Questions, Questions, and More Questions

I was talking with (helping) a person who has a very small advisory firm about a recent conversation he’d had with a prospective client. He wasn’t able to articulate the situation very well so I asked him things like:

  • What’s their objective?
  • Did you ask about timing?
  • Why are they talking to you (what are the issues)?

Obviously, he didn’t ask these questions, or many others, or I wouldn’t be writing about this. All I got was they had a nice conversation and got along well.

Contrast that with a meeting I had the other day. At one point, my prospective client said, “You ask really good questions.” This was after he had opened up about his business, his future plans, and family issues (which I didn’t ask about but sharing them showed a high level of trust).

High pressure sales is so 1960-70’s. Nobody wants to be sold, especially younger people who grew up in an age of information everywhere on everything (like our video podcast on this subject). For example, want to buy a car? Go online, find out what the dealers are paying, get competitive bids, etc. A lot different than even 10 years ago.

When we solve problems it’s because our clients know the what, they just don’t know the how. As in, how bad is the what (problem), how do we fix it, how much will it cost if we don’t fix it? You don’t have to paint a picture of doom-and-gloom, you only have to ask the right questions so they realize you know how to solve the problem.

“To achieve great things you need a plan and not quite enough time.” Leonard Bernstein

Who is the Face of Your Company?

There’s the old question, “Who’s the most important employee at a hotel?” and the answer is, the doorman (or doorwoman). They’re the first-person guests see and from whom they get their first impression.

I thought of this recently when I was at the grocery store and Starbucks. At the store I made sure to avoid the checkout line with the person Jan and I call “Chatty.” He just doesn’t stop talking. And he’ll say things like, “I’m not a sports fan but the Seahawks really need to do the following…”

Our local Starbucks has a barista who makes coming into the store enjoyable. She’s cheerful, remembers people, and it’s not overboard. I actually went to the Starbucks website and put in a good word for her.

So, who’s the face of your company?

  • Is it chatty or the enjoyable barista?
  • Is it a salesperson who responds to customer calls promptly and is helpful or a receptionist who acts inconvenienced when people call (or worse yet, an auto attendant that takes a few minutes to let you know they can’t direct your call to the right person)?
  • Do service people in the field make the impression the owner wants conveyed to customers?

There’s a story in If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want?) about when an associate and I visited a client’s business and noticed how filthy the entry way was. We then realized the reason the employees were eating lunch in their cars was because the lunchroom was dirtier than the entry.

Compare that to a manufacturing business we had previously visited and commented, “You could eat off the floor here.” That’s the impression every business should want to make.

“After I’m dead I’d rather have people ask why I have no monument than why I have one.” (Roman historian) Cato the Elder

Don’t be Greedy – Be the Best

The New York Times reported on a “little-noticed court ruling in December (2020).” The ruling was against the former board members of the Jones Group, an ownership group of apparel brands including Gloria Vanderbilt, Anne Klein and Nine West. In 2014 the Jones Group sold to Sycamore Partners in a highly (one might say overly) leveraged deal. 

The court ruled the “officers and directors had better think twice before agreeing” to deals with this type of structure. Duh! If it sounds too good to be true it probably is. It’s why good bankers (for our clients’ size of deals) won’t let a buyer have the bare-minimum debt coverage ratio. There needs to be a cushion because “things happen” and one of the best and worst things is fast growth. Growth sucks cash and that’s where the cushion comes into play.

Here are some related situations where the best:

  • Business buyer has the whole package including price, abilities, relationship building, and more. As many in the buy-sell world know, the best buyer is not always the one offering the highest price.
  • Business to acquire is not always the one that’s the best deal. It’s the company the buyer can grow, add value, and see themselves going into every day with a smile on their face.
  • Customer doesn’t always pay the most. But they’re loyal, work out issues, and refer others to you.
  • Job isn’t necessarily the highest paying job; it has the whole package including culture and career advancement opportunities. 
  • Employee to hire isn’t the one who will work for less. It’s probably the one who expects, and is warranted, a higher salary because they’ll have higher productivity.

It comes down to looking at the whole package, not just the shiny stuff (like the money).

“If I had to live my life again, I’d make the same mistakes, only sooner.” Tallulah Bankhead

“It’s funny. All you have to do is say something nobody understands and they’ll do practically anything you want them to.” J.D. Salinger 

The Challenges of Buying (and Selling) a Business

A month or so after a business buy-sell transaction the buyer said he had found some challenges but was making his way through them. Finding a business to buy is much different than finding a house to buy. There’s no MLS, the seller doesn’t want anybody to know the business is for sale, there’s a lot more information to verify, and comparable sales information is limited.

Similarly, moving into a house is easy, especially compared to taking over a business. The house is clean, it’s been inspected so you know what to fix or upgrade, and it’s really about unpacking and getting settled. 

