How To TRIPLE The Value of Your Consulting Business with Domenic Rinaldi

okay hey everyone it's michael zaperski and today i'm here with dominic monaldi dominic welcome hey thank you very much pleasure to be here so dominic you are the managing director of sun acquisitions you have a background uh working as an executive in sales hospitality uh and telecom let's start off and have you share with us how do you actually get into the business of advising companies on on acquisitions yeah so about 16 years ago almost 17 years ago now um i found myself in transition and i was you know trying to figure out the next step and you know after having worked for venture capital backed companies private equity companies publicly traded companies i decided that i really wanted to go own my own thing and this was my opportunity it was not never going to be a better time than right now to go out and and look at that and so i went out in the marketplace and started to search for businesses that you know might appeal to me you know given my background and my skill set and in the process of searching i was pretty disillusioned i i just wasn't finding what i wanted and i knew i didn't want to start something from scratch i didn't want to take the bet that i was going to start with no clients no service nothing and i said you know so i knew i wanted something that was already built uh where i could see historical performance and i just wasn't finding what i wanted and in the process of doing that i had gotten introduced to a couple of people and the opportunity to potentially buy a mergers and acquisitions firm came up and long story short i did about six months of research it seemed like a great time to enter this business and an opportunity presented itself and i bought an existing firm that was doing you know small market m a and uh it was only a couple of advisors at the time and here i am you know 15 16 years later we've got 15 people we're the largest firm in chicago that does what we do we service clients nationally but in the chicago market with the largest company of our size and i was able to build what i was hoping i could you so before we dive deeper into that i mean you mentioned a moment ago that you felt that um now or not now but when you were going through that transition that at that time it was most likely the best time for for you like there would never be a better time why was that what were the factors going on that made you feel that it was that time was the time for you to act yeah and let me uh put a qualifier on that that time was the best time for the business that i bought um so looking at the you know the macro economic trends for this m a business uh and it was a couple of things one uh you had baby boomers who were about to start reaching retirement age who are going to start retiring in the u.s in big numbers and baby boomers own 9 million of the 15 million small businesses and so they were going to pass those businesses on and as i came to learn i didn't quite know at the time but as i came to learn that many of them didn't have another generation to pass the business on to so a third party sale was really the way for them to monetize that investment at the time this now going back to 2004 2005 capital markets were wide open so tons of money uh interest rates were relatively low not as low as they are today but they were relatively low and you know outsourcing was a thing that was really picking up steam and so all of those things combined got me to the point where i thought making an investment in this type of firm at that time made a lot of sense the the economics i just thought and the trends were in my favor so you actually acquired your first business right which is for a lot of people um i mean it's not common uh i'd love for you to kind of take us a little deeper into why why not start something yourself why not um you know kind of create your own child as opposed to quote unquote kind of you know finding one that's already out there and has has developed to a point i mean i um this is a bit of a um kind of it's not really a hypothetical question but you know i see your your point of view but i think for those who might be contemplating or maybe for those who have never even considered the concept of purchasing another business um what what really attracted you to that yeah so there were a number of things one um i had seen a bunch of friends over the years and by the way i wasn't looking for a side hustle right i was looking for you know a real substantial business right uh that had infrastructure and foundation and all those sorts of things so if i was looking for side hustle i might have arrived at a different solution why why weren't you looking for that in terms of you starting off just to maybe an advisor in some area like you know you wanted infrastructure you really wanted um a lot a more substantial right you know business that had team and resources systems why for you was that important yes it was important for me because um i wanted i wanted a platform from which i could grow something substantially and i wanted to see proof of concept i wanted to know and be able in my diligence to look at the things that were working in that business and why they were working and how my talents might be able to take that business to the next level versus working from a blank sheet of paper with pro formas and just you know hoping that maybe i could execute properly and all the stars were gonna align and i also had the benefit of having several friends who had tried to start businesses and failed they had put a lot of money and a lot of time and a lot of effort and never really got them off the ground they they were able to get some traction but not traction to the point where it was a sustainable business and the other thing was i had worked for a venture capital backed company that had gotten started from scratch where we we raised a hundred over a hundred million dollars in venture capital money and um we got that company to the point where we had filed to go public and uh in two weeks before the market crash of april 2000 and so i had seen all this money invested all this hard work uh it wasn't profitable back in the days when you didn't have to be profitable when you were starting a company internet company only to have the markets dictate that we could never get out an ipo and that business while the technology was good and it wound up the technology survived the closing down of that business it was a lot of money and a lot of effort and a lot of livelihoods that disappeared almost overnight uh because we we couldn't get out into the market and raise the money we needed to raise and so for me i wanted to know that there was a platform and a foundation i could take to the next level and i wanted ongoing cash flows i did i i have a train to pull i had a young family at the time and so it was important for me to know