How To Position Your Business To Sell in 2022
hello there kim daily and becca pierre so glad to be here with you all for this time we're going to be talking today about what it takes to sell your business in the best possible easiest most profitable way and we have kim as our expert who has been on one side of the fence for 20 plus years helping people buy franchisees and when you think about it it's entrepreneurs who buy franchises so entrepreneurs have started businesses and they're selling them and entrepreneurs are buying them so kim welcome and i'd love to for you to take just a minute and kind of introduce yourself beyond that yeah that was thank you so much i'm so happy to be here so as becca said i am a franchise consultant i am one of america's top consultants i help a lot of people invest in themselves and in their future and their dreams by using the proven systems of a franchise i've been doing that for about 19 years prior to that i was an entrepreneur for about five years only to figure out that entrepreneurship was a little bit lonely for me i needed some systems and support there was couldn't really figure out how to scale something that um could grow beyond me and that's when i turned to franchising and here i've been for the last 19 years and helping other people do exactly what i did right you've mentioned some key words there too that we will dive into systems and support and structure of course that's what processes are all about yeah so as you know becca and i coach groups of business owners in year-long mastermind programs and we are wanting to i have found in beck and i've had this conversation most of them start without any end in mind with really what am i going to do and we advocate that if you have this vision we work a lot with them with their visions building with the end in mind and for many people that is ultimately selling it so what do you need to be doing in those early years to set that strong foundation really is what i want us to focus on today we collected questions from a number of our business owners and i saw that they really fell into categories that kind of created a storyboard so let's just jump into what i think of as the first category and that's answering the question of what am i selling when i'm selling my business what am i selling my name my brand my employees my processes cash in the bank clients right yeah clients exactly what am i selling so how about kim jump in there why don't you yeah first of all what an amazing opportunity for your business owners to have a coach so in essence you two are acting like the franchisor because that's what franchising is it's all about being in business for yourself but not by yourself so this mastermind is providing that opportunity for these business owners to have that back-end coaching right we're we're all better with the coach every top athlete has a coach right every every top business owner should have a coach i have a coach so i love that and i love beginning with the end in mind i don't want to know why anybody wants to own a business or what business they want to they think they want to own until i know their why why are you doing this and what is your vision and i love people that have really clear strong visions about building 25 000 a month in passive income so that's a business that they grow to where then they have people in place and that would be called semi absentee or toward absentee ownership where now you're just collecting dividends or to this conversation building it so that you can sell it rather than pass it on to your kids but sell it for profit because i think that when you build a business you're building an asset so a business like i'm in is more like a consultant it's more like buying yourself a job right i certainly am self-employed and i have unlimited earning potential but i don't i haven't really built anything that i can sell at the end of my time but it's also not a business that i ever would really want to fully get out of but let's say that you're building a business that you have a book of business that you have a team of employees that you have a buying track record like reoccurring revenue from customers that is an asset that has value because there are owners who are transitioning out of a w-2 job who say i want to own a business but i don't have three to five years to to make no money or to to ramp something like there's the mentality of the person who wants to start a business from scratch and then grow it and then there's the mentality of someone who wants to jump in where it's already when it's already at a certain level who's willing to pay for that income and take it to the next level right so that's this conversation so when you as a business owner have built this business with a book of business you have equipment you have a location you have goodwill in the community people know your brand they know um because they've seen your advertising or they've they've experienced you have had an experience with your business you have referral sources this is valuable to the next person who wants to jump in so when you're selling it it's selling all of that and that's tremendous value to the next person and i don't want to make an earnings claim so please don't take it this as that but i think it's fair deter it depends on the industry that you're in and it depends on the economy at the time when you go to sell it um i i think for on average around a two to a four multiple of the earned of the owner's net benefit so the owner's net income two to four times that but i've certainly seen franchises where the owner has stepped away from the business so it's semi absentee and those businesses sell for six to eight multiples i've seen so the more active the owner is in the business so therefore the new owner coming in is going to have to put more time time as money then those businesses sell for lower multiples than when the owner is in a more uh the current owner who's selling is in a more semi-absentee role because the business is run through a manager so this encourages you to get it to a point where you're up above it rather than in it when you go to sell it because you can usually get a higher multiple at least in franchising fascinating so the thought there is that you're moving into a leadership role it's less dependent on you whoever insert you is right it's less dependent on you and so therefore it becomes more valuable and because you've got