Oops – There Goes Your Workforce

On October 14, 2021 Washington’s Governor announced he expects 8% of the State’s employees to not have jobs on Monday, October 18 because those people are not vaccinated (and the vaccine mandate takes effect then). He also said he doesn’t expect any disruption of State services.

If you (or a client, friend, business you frequent) lost 8% of your employees all at once what would happen? Let’s see:

  • It’s hard to find a business not looking for employees. Almost every store has signs out saying, “We’re hiring.” Lose 8% and reduce hours?
  • Delays in product delivery or services are already slow because the “People supply chain” is damaged. Lose 8% and really irritate customers (the owner of one of our favorite restaurants told us the labor shortage has made customers nasty because service is slower than normal).
  • There’s only so much overtime people want to work, and employers want to pay for. Lose 8% and to fill those hours with existing people means payroll jumps 50% for those hours.

And the list goes on (and on).

There’s a lot of money out there. A lot of money for buy-sell deals, venture capital, home improvements, and more. It appears the State has so much money they’re keeping workers that aren’t really needed. Maybe this is a solution to the shortage of workers in the private sector.

“Stupidity is always amazing, no matter how used to it you become.” Jean Cocteau

“Nothing is as dangerous for the state as those who would govern kingdoms with maxims found in books.” Cardinal Richelieu

Rotary and Business Buy-Sell – Part Two

This is the counter article to what I wrote in July, about business buyers and my Rotary projects given we recently I had a Rotary Global Grant approved for our ongoing work in Antigua. As I was writing the grant, I realized there are a lot of similarities between our project, the grant process, and our day-to-day work with clients buying and selling businesses.

Objective – We must articulate, in detail, what our project hopes to accomplish to get a grant approved. In our case, it’s supplying technology and training teachers on how to reach their students more effectively with said technology (versus using a 3’x5’ rolling blackboard). A business seller must know if the proceeds from the sale are enough for their next great adventure in life, what that next great adventure is, and what they want from a buyer, which is usually to sell to someone who will take care of their employees and preserve their legacy (and pay them).

Team – Last time we had 14 students (who setup the computer labs and Wi-Fi networks) and 10 adults. We get a lot done. Sellers need to build a team and it should include a financial advisor, transaction attorney, CPA, deal pro, and other experts as needed. Others could include a Quality of Earnings pro, and environmental consultant, and an HR pro to make sure all employee issues are in compliance with local, state, and federal laws.

Money – Our project gets donations from at least three Rotary clubs and a foundation tied to Antigua that loves not only what we do but that we get results. We then triple it with a Rotary Foundation grant. Sellers not only need to know the price but the net after tax and fees (it’s not what you get, it’s what you keep). And then it’s when the seller gets the money. Upfront, over time, and/or get more if the business grows (an earnout).

Timing – We run our project on tight timelines. Grant submission, approval, shipping by a certain date, travel when the students are on break, etc. Unfortunately, too many owners aren’t on a timeline. They wake up one day, flip the (proverbial) switch and say, “I’m selling.” As in my book, If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want?) the more preparation an owner puts into their business the more they’ll get for it.

Implementation – Once our grant is approved, we start implementing. Actually,s we start prior to that by securing computer and other equipment donations. We can’t use grant money until final approval and some years that meant buying things the day after approval. The same goes for sellers, once committed, take action. If all the prep was done right it will go faster and smoother. And the chances of seller remorse decrease exponentially (versus the owner who shops the business with no skin in the game to see what the market says it’s worth).

Secure agreements – The Antigua Ministry of Education and others must sign a Memorandum of Understanding agreeing to their responsibilities. For a Caribbean country I’d say they’re pretty good. What do sellers need? A good management team that will sign employment agreements with the buyer (if asked), a landlord willing to give a long-term lease, loyal customers (with or without contracts) who don’t shop price, and, ta-da for 2021, suppliers who can actually supply.

Administrivia – When I look at all the little things we have to do to get 24 people to and from Antigua, students hosted by local Rotarians, lodging, cars, activities, little supplies we don’t know we need until we get there, etc. I wonder how my friend Jeff at Newport High School and I do it while having work and families. Because sellers are running a business – and running it as if not selling is so important – they need to lean on their intermediary, lawyer, and accountant to do the things those pros do regularly, even if it costs a little more.

What I illustrate above shows many things have common ground and other than the use of technology, not much has changed in decades. Buyers and sellers go through the same paces they did 20, 40, 60 years ago, only they have more tools to help.

