 1: that you want to share the listeners, key, key takeaway
• 35:03
  Speaker 1: or just something that you want to part with them
• 35:04
  Speaker 1: after we cover a lot of ground and I would
• 35:06
  Speaker 1: love to have you back again on the podcast. But
• 35:09
  Speaker 1: just final thoughts here as are wrapping up.
• 35:12
  Speaker 3: Yeah, I'm going to give you three three things and
• 35:14
  Speaker 3: then I'm going to preface it with if anyone.
• 35:16
  Speaker 4: Would like three e copy of the book yes week
• 35:22
  Speaker 4: outright our website and just mention this podcast listening copy.
• 35:27
  Speaker 5: I want to close on a I hear people sayusiness,
• 35:37
  Speaker 5: I'm not doubting you. I'm going to say percent or
• 35:43
  Speaker 5: the hire of good businesses. And that's because you're worth buying.
• 35:49
  Speaker 5: And the seller controls the deal if it's a good fire,
• 35:55
  Speaker 5: controls if it's down in the Dump's business.
• 35:59
  Speaker 3: Tied to that point. Number two, Uh, most businesses don't
• 36:05
  Speaker 3: sell because of distress of our step disability, et cetera.
• 36:09
  Speaker 3: They sell because of retirement, burnout grows the owner. Uh,
• 36:16
  Speaker 3: you know the family situation, you know, and I'm going
• 36:20
  Speaker 3: to go see the grand kids in the two states away.
• 36:24
  Speaker 3: And then third, when you talk about people buying a business,
• 36:29
  Speaker 3: buyers should not get buyer fever.
• 36:32
  Speaker 2: Mm hmm and.
• 36:36
  Speaker 3: H It's a lot of times it's individuals. They're just
• 36:38
  Speaker 3: get enamored with a business. We we had we have
• 36:43
  Speaker 3: a company we're representing. We had a buying group come in. Uh,
• 36:47
  Speaker 3: perfect set of buyers. They have industry knowledge, product knowledge, money,
• 36:52
  Speaker 3: they'd run businesses before, and they decided they didn't want it.
• 36:58
  Speaker 3: They said, it's it's rating at our sweet spot. It's
• 37:01
  Speaker 3: on the periphery. But they were so excited. My daughter
• 37:05
  Speaker 3: and I said afterwards, they said, they just got by
• 37:07
  Speaker 3: your fever. They were so enamored, they went so far
• 37:10
  Speaker 3: and they pushed back what happened. So buyers can't get
• 37:14
  Speaker 3: by our fever and just go after something because that
• 37:19
  Speaker 3: can lead the regrets.
• 37:22
  Speaker 2: These are great takeaways. John, I so appreciate you coming
• 37:25
  Speaker 2: on here.
• 37:25
  Speaker 1: Thank you for offering the book to our guests, you know,
• 37:28
  Speaker 1: as a guest to our listeners. We really appreciate that
• 37:32
  Speaker 1: it has been a last really having you here and
• 37:34
  Speaker 1: getting into this digging into this topic much needed and
• 37:37
  Speaker 1: I think one that we definitely need to come back
• 37:39
  Speaker 1: to again.
• 37:40
  Speaker 2: This is This has been great. Thank you for joining
• 37:42
  Speaker 2: us on the podcast.
• 37:43
  Speaker 3: John, Oh, I was glad to be here. This was
• 37:45
  Speaker 3: a great discussion, David.
• 37:47
  Speaker 2: Thank you so much.
• 37:48
  Speaker 1: Thanks everybody for listening in being a part of the podcast.
• 37:53
  Speaker 1: We of course love having you subscribe, like leave comments.
• 37:56
  Speaker 1: We'll make sure that John gets them as well so
• 37:58
  Speaker 1: he can respond any questions you guys have and please share.
• 38:02
  Speaker 1: Invite others to be listening, and if you want to
• 38:04
  Speaker 1: be a guest, let me know too. We'd love to
• 38:06
  Speaker 1: always have new guests like John here and having great
• 38:09
  Speaker 1: conversations about helping you as a business owner and leader
• 38:12
  Speaker 1: lead well. Thanks everybody for listening, Have a wonderful day,