the processes in place that's it that's it sir it's it's the structure that the business will operate without you we can remove you and with some leadership of course but you're not like that's the hardest part of why i can't sell my consultancy because how can i train somebody to be me i can certainly train them to be a franchise consultant but if somebody had a great experience working with kim daley and says oh i want you to work with my brother it start it's kind of deflating to say oh well you can work with my junior associate because i'm stepping away from right like an attorney or a doctor it's hard to pass that on but in in in the true business sense what you're building and as you build it you build that structure and um levels of support so that you can be more on it rather than in it and then you have a real asset to sell you know what's fascinating becca and we've talked about this every single business owner that we work with truly has that picture of themselves becoming less operational and more of the face of the business the one that's out in the community doing some marketing but being the face the public face of the business and less you know more more on it less in it we say in franchising we call that the brand ambassador or i'll say you want to be the guy that wears the shirt right you're going to be the one promoting the business in the community working on it and have a team of people that are working in it and then you've got the time flexibility and you've got your life back and the the real value proposition of building a business is not to become enslaved to the business that's you might as well have a job you know which is where many entrepreneurs live we all know yeah for sure it's the whole value proposition of a franchise you know where from day one you have this the infrastructure that you can work on it rather than and not get stuck in it but you start where you start if you're an entrepreneur and you've started at the ground then you figure out how to remove yourself from each layer and have the systems and support in place so that you can be a mentor to the employees and manage them but not micromanage them so let's go into a little bit of that detail because that is uh we're going to jump one category which is how do i get how do i find how do i determine a value for my business that's a category we'll come back to but let's go to there because you're touching on it of exactly what is needed to bring the best sales figure what attracts i'll tell you what doesn't attract a buyer it's an owner who like so here's the thing anybody who's looking to buy an established business okay so and i know because i find them and they're excited about the idea of buying into a cash flowing business but the number one thing on their mind is if this is so great why is the person selling it so the thing that doesn't sell is you the owner not having a clear confident story and the story is this i built this business to sell it because that is the value that that resale value if someone's going to pay you let's say that you've built a business let's let's say that you built a business that you're is netting to you 200 000 a year and let's say the economy's good you're in a you're in an industry that's trending up meaning that the value of the business can still go up and let's say that you are in it but not all the way in it every day let's say that you're putting in maybe 20 20 to 25 hours a week at this point and what if somebody would pay you a four multiple so 800 000 to go away like you'd be crazy not to take that money and walk right like so the whole idea that your people say well why would i want to sell it well you may when i start somebody in the process of you know why do you want to own a business and we talk about that exit strategy what i say is set yourself up for success so if you go in with a five seven ten year mindset number one we all work better with a goal right there's an end point and how are you gonna do this and you're gonna have bigger goals every step along the way if it's a shorter like versus i don't really have an end game so i don't really know what i'm striving for how effective are you going to be but i especially like five to seven year windows because i think that owning a business is hard and can wear you out and if you're going in thinking all right i have five or i have seven years to make this thing go you're gonna go with a lot more gusto and bigger goals and bigger goals always serve you in business ownership right we only rise to our own level of expectations so thinking small when you're a business owner serves you serves nobody so you you go in with this mindset of building to sell and if you get there and you're having the time in your life and you're not ready to sell well it's still a winning mindset you're like well i'm not ready so you keep going for another three years you set another goal and then check in with yourself then to see am i ready yet so then when you go to sell what you're telling the incoming the person who's looking at your businesses this was always my goal and and any worry they had about oh there's some something hidden in this business there's some work that you're not showing me um will go away but you have to realize that every single buyer no matter how much money they have no matter how many businesses they've owned in the past or not the number one thing they're trying to figure out from you is what are you hiding from me right what aren't you telling me and and you know we have a lot of questions from our uh clients about you know is it revenue do i need to be looking at top line bottom line like what is in the market right now in terms of what from a financial perspective they need to be focused on yeah so i mean i think it's always bottom line because if i'm a w-2 employee transitioning out of corporate america looking to buy an established business and i make 150 grand in my corporate job and i'm the primary breadwinner then i'm trying to recover that as quick as possible and that may be why i'm willing to buy a business if i have enough cash to be able to do that or can get a loan because i again i i can't i can't leave the job and pay my mortgage so i need to buy some people are in this predicament right and and so even in a franchise business it might take a couple of years to get back to that level of earning and so somebody in a dire situation may say that's why i'm willing to