that you know my tribe was gonna be able to pull that train down the track while i was figuring it out and not so funding my lifestyle every month right so let's let's talk about for the consultant and firm owner who's listening to this right now who you know may or may not have the vision right now to to sell their business what should they be thinking about you know what are some ways because i know this is a big part of the work that you do with your clients uh when it comes to increasing the value of a company so for those listening right now what are some of the go-to opportunities and areas that you will look at or often recommend to your clients as a way to increase the value of of their company and operations yeah so the first thing i recommend is understand what your current value of your business is right so um in whatever means that you can do that hire a third party uh go to somebody who knows how to do this but get a line in the sand and understand what the value of your business is today and what the key value drivers of your business are what are the things that increase or decrease value in the business and there are some basic value drivers that cut across all sorts of businesses and then there might be some specific ones to your business that you'll need to understand so i can speak to the generic ones to make it more more tangible for everyone yeah so you know some examples are one uh how involved are you in the business so do you have a self-managing business are you so involved in the business and our decisions and processes reliant on you and your involvement and this is a spectrum right of value so the less you are involved in the day-to-day operations of the business the more valuable your business is and the reason for that is when you do decide to go to market and sell it if a new buyer comes in there's less risk for them when they take over that business you're not controlling any really day-to-day pieces of that business and so they've got a tremendous amount of comfort that when they take over operations are going to continue with or without you you know my litmus test on that is you as an owner can go away for two three four weeks and the business still operates you have a self-managing business you've increased the value recurring revenues to the extent that you can build a recurring revenue stream into your business the value of your business is going to go up dramatically uh and you know a lot of people think they can't do that that there's you know they're going to have uh challenges i would encourage you to pull together some people that you really trust trusted advisors or a consultant like yourself and brainstorm ways that you can incorporate recurring revenues into your business model you know things like companies like hvac companies heating and ventilation companies they've been able to do it through service contracts you know who would have ever thought they could build a recurring revenue stream right an hvac business but lo and behold they came up with service contracts it's repeatable revenue and you know now you just grow it larger and larger every year um vendor concentrations and client concentrations are another good example you know if you have one client that represents 20 or more of your revenues there's some significant risk there and so to the extent you do have clients that represent that much of your revenue you want to work hard to mitigate that and bring that down and to me the gold standard is no one client it represents more than five percent of your revenues and what that means is you know if you lose a client it's not going to be a house of cards it's not going to bring your business down and so working hard to have a lot of clients uh and no one client representing more than you know five to ten percent is a great starting point vendor concentrations run across the same thing the more reliant you are on one vendor the more risk there is in the business and when you do when it does come time to sell the business buyers are going to look at all of these things and what are we talking about dominic in terms of you know the multiple so let's just take a very simple number a million dollars as kind of top-line revenue for a professional services firm uh if that company is let's say quite heavily owner reliant meaning that the owner is still a key part of of sales marketing maybe even delivery and then compare and contrast that to a company that is doing a million dollars again top line just to make it simple they have recurring revenue in their business uh they have uh you know less concentration so a more diversified kind of portfolio of clients not uh relying too heavily on on any given client and the business owner themselves is involved but but not so heavily they're able to step out for a couple of weeks at a time what are the different kinds of multiples that somebody might expect in the world of kind of a consulting business professional services for those two different situations and i know it's hard because there's a lot of clear cases but just arrange so people have an idea yeah and like you said i mean it's really almost impossible to answer the question because there's so much more you have to know but let's throw something at it right if you've got a business where you're you know it's not self-managed i mean you could get something as low as a one to a three multiple whereas you have a self-managed business it's not reliant on you there's recurring revenue that multiple could be a three to a five right um and now what's the multiple against the multiple is against what we call adjusted ebitda which is ebitda when you add back owner benefits discretionary expenses things that the owner is getting that won't be expenses in the business if they were to sell it so we call that adjusted ebitda so you're multiplying against that but that's a dramatic difference right you talk about a one to three versus a three to a five could mean meaningful difference uh on a on a purchase price in a sale yeah and what about the the consultant or owner right now who's listening or watching um and maybe they have absolutely no desire or plan to sell their their business um i think a lot of the things that you're talking about here uh you know we've seen this in our own business uh have an impact and can be quite beneficial uh even if you don't plan to sell can you talk a little bit about you know what what are some of the the areas or things that people should be doing regardless in their business whether or not they they plan to sell that could help them and increase the value of the company again whether or not they plan to do that yeah and by the way the beauty of having your own business is you don't have to sell it if you don't want to right you you run it any way you want but you know increasing value if you're a solopreneur so maybe you need to access capital from the bank because