If It’s on the Internet it Must (Not) Be True

When It’s Time to Just Do It

On the edge of TMI, I had an MRI on my wrist recently and then started doing what we all do, an Internet search for treatments for a torn wrist ligament. What I found scared the heck out of me as numerous (respected) sites had information saying there’s an 18-month recovery from surgery, no driving for a few weeks, and even office work is off limits for 2-3 weeks.

Then I spoke to the doctor and he said 4-6 weeks in a cast, and six weeks of rehab. And I could drive, type, workout, etc. right away, it’s just that my wrist will be stabilized. Once again, just because it’s on the Internet doesn’t make it true and correct. Often, it’s facts, what facts?

So gossip, old wives tales, and the Internet info all come into play in my, and many of your, daily dealings. For me it’s things like:

Business (soon-to-be) sellers: My buddies at the club told me what my business is worth so that’s what I want.  Prepare my business, why? My business isn’t like all the others, so the common valuation methods don’t apply (it’s worth more).

Business buyers: I’ll pay X times earnings for that business. Without knowing if there are 3 customers or 300, a lot of cap ex needed versus all assets having a long useful life, or if it’s the owner and only the owner doing the important functions. Another one, actually paying attention to insights from people who have never done a deal.

Operators: We’ve always done it the way we’re doing it so why change? Answer: a new owner who spent $50 a month on a software application that congregates invoices for one upload to the customer instead of manually entering 350-400 invoices every month.

And one final tip to owners who are even thinking of selling within the next few years – this from a wise old business broker – give hints to your employees that you will retire someday, say the one-week vacation would have been better if it was a month, and when at “that age” let them know your plans. FYI, a consulting client from about 10 years ago was at “that age” and the employees were wondering how long he’d be around. I had him share his plans, which were to be there at least five more years and the restlessness stopped.

“A good storyteller is a person who has a good memory and hopes other people haven’t.” (Humorist) Irvin. S. Cobb

“In order to get on living, one must try to escape the death involved in perfectionism.” Hannah Arendt

When It’s Time to Just Do It

Many years ago, a client told me, “The best time to get out of your business (sell it) is one year before you’re burned out.” Great advice and it applies to more than getting out of a business but it’s not really something you can effectively do, is it?

The problem is most business owners don’t wake up and start lowering the business’ dimmer switch so in three years they’re ready to exit with style, grace, and more money. The wake up, flip the switch, and say, “It’s time to sell, the sooner the better (and please overpay me).”

But what about non-owners, those working for someone else? Getting out for them is usually because:

  • They see no career advancement.
  • Are burned out doing the same thing over and over and over.
  • They have come to hate their employer (this was my dad).
  • It’s stale, they’re not in control, they’re taken for granted.

So it’s time to change careers and that may mean a new job, starting a business, getting a franchise, or buying a company (if the latter, it’s time to read my book Buying A Business That Makes You Rich).

And back to owners. Wanting to exit with style, grace, and more money means paying attention to basics, which I repeat regularly because most people don’t pay attention to them.

  • Grow, don’t just talk about.
  • Get your financial systems up to the A+ level.
  • Make the owner dispensable, ASAP, and reduce all other dependencies.
  • Attract and retain great people.

For another shameless plug, see more about these things in If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want?).

“The best way to find out if you can trust someone is to trust them.” Ernest Hemingway

“Pessimism is an excuse for not trying and a guarantee to a personal failure.” Bill Clinton

Details, Details, Those Darn Details

When is 25% ownership in a small, privately held business not really 25% ownership?

When you try to sell your shares.

I got a newsletter from a BVWire (a valuation and buy-sell deal compilation company) and one of the articles dealt with the complicated issue of minority ownership in a business. While not boring you with the details of the case, the bottom line was a court decided the firm’s operating agreement specified the sale of shares called for fair market compensation of the assets of the business but not the interest (ownership) in the business.

So, some 25% owner in Oregon is not going to be happy because he, she, or the attorney didn’t catch this qualifier. Details are important and think of all the things we must do regularly where lack of details can confuse or derail things.

Communication – I just read another newsletter about properly addressing an audience (and the same applies to an audience of one, two, or three not only a room full). You must direct your message to whom you’re speaking. Talking to employees about needing to grow faster when they’re already working 50-60-hour weeks doesn’t cut it.

Agreements – I work in the buy-sell world where there are always discussions over the same issues (wordings). The same is true in employee agreements, vendor agreements, etc.

Life – Don’t be specific with kids and they’ll find any little loophole. You sure wouldn’t want your contractor missing a few things or your home to be like an oceanside condo in Florida (collapsed). And just think of all the little details musicians, artists, athletes, and others pay attention to. Or maybe you’ll be like a good friend of ours who didn’t pay attention to community property laws when getting married and got burned big time during the divorce. (One of them had a lot of assets at the time of the marriage and the other was in debt. Guess who got 55%?)