pay a three or four multiple because i need that income right from go so i think it's always bottom line i mean that's what matters but i i'm not an expert about how every business you know is valued upon exit um so i but that's where i would come as a business coach i would tell people it's what you're making and it's some multiple of that okay kim what let's talk about valuation though where would you advise someone to go how do they i know cba firms some have value experts on this on staff but where do you direct people to go to get a valuation that's a really good question um i think your advice is as good as mine i think i would say a cpa would be the best first place to go another thought that came to my mind was most communities have what's called a small business development center yes oftentimes those are very experienced but retired entrepreneurs who are now giving back and they volunteer at the sbdc so that could be another resource if there's one around you another smart thing you may want to do is get online like on biz buy sell or on you know a business for sale website and see if there are any other businesses in the same industry as you and like maybe call and act like you want to buy and like probe to see exactly what they're selling and what they're selling it for and how they because when you have the experience of being the person buying a business even though you're just pretending you you're going to then know better how you want to come across on the phone right so in franchising we use peer validation you know we talk to each other that's how we learn after you get back from training that's how we learn and we learn by learning what other people are doing or more importantly are not doing so why not do that even as an entrepreneur even if it's i guess not a business as i'm talking out loud even if it's not a business that's like yours but you could pretend that you're in the market to buy a business and you play along to learn how did they position it when you met with them face to face what did they do did it seem like as if you were actually going to buy the business did they give you enough information like providing three years of tax returns that's one thing that drives me insane people will say kim i'm ready to sell my franchise you know and i'm like okay i need a sell sheet you know i need to know what what are you selling when did you start it how many years have you been in business how many employees do you have you know what what is your business all about what's your asking price what's your gross revenue um and uh and then um the the candidate is going to want to see three years of tax returns you got to have them ready don't let me bring you somebody who's hot and ready to look at your business and then you go fumble around for two months to get your tax returns like be prepared be the business owner who has it all together because that confidence is possible i think that's also a question other than the three years of tax returns from a very tactical perspective is it policies and procedures like what is it that's going to put that best foot forward it's the confidence it's this total package it's an owner who's telling a story of i built this business to sell it or i built this business and now i'm at a place to sell it because the market's growing i think there's tremendous value and i'm ready to move on and do something else but it's having that confidence story it's having three years of tax returns and it's having like a like i said a basic sell sheet of what what's in the package what am i paying for so if you've constructed a store if you have inventory if you have equipment or vehicles if you have you know employees that have worked for you for five years or ten years or longer that's value right you've built a culture that is what somebody else is willing to pay for to not have to and they may have to come in and let some people go and build their own culture because they're the new leadership but maybe they don't maybe they can if they're smart step in and let it be as it is so that they're not ruffling any feathers and then over time make make changes that suit them a private equity company buying an organization what typically happens is they come in with their own leadership team guns blazing you know and then people get laid off and like the whole and the people who were the employees that remain often start looking for a franchise because they can't stand the new leadership well i mean how does that impact the bottom line for what the private equity company just bought that's dumb right right so there's something in there too about making especially if you uh if you own a business that's been your baby right to make sure that the person that is buying you is somebody that makes sense right that it fits within your values and somebody that want you think can carry the business forward the way you want it to be carried forward it's really hard to so my best friend's going through this he has a family business they started it in the 70s they're the largest commercial lawn equipment dealers in the country massive business in florida and um brought in a new owner and asked him to stay on for whatever some transition time couple of years and it's always hard to be the one that's there from before it is because it's your baby but you know what it's like when you go to sell your house and the new people come in and you love the way the thing but they're it's not yours anymore like let them do what they're going to do so as long as they're paying you the money to be around right yeah but it's really hard because you're you did something that you you know you've had this vision for so you have to be really emotionally ready to let go of this as much as financial you know you're getting the money which has to satisfy your emotions yeah we did have questions about that kim how do i transition out i think that's a very important piece of the story just like selling a house which we all love our homes and live in we're invested in them but at that point that we're ready to sell them we it becomes a product to us yeah you know when you go to sell your home and the real estate agent says take every personal picture down and make it generic clean off the counter so it's just like it looks like a house not your house so they can envision themselves well i think it's the same mentality right and that's this purpose of that set that sales