When taking over a business you have to deal with customers, employees, operations, culture, cashflow, and more. Here are three things owners should do to make it smoother for buyers (and increase the ease of selling and the price).

Run it as a business, not a lifestyle. Run it as if you’re not selling but are in it maximize growth and profit. Realize the little things you know how to do in your sleep from 37 years as an owner (as an unconscious competent) aren’t second nature to the buyer. There not second nature to your staff, which is why a business plan, job descriptions, and delegation are so important.

As I’ve written many times before, the buyer is buying your people as much, or more, than they are buying your “company.” Employees are the lifeblood of any business so treat them well, pay them well, let them grow, and trust them.

Financial people will tell you to measure everything. Those numbers are the buyer’s (and the bank’s) insight into your business. The abovementioned buyer bought a good business that didn’t follow normal accounting practices (not even GAAP, just normal). This is a project-based business and work in process was not being recorded on the balance sheet. How do you know how profitable a project was if you don’t track things correctly? This means have a good accounting system and pay attention to it.

I could go on but you get the point. Take the little extra time it takes to do things right, not just run from project to project.

“If the highest aim of a captain were to preserve his ship, he would keep it in port forever.” Thomas Aquinas

Hobbies of any kind are boring, except to people who have the same hobby.” Dave Barry

Why Buy and Own a Business?

The March 1, 2021 comic Non Sequitur by Wiley gives us a great answer (to the headline). You can see the comic here* and in the second panel one of the characters answers the question, “If you could go back knowing what you know now, what would you do differently?” with:

“I wouldn’t be so self-conscious in high school and I’d work toward the career I really wanted instead of settling for a job I can’t wait to retire from…”

Something you want to do as a career verus “just a job” is what it should be about, right? This is why people leave their corporate jobs to own a business, whether by starting one, buying one, or getting a franchise. But this is not a rah-rah for ownership, because that’s not needed for those serious about it. Rather, here are a few things out of the news that all business buyers should watch out for and sellers should correct, if it’s an issue with their company.

  • Greensill Depended On a Few For Much Revenue,” Wall Street Journal, March 8, 2021. Customer concentration can be a killer. Greensill had 90% of its revenue from five clients in 2019. There’s a reason buyers and banks get nervous about concentration. Often the seller (and sometimes the broker) will dismiss this by saying things like, “They’ve been a customer for years.” Yes, a customer of the seller and what happens when there’s a new owner? Or a change in the customer’s management, or how a problem is handled?
  • UPS’s new CEO is focusing on the bottom line by weeding out less-profitable customers (Wall Street Journal, March 6, 2021). This is where good job-cost accounting comes into play, so you know your customers profitability. An owner I know was approached by his top (30%) customer about buying his business. For a variety of reasons, he turned down the offer, said he realizes he will lose the customer at some point, and pointed out the 30% of revenue was only 10% of gross profit so it won’t be that big a hit (and he works daily to diversify the customer base). If you’d like a slide deck on customer loyalty and due diligence from a ACG webinar send us an email.
  • Boeing has been in the news again as a couple Pratt & Whitney engines lost parts while flying. Note to buyers, inspect the equipment, the inventory, and the technology. Owners thinking of selling in the near future are notorious for not investing in assets as they did in prior years. Owners should invest in the business as if there’s no plan to sell. The price can only go down if anticipated capital expenditures are higher than normal.
  • Microsoft Exchange customers, at least 60,000, were hit by an aggressive hacking operation that saw stolen emails and malware installation. A client of ours was recently hit by ransomware. Owners need to keep the technology up to date, have protections, and really pay attention to all aspects of cybersecurity. Our podcast series features (separate) discussions with Jennifer Hill and David Henderson on cybersecurity and Dan Weedin on crisis management. Spoiler alert, cybercrime is one of the top two risks businesses face.
  • Trust is the currency that is most valuable in this uncertain moment” is on the front page of the March 5, 2021 Puget Sound Business Journal and it’s a quote from KD Hall. I disagree. Trust is most valuable at all times, especially in a buy-sell situation. No trust, no deal. What seller or buyer would sell to or buy from someone they don’t like or trust? Who would make or accept a job offer to or from someone they don’t like? Not a sane person, that’s for sure.

Business ownership, especially via buying a mature, profitable, and fairly priced business, is the best thing for a lot of people. Just make sure you buy the right business the right way and you pay attention to the above (and all other details of the business).

* Due to copyright laws, I can’t publish the comic’s panel.

Questions and Confidentiality When Exiting

By Jessica Martinka

There’s an old song that starts out, “Signs, signs, everywhere a sign.” What about, “Questions, questions, everywhere a question,” when it comes to planning to exit a business?