you have an opportunity and you need to pull in money to go make an investment or do something clean financials are so critical um you know having your profit and loss statements and your balance sheet and your tax returns accurately reflect what your business produces is going to increase the value of your business and why is that well if you ever do need to raise money uh go get a working capital line or what the bank is going to need to see what that business really does and unfortunately most small businesses run the business for the benefit of the owner and they don't keep clean books and records they put a lot of things through the business they use a credit card very hard for banks to understand where the value is in that business and so your ability to tap into capital is very limited and in a time like now where interest rates are so low your ability to tap into capital is really key in lots of ways if you want to grow or take advantage of certain things even if you just want to invest in yourself and you want that investment is going to come in the way of a working capital line so keeping clean financials you know is really so important yeah i love that one what is there anything else from a systems perspective that you've seen in your experience uh that buyers are are looking for or um you know desire therefore uh increases the value of the company that people should be thinking about right now from a systems or process or brand perspective yeah so absolutely operations manual to the extent that you have an operations manual that lays out every step of every process and it's clear and it's updated and it's somewhere where everybody can access it and it's a living breathing document increases the value of the business dramatically for the reasons i talked about earlier now a buyer doesn't have to guess how to do xyz it's all documented and now they just have to find the who to go you know execute whatever the process or the system is so having an operations manual is is really very critical yeah i love that and you know i think we've seen this in our own business too that uh i a lot of consultants you know i remember like early on i would never think of an operations manual when i was just getting started you know 21 years ago because why would i need it it's just me but as you start thinking about ways to grow and to to have a greater impact even if you begin just by getting a virtual assistant and an assistant then a part-time person contractor then full-time whatever it might be having that documentation having that system actually makes uh things significantly more efficient and effective because every time you go to bring someone on or the person you have leaves and you have to replace them or whatever you know those situations obviously happen uh being able to just refer somebody to hey check this out watch this video you know it's it saves you as the owner a significant amount of time and what i always counsel and suggest to to clients uh that we work with in our coaching program is if you're doing something more than once then you should be building a system or process around it uh because it's likely that you're gonna continue doing it over and over again and you might think that yeah you don't need to document it right now because it's just faster for you to do it yourself than it is to train somebody but if you document it once or have somebody who's working on that document it themselves which is even better now you have an asset in your business and that's really what you're getting to here at dominic i want to ask you a question about your your team so you you've since acquiring this company you've built a team um how do you think about your own kind of team members and in terms of like building that team strategically what do you look for what kind of hires have you put into place just any thoughts or experiences that uh that you've leveraged or brought into your business and that you think is important for for people to to also consider yeah i have a couple of things that i'll mention here you know and first off uh you know early on uh you maybe take a different approach than when you start to mature uh and right right or wrong but you know you just don't have the money to invest early on that you do you know later and so uh i am incredibly picky about who i will actually uh invite to be a part of our team i value culture i value how people interact with each other and if i think somebody's just not a fit regardless of what i think they could do for our business top line they're not invited to be part of the team and in fact i've had to make some really tough decisions in the past about people who were performing but were terrible um i don't i'll say partners obviously not in a financial way but team members and um we we had to part ways because the end of the day having a cohesive team that really wanted works to get work together can elevate everybody's performance and so i pay particular attention to culture and harmony and esprit de corps and all those things that i think then generate uh tremendous productivity across the board how do you how do you find that i mean are you using assessments or what have you found kind of like looking back what are your best practices when you go to to hire or to build or you know to add a new team member what are you having those fuel go through so you have a better sense uh to essentially be able to make a better decision that gives you the highest likelihood of seeing success with that person yeah uh i should use assessments probably um but uh i am a gut feel manager um i like to take people out i like to talk to them i like to see them in a social setting and i like to get to know somebody and and i and i form you know an opinion based on my god i know whether or not that person's really gonna fit and do i get it right all the time no i don't uh but by and large i i do i do get it right and um but i take my time i'm not quick to make decisions that i think could could harm the business and if i feel like i just haven't met the right candidate i'm willing to wait and continue to you know sourcing and if i have to in this day and age with all of these freelancers i'll plug a hole with a freelancer until i can find the right fit um we i will say though all of that we did use some assessments for salespeople early on that i found very beneficial in some regards there are some things you can't catch and these assessments can be very helpful uh in that regard but by and large i'll i'll really want to get to know somebody over some period of time to get comfortable and you know talking to who they worked for and diving deep and and asking and you know maybe even getting beyond the references that they gave you and filtering out to a larger network and linkedin is tremendous that way you know with the connections so we'll reach through linkedin and talk to common connections and