sheet like i know exactly what i'm buying on paper and you're giving me the tools to analyze the business so that i can go to a cpa and look at the projections or the valuation and make sure that you know whatever due diligence the incoming buyer wants to do and then if they ask for you to stay on for some amount of time i don't think that's unreasonable because there's no training and if they're stepping into a business they've never run before they need you they need to learn from you right so whether and so i think you should be prepared for that to either offer it i will if you want it but it may not be essential it depends on their background coming into this business right and then maybe that's something that's negotiable whether it's six months or one year or longer um you know and in the case of my friend he was full-time transitioning and teaching and then i think in i don't know how many years it's been a second year maybe he's now down to three days a week and he's sort of just staying on as a consultant it's just overseeing and he's there to answer questions but he's not on the guy that's the phone's ringing all day long or people are asking all the questions too he's trying to get all of that to the new owners but since we had no and they were taking over this massive business i mean the the the new buyers coming in drinking from a fire hose right so you just have to understand from their perspective how needy they may be and that reassurance that you can give it's going to help you sell your business right so i'm hearing transition is very time and situational situationally dependent there could be a role for the person becoming staying on even as brand ambassador introducing the new owner in the community etc but also there's some fluidity to it i think so well said strange okay um wood becca and i are big advocates in helping our business owners develop documented processes for all of the business functions that typically occur from marketing to how you go through a sales process with a prospective client how you onboard a new client how you deliver your products and services what are the financial processes taking place what are the administrative pieces that underscore all of those separate functions so we have worked with our owners to document these processes to define them and have them literally on paper kim what is in your experience how valuable is that in a sale that's everything it sounds like you're creating franchises over here like that's everything again because if it's documented again it's like giving somebody the playbook i mean that when people pay a franchise fee which is up to fifty thousand dollars in a franchise that's what they're getting instant access to the ready-made playbook and that has tremendous value so the the incoming buyer doesn't have to again try to drink from the fire hose and remember everything you said but they can have this manual to refer back to and then they don't feel so reliant upon those key employees that maybe when the employees find out you're leaving they end up leaving too and now the new business owner is paying a premium for the business feels very uncertain so these this playbook could help to alleviate those kind of concerns for sure i'm even seeing the i've never thought of it in this term but the playbook those documented processes become a tangible asset that's listed on the sell sheet it definitely could be yeah it sounds like you're teaching the e-myth revisited by michael gerber is that what you got yeah yeah exactly such a great book i mean it's so that you don't have to be the pie maker right because you like buy but you own a business that basically that's the whole book right yes yes so my takeaway from this discussion so far is you know you have to be in the right mindset you need to be ready to emotionally release yourself from your company and put your best foot forward as a business to be able to say here's what i have to sell you i not only have to sell you my clients but my processes my uh uh customers my um employees like there is are there a ton of assets with each organization but you need to be in the right mindset to have the right confidence to be able to step up to the plate and say this is my time i want you to buy this and i'm going to step away or i'm going to it sounds like there's flexibility in figuring out whether you stay for you know six months to a year or whatever your exit true exit strategy at that point is but you need to be prepared for whatever that is going into the discussion with anybody yeah totally the more that you are the leader of the process the easier the process is going to go the new buyer is definitely going to be the leader of their process but you be the leader of your process because it's your business that you are selling and you want to be there to help answer their questions ease their concerns maybe anticipate their concerns maybe they're some of the same concerns that you had when you started the business and i love to have you know in any sales process to become the leader i love to lead the sales process by telling people i know how you feel because i've worked with hundreds of people before you who felt the same way and i once felt the same way and it it helps like lo you know bridge the gap to where we can people people buy from people they know like and trust and so it's building that trust in the relationship that you're not just selling them a business that you know has warts and every business has worked so let's just throw that out there you know and every no business is perfect right and we're not trying to present it as something it's not but you do want to package it in a way that shows the value um so that the incoming buyer can step in with as much ease get up that learning curve and not feel like they're going to have to put more money in on top of the money they're paying for it but can then but still have room to grow at the end of the day everything that you said becca and i think before gigi i got you back i apologize for that right we're having people in a lot of ways that's so bad but at the end of the day remember that for you it's emotional but for them it's logical they just want to know the heart the cold the cold hard facts the money and they're trying to justify that asking price and so a couple of points on that i mean you want to build in a cushion so that you make a good return right you but also you want to maybe