It’s always the little things that take the most time and effort.

“Never marry a man you wouldn’t want to be divorced from.” Nora Ephron

“Success is a lousy teacher. It seduces smart people into thinking they can‘t lose.” Bill Gates

Inadequate Technology Will Bite You Big Time

I was surprised when I saw the survey of Q2 2021 buy-sell deals and its ranking of due diligence items given IT was at or near the bottom of every list (deals sorted by size). I can’t remember when I saw a selling company whose hardware, software, licenses, and cybersecurity were all up-to-date and adequate.

I tell business buyers to figure they will have to invest in IT sooner versus later and to immediately check out what cybersecurity measures are in place. I’ve had clients have an employee almost fall for the fake wire transfer scheme, have a ransomware attack, and we all get phishing type emails multiple times a day. 

What was at the top of the lists was employees, which is where it should be. All one has to do is look at a business publication to realize the employee market is in turmoil for many, many industries. It comes back to, can a company attract and retain great people, with an emphasis on retaining (in today’s market)? It can be a balancing act and the employees have more options than ever now.

Customer concentration was near the top, again, where it should be. This issue will never be minimalized. What I expect will move up the list in future quarters is suppliers and supply chains. There aren’t too many owners and execs I’ve talked to recently who aren’t experiencing or worried about their supply chain. And constant price increases including retroactive price increases on orders placed but not shipped. Wow! The customer ordered it at a fixed price based on the current supplier price, there’s a backlog from the manufacturer, they’re raising the price, and seller to the end user eats the increase.

Finally, the lease. Jessica lost a deal because the landlord wouldn’t offer a long enough lease on a location driven business. With the skyrocketing real estate market in the Puget Sound and other areas there’s a good chance the buyer will pay more, sometimes much more, than the seller has been paying. This has to be factored into the valuation.

Five diligence areas above, all equally important, and all more important than ever given the market turmoil we’re experiencing with people, products, and real estate.

“A people that values its privileges above its principles soon loses both.” President Dwight D. Eisenhower

Inadequate Technology Will Bite You Big Time“More and more we are into communications; and less and less into communication.” Studs Terkel

Bigger Isn’t Always Better

Headline: Some Bartell customers say goodbye after changes by Rite Aid (Seattle Times, August 11, 2021).

Background: Rite Aid bought 131-year-old Seattle institution Bartell Drugs earlier this year and according to this article it’s been a disaster. Why? Here are the top reasons mentioned (and following those reasons are some comments from my friend Brian Quint who a few years ago sold his third-generation business, Aqua Quip, to Leslie’s, the nations largest pool supply company). Remember, these are things mentioned in the article and are not confirmed.

Culture – the article mentioned the culture around customer service and employees has changed from “we’re local and friendly” to “we’re corporate.” Employee turnover, long hold times on the phone, prescription delays, and more.

Poor transition planning – apparently a rushed effort to assimilate Bartell’s into Rite Aid, including a new back-office system. 

Labor shortages – as mentioned, high turnover. To be fair, on September 21, 2021 the Wall Street Journal had a business section frontpage article about how CVS is short 25,000 employees and Walgreens is in the same predicament.

Service – a perfect example is reportedly a Renton store had a backlog of over 700 prescriptions. Enough said.

Customer reaction – One customer said, in an article ending quote, “I want to stick with them. The whole reason I was going there is because they weren’t Rite Aid.”

When I talked to Brian, I made sure we didn’t discuss the allegations in the Times article as we have no proof they’re accurate (but probably are). Here are some transition tips from Brian when selling to a larger (much larger) firm.

Shelf life – (spoken like a true retailer) make as few changes as possible with your team. Because like it or not, change is taken as a negative, especially with a family business. He worked on consistency and stability. One year before changing the 401k plan and three years for the payroll service.

No rapid changes – they didn’t change products (supported by the buyer), the stores look the same, same POS system, same ordering, and all the same to the customers (I know, I’m one).

Communication – any absence of information means assumptions, negative assumptions. Be specific as well as communicate consistently, with clarity, and offer collaboration. The temperature of the culture went down from 10 to 9+ the first year to 7 after almost 3 years. One reason was limited corporate communication to the employees.

HR – the scourge of many businesses, especially larger firms. After almost three years HR is taking over. This means short staffing, HR review of all pay raises and hiring, and therefore everything is strictly formulated (see above on culture and communication).