get some feedback that's been very helpful for us as well and when you look to bring someone on dominic are you typically going you know setting it as once we reach this financial level or whatever that kind of metric is then you go and hire or have you found that you kind of look at here's where we want to get to and let's start hiring people now before we even need them what's what's been your approach cause i think a lot of people struggle with that in terms of being a little bit of a chicken and egg situation yeah some of this may be my cautious upbringing um i was reared in a fortune 500 company and we had to prove that we could generate revenue before we could get resources so i was just trained that way early on and i also happened to work for somebody uh in my early career who really put us to task we could have great ideas and he'd say great give me proof of concept and if it looks good we'll invest and so my approach has always been you know i've got to prove that there's something there for me to go make the investment and it doesn't have to be much but i've got to see the move the the needle move you know one way or another in order to get comfortable but if i see that there's a possibility i'll go make the investment then got you let's shift for a moment here um you provide several different services i mean you help people who are looking to buy a business you help people to sell a business you also provide advisory services for for uh for clients so you are providing a lot of consulting related work uh in in your day-to-day at the firm what are you doing right now to attract new clients so whether they are the acquirer or the the seller i mean just kind of talk us through what are you guys doing as a firm right now that you're seeing works best to attract the right kind of clientele uh so i'm not certain what the answer to that question is because one thing i'm really proud of is we will try things like we don't make big bets but we'll go try stuff and 2020 has been a banner year for our con it's been our best year ever on record and that's on the heels of 2019 being our best year we crushed last year so i've had some capital to go try a bunch of things and we did and um with very mixed results yeah tell us like what did you try and what worked best and what worked uh or what didn't work at all yeah so let me say we're a very high ticket item right i mean we're we're not a you know we're not a thousand dollar to i mean we're very high ticket item right and so what does that mean give us a sense are we talking your what's like your average engagement twenty five thousand a hundred thousand less more we're six we're six figures figures you know when we sell a business we're six figures or multiple six figures okay uh on the consulting side it could be far less than that but on the on the acquisition side where we're hoping people buy and sell yeah we're talking six figures and so um what i know is that facebook doesn't work for that clientele for sure doesn't work um facebook ads it just doesn't work um even google ads at one point in time they were okay but even google ads is proving to not be very good uh and so we're actually moving away from google ads uh um pay-per-click uh we'll stop doing facebook completely we tried youtube youtube's also not a fit for for what we do um we're moving more to linkedin linkedin and webinars are the two things that we're honing in on and quite frankly my podcast has been a great way to generate firm interest and if not interests solidify relationships where we've been having discussions and you know they can go listen to a couple of the episodes and realize we really are subject matter experts is there a typical entry point i mean is your team uh going out to different businesses based on lists that you find and sending emails and making phone calls and contacting through linkedin or like are you guys doing a lot of outbound or is it mainly inbound so i have a small business development group that supports my advisors and will do outreach through that business development group um although that's become very difficult in this pandemic environment as you know lots of folks are not in their offices and so reaching people in their office is become virtually impossible and unless you have a cell phone that's become really hard too so assuming that that's going to be the case for you know some period of time here we've migrated now to linkedin uh as a natural way to you know try to connect with people and how important have you found it in terms of your marketing to really identify the right type of person because from what i know linkedin doesn't necessarily show you that somebody is looking to sell or to buy a business you can identify how many years that person has been in the business you can identify industry geography a whole bunch of other criteria but kind of give us a sense of what you guys are doing or how do you how you think about criteria and kind of search filters to really hone in on the right type of ideal client so that your your outreach is targeted yeah so this gets to a little bit of strategy and why we built our new firm k2 advisor uh the the odds are that the number of people that are going to be ready today and at the point where they want to buy and sell is very small it might be one or two percent at most and even then they might not be ready to sell once we or buy once we give them all the specifics right and so the the numbers and the percentages are very small so what are we trying to do we're really trying to get in touch with as many people hopefully in advance of those events and and work with them so that they can be prepared and so sun acquisitions is our m a uh arm where somebody's ready to buy or sell we can do the transaction we built k2 advisor so that if you're not ready today that's fine we can work with you over some period of time to make sure that you are prepared so whether the date is a year from now or six years from now you know you've done all the things that you should do to maximize your returns minimize your risks avoid the pitfalls and we think that that's a good marriage so we'll have a much higher percentage of people who will want to spend the time and effort to prepare and then we'll naturally hopefully walk over some of those folks to the sun acquisition side when they are ready awesome well dominic i want to thank you so much for coming on here today uh let us know where's the best place for people to to go to reach out to you to learn more about uh the work that you're doing yeah my email is the best way to reach me d rinaldi at sun acquisitions.com d-r-i-n-a-l-d-i at sun acquisitions.com wonderful okay we'll have all that linked up in the show notes as well dominic thanks again so much for coming on here today hey michael thanks for having me really appreciate it

2021-02-13 04:52

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