start higher because everybody likes to feel like they're getting a deal you know i've i've helped owners i said what do you really want to get for this you know 475 okay well then ask 525 and let them bring you down you know what i mean like give yourself the wiggle room to give them a little bit of a deal because everybody likes to get a deal and who doesn't feel good when you feel like you're getting a deal every player wants to negotiate yeah and the other thing about it is give yourself time businesses are not sold overnight i mean even starting from scratch a franchise with a proven playbook and a history and a track record and all kinds of validation i work with my candidates from start to a yes it's about 90 days and that's in a proven established process so all right because i'm thinking it's more six months to a year yeah exactly where it's uh sounds really fast your first time and there's no track record and there's no outside validation you gotta double or triple that so when you've got to be i'd say like you said about a year out from when you actually want to have this done it's a process even just advertising yeah and and actually a year out you're already in that full confidence remove the emotion right everything's set up and ready to go which means that three to five years prior to that year you're building the processes you're getting everything in order you've got your cpa set you know exactly where you want to go what your goals are and how you're going to get there yeah so kim what other specialties uh are needed for the sale like becca just said cpa do you need an attorney that specializes in business transactions yeah right you're going to need some sort of legal document that transfers the assets of the business and the liability of the business and all that to the new business owner i'd say a business attorney a cpa maybe a priest no i'm just kidding spousal support i don't know yeah yeah right speaking to one particular industry that becca and i work with the aging life care industry where would you direct someone to go to source a buyer i know there's a lot of national attention on that industry emerging from cobit kind of the whole conversation of how we treat our elderly is coming to the forefront in a new way aging baby boomers you know looking at the data there there's just a lot of focus on that where would you where would you direct someone to go to source a buyer okay i think it depends on the size of your business because these are businesses that can be incredibly valuable on resale so if you have a multi-million dollar business i think you go to private equity i think you start networking yourself with people that run small private equity companies if you have a smaller business a smaller more family oriented business yes i would use i mean at all costs social media i mean that's what's driving everything linkedin facebook even um even instagram you know it sounds weird but like so many people are on instagram and i think um biz buy sell is a great resource i think that you mean you the more creative you get with where could i promote this like in your community if there's a community newsletter or there's a community billboard somewhere or built bulletin board or at your church um at your gym at the places where you go where people already know you and you don't know who it may not be them but you don't know who they know who may be looking for a business right so the more outreach you have just like in networking your business the more you look to network your sale the faster the buyer is going to come it's just like these are all the places our owners are going to source potential employees right exactly in their communities you know right right network a little bit of a different spin on the wording and now you're looking for an investor or a business owner instead of an employee right and one one final question for right now kim what about a business broker when does when does a broker come into play business brokers can be really valuable the only problem i have i is going to be on youtube but uh the only problem i have sometimes with business brokers is they make you sign a non-compete and they lock you in and and so even if you source your own buyer then you have to pay them a commission and i have a problem with that like they're getting paid for doing nothing and so you could definitely meet with business brokers sunbelt business brokers it's a franchise actually it's a great organization and see how valuable you think it is but i would probably try it on my own for some amount of time since you're giving yourself a pretty good runway going back to the question gg you asked before about any other resources i i didn't mention a financial lender the new buyer may need help funding the business or buying the business and actually i mean if you want to leave my give my contact information to your mastermind group i have resources that all they do is fund small businesses you know mostly specifically franchising because that's what i do but they can fund also and they so they work with the sba loans sba express loans home equity lines of credit um traditional bank loans so if if your people are in position to sell and they need a resource for sure come to me and i'll connect you with those um kind of companies that all they do is help fund small businesses because leaving it to your buyer to source an sba loan on their own that's like a total black hole they will go away and they will never come back that's why these companies exist the companies that i use can have a pre-approval at least on a franchise business for somebody within 48 hours so where it's not a proven business you know there might be a little more time in that but the idea is that it should be an expedited process because this is what they do they know what the lenders are looking for and they'll know how to help package your buyer to get approved for a loan we've skipped right over that but that's great thank you for bringing that in yeah okay kim this has been wonderful thank you so much for your time this morning becca what do you think any follow-up questions no follow-ups i really think kim it was an excellent conversation thank you for sharing all of your knowledge we really appreciate it yeah thank you for the opportunity and good luck go build those businesses and sell them yes thank you all right we'll see you soon all right thank you bye you
2021-08-29 21:00