  • Why am I thinking about selling my business and do I really want to sell? 
  • Will it be enough money?
  • What does my spouse think about it?
  • Who do I let know? Is it employees, vendors, customers?

Jim told his two (very) key employees he was planning to sell to a company in the same industry. This was all of a sudden, they panicked, and within days both turned in their two-week notice. Yikes!

Owners are scared because a confidentiality breach will scare employees, vendors, customers, and competitors. And potentially drive down the value of the business.

Last month I wrote about what happened when corporate took over the company I was working for. I didn’t give notice, but should have. I can tell you all the worry affected my productivity, especially once I found out I was training my replacement.

At the management level, consider letting your team know about a potential sale as you’ll need them during the process. Have them sign an NDA and consider giving them a retention bonus, post-close as an incentive to stay. 

Customers finding out can create problems. Competitors finding out can be a disaster. Even suppliers, as they may put you on C.O.D. But it’s mainly about the employees because buyers are buying the people not just the business.

I was naïve when corporate took over. Most people will look for a way out which is the number one reason why owner’s keep the potential sale of their business quiet. And a business buyer doesn’t want to come into a business with no management team or missing employees. Hiring an advisor familiar with buy-sell deals who understands the importance of confidentiality will be beneficial through the process.

A good place to start planning your exit is with our book: If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want?)

“The size of a planet doesn’t strike you until you start looking for something.” David Sedaris

Business – It’s Not Rocket Science

I have never worked with a business buyer who didn’t want to grow (aka scale) the business they buy. I don’t know if I’ve ever met a buyer who only wanted to keep it where it is. So I found a Bloomberg article in the February 14, 2021 Seattle Times interesting when they quoted Pierre Poignant who is running Branded, a VC back firm that has acquired 20 houseware and leisure brands. He said:

“We want to be a multi-billion-dollar company” and acknowledged, “buying businesses is one thing. Scaling them is another.”

My initial takeaways from this are:

  • It takes more than energy to grow a business. It takes a plan, the skills, and the resources. When buying one, a little luck is often involved. Luck often being defined as finding a company whose owner is “coasting” while making a great living. Some may say the seller is “leaving money on the table” by not fully exploiting their competitive advantage.
  • Sellers really need to up their game to show how the business can grow. This means grow the darn thing instead of keeping it stable and saying something like, “You can easily grow it, I just don’t want more employees.”
  • It takes a team. That’s why owners/sellers need to show they can attract and retain great people and let those people flourish. This is really what any buyer is buying.

Some may say about growing a business, “It’s not rocket science” and maybe they’re right. Given how many business failures and struggling businesses there are it might be tougher.

“The greatest and most important problems of life cannot be solved. They can only be outgrown.” (Novelist) Frank Herbert

“You want me to do something – tell me I can’t do it.” Maya Angelou

Texas Energy Screw-up and Small Business Impairments

The headlines about the Texas freeze and energy disaster caught my attention. I read two long articles, one in the Seattle Times and the other in the Wall Street Journal. Both had the same conclusion; Texas took the easy way out (again) and paid for it.

The bottom line is Texas officials had been warned many times over the last 30 years about their energy infrastructure not being winterproof. They ignored the advice because deep freezes rarely happen in Texas and by ignoring it they kept their electricity rates the lowest in the country. But enough about those details, let’s discuss how too many businesses are like Texas electricity and wishful thinking.

A lot of business owners are like Texas and ignore the planning part of exiting their business. They flip the switch and say they want to sell. Like the Texas utilities, there’s no preparation for the actual event. So here are some thoughts on the subject.

Mr. or Ms. business owner, your company is not the greatest thing ever. There are a lot of other businesses out there, all wanting the best buyer possible to buy them. I mean, who wants to sell to someone who won’t be successful. That means you have to look at your business like a buyer will look at it. Better yet, get an independent set of eyes to look at it. Perform a mock due diligence (self-promotion here: as in our book If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want?). Have a banker who does buy-sell loans look at it also, because they’re the ones who will provide the money.

Once you’ve done this 30,000-foot overview it’s time to put a plan in place so you can exit with style, grace, and more money.

Don’t try to do everything at once. There’s a reason experts say start this three to five years in advance. Things take time. And three to five years allows you to show the results on your financial statements.

Have a list of tactics, whether it’s for growth, margin improvement, expense reduction, process improvement, an improved culture, or something else. Know what you are going to do.

Get into the details.

Implement the darn thing. Don’t have it be a shelf plan, make it an action plan (see my blog for my ACTION™ plan to sell a business).

Get your team involved. Everybody wants to do better and they don’t have to know it’s exit planning. They’ll think it’s a growth strategy at work.