Sometimes a large-firm or private equity buyer is the only or best option for an owner option. I don’t recall too many business sellers who say they wanted their employees to not keep their jobs. But that’s up to the buyer. Individual and small-business-owner buyers know they are buying the people more than anything. Large organizations just can’t help themselves and often blow it with the employees.

Getting Change Means Tormenting Someone

Well, I can’t be your mentor without occasionally being your tormentor,” Dr. Sharon Fieldstone.

When I heard this it was a “stop the presses” moment because everybody who advises clients, manages people, raises kids, or just about anything else has to use tough love to get through to others. Tough love means you’re taking people out of their comfort zone, i.e., tormenting them. It could be:

  • Telling a business owner what their business is really worth.
  • Giving a “truthful” review to an employee (as in, you’re not getting a bonus…).
  • A banker saying, “No, we can’t lend you money because…”
  • Legal advice about what someone is doing is wrong and will get them into trouble.
  • Informing a business buyer the business they love is not a good deal (company has issues, the price is too high, etc.), so keep searching. 
  • Or, the flip side, telling a buyer to get moving before they lose the deal.
  • A CPA telling a client, “No, you can’t deduct your daughter’s college tuition” (or similar).

I’ll bet you can think of times someone did this to you or you did this to clients, employees, or family members. We can’t grow if we’re not held accountable.

Well, I can’t be your mentor without occasionally being your tormentor,” Dr. Sharon Fieldstone

“I am extraordinarily patient, provided I get my own way in the end.” Margaret Thatcher

Fear of the Unknown

Did you ever do something you haven’t done in a while and pay the price? Maybe an exercise routine that leaves you with sore muscles? Or having a meeting at a place known for their pastries, having one (which you rarely do), and paying the price? Yeah, I did the latter recently.

Or what about doing things you’ve never done before? Maybe it’s skydiving, or scuba diving, or entering a run or bike ride much longer than you’ve ever done before. Apprehension, right?

That’s how our clients feel when they decide to buy or sell a business, having never done it before. People who are good at providing professional services do more than just the tangible things. They’re good at handholding, supporting, listening, and asking questions. 

In Buying A Business That Makes You Rich I tell business buyers they absolutely will make a leap of faith and they want to do it off a chair, not the roof (we help lower the jump). Were all the right questions asked? Are they overpaying? What isn’t the seller telling them (that he or she should be disclosing)?

The same holds true for business sellers as they make a big change in life. Did they sell to the right buyer? Will their employees be valued and keep their jobs? What will be their next great adventure in life?

My point is, buying and selling a business (as well as starting one, operating one, growing one) is a lot smoother with the right team. And it adds value to the business when there’s both an internal (management) team and an external team of advisors.

“It is only through labor and painful effort, by grim energy and resolute courage, that we move on to better things.” Theodore Roosevelt

“We are rarely proud when we are along.” Voltaire

Simple is Best

When there’s water all over the bottom of a refrigerator it’s a sign something is wrong. Our Samsung refrigerator has a problem, and it seems, judging from YouTube videos, it’s been going on years and they haven’t fixed it.

Refrigerators use coolant, which changes from a liquid to gas and cools the air, which then has lower humidity. The excess water is to drain and be evaporated by the heat from the compressor. But in Samsung models (and others I’m sure) the water freezes in the drain tube, overflows, and guess what? There’s water in the frig.

The fix is simple. There’s an OEM part that hangs from the heat coil into the drain tube. It’s ½ to 1” long and doesn’t work well. The aftermarket part is about 3”, probably costs about 17¢ to make and sells for $7 on Amazon (and $14 at the parts store). It carries more heat to the drain tube and eliminates freezing.

A picture containing floor, wooden, wood, lumber

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A lot of things in life and business are simple, if we let them be simple.

  • Business sellers – simple decision, prepare your business for sale and exit with style, grace, and more money. Don’t prepare it and sell for less.
  • Business buyers – decide which leap of faith you’re going to make. A small leap on a mature, profitable, and fairly priced business or a big leap on a company treading water.
  • Operators – simply make decisions sooner and move on. Especially with people. From numerous client situations, whenever there’s a problem employee jettison them ASAP. Every owner I know in this situation said, “Why didn’t I do it sooner?”

And it was pretty simple to take the back panel off the inside of the refrigerator and hang this part on the coil. Plus, our appliance is now almost as clean as when it was new.

“The past is never where you think you left it.” (Writer) Katherine Anne Porter

“If you get dealt lemons in life, you should make lemon lavender mojitos!” Harriet Walter (as the character Deborah Welton)