Cover the basics first, and as I’ve written many times, the basics include:

  • Solid financial systems and accurate financial statements. Don’t emphasize minimizing taxes. Show profit because banks and buyers like profits. Don’t blend your personal and business checkbooks.
  • Grow. Prove you can do it versus saying how it can grow in the future.
  • Shed your ego. Get to the point you do as little as possible with the day-to-day operations. Concentrate on strategy and vision.
  • Hire and be able to retain great people. Buyers are buying your people as much as anything else.
  • Like searching for customers, you have to keep doing the things you’re supposed to do. Do so and good things will happen.

Don’t be like the Texas utilities and ignore all the preparation until it’s time to exit. Because “things” happen, as per the example below.

Lesson: A client lost a deal to sell his company (for more than it was really worth). He wasn’t prepared to provide the buyer what the buyer needed, which was the usual and customary information. While regrouping, the company got hit by a cyberattack, closed operations for days, lost customers, and now his business might not be worth much of anything. And he’s got a handful of leases on which he’s obligated (in a tough office real estate market). 

Tip: He thinks the cyberattack was like what happened with Solarwinds, via a third party. His attackers got in through his previous managed service provider that had not deleted access to his system. Do disaster planning on anything that can interrupt your operations, and cyber is on the top of the list, way ahead of any natural disaster.

Our podcast channel has discussions on cybersecurity, disaster planning, and much more.

A Job Disguised as a Business

We’re working on a client grow-by-acquisition project and have found the industry is not only very fragmented, with a lot of small companies, but too many of them are “A job disguised as a business.”

These owners are so busy bidding, selling, designing, installing, doing service work, etc. they don’t have time to pay attention to the business itself. They can’t answer basic questions every owner should know, and it overwhelms them to fill out a short questionnaire that should take no longer than 10 minutes (most are check the box type questions).

A big question is, “Is there value and if so, how much?” The only (real) buyers for these businesses are companies in the same industry who can handle all the functions the owner is doing. There’s not nearly the equity there would be if the owner worked on the business versus in the business.

My advisory business doesn’t have much value. A CFO for hire, on his or her own, doesn’t have much value. A firm with multiple advisors (of any kind) has value, either to an outside buyer or via an internal succession like law firms, CPA firms, construction firms, and others. It comes down to an owner doing the basics:

  • Create a capable team.
  • Delegate responsibility not only tasks to them.
  • Realize your employees might not do it as well as you, or as fast, but three people at 80% is better than just you at 100%.
  • Let them grow so the business can grow.
  • Be organized with processes and especially with the financial systems and statements.

In a recent deal the business buyer said while he’s never managed 50 people before he feels comfortable because of the middle-management team. That’s a heck of a lot better than when the owner has their fingers in every aspect of the day-to-day operations.

“If you attack the establishment long enough, they will make you a member of it.” Art Buchwald

When the Corporate World Attacks You

By Jessica Martinka

Horror stories abound! Both parents working from home, kids taking virtual classes, and bandwidths stretched thin, both internet and personal.

The virtual work world makes it much more difficult to know what’s going on. Unlike the schmoozing, collaboration, and gossip we used to do in person. 

Not knowing what changes and/or decisions are being made that could affect your employment and life can bring the fear of the unknown, and I can surely relate to that.

I was working at Online Trading Academy when corporate bought out the local owner and started “taking over.” The next day corporate employees swarmed the place and we were left in the dark wondering if we would still have our jobs.

Every night I went home worried sick. Soon after the takeover, everyone was gone except for me. They had brought in a new GM and my job was to get her up to speed. Once I did, they let me go. I had convinced myself they were going to keep me, not realizing I was training my replacement. Pretty naïve.

We see this corporate maneuvering all the time and it’s why executives choose to escape the corporate world and buy a business. They are fed up and want to be more in control of their future.

So, what makes a qualified buyer?

  • Experience – To buy a mature profitable business, a buyer must have the appropriate experience and skills in managing people, processes, money, and enthusiasm.
  • A good personality – A person will never buy from or sell a business from someone they don’t like. The buyer and seller must trust and feel comfortable with each other. Business buying and selling is a life-changing decision for both parties. Relationships rule.
  • Capital – the cash needed is tied to the size of the business and the fair market salary for the job of running the business. For an individual buyer, figure at least two times that fair market salary from the buyer.

A smart buyer will hire a great team of advisors and make sure they have experience in buy-sell transactions of the size and type he or she seeks. This will give you a better chance of getting the deal done, which happens to be the title of our new book.

Owning your own business puts your future in your own hands.

Your chances of success are clearly best when you buy an existing, profitable business for many reasons.” Richard Parker

“Owning a business is risky but if you buy a mature, profitable, and fairly priced business your leap of faith is off a chair not the roof.” John Martinka