Be a Breath of Fresh Air

Surprised. Pleasantly surprised along with wonderment is how I’d describe my reaction when a lady I didn’t know came up to me gushing with thank you after thank you. Why I asked? She told me it was for my help in getting the business buy-sell deal done. The buyer, she said, was “A breath of fresh air.” She loved working for him.

This is not unusual (to have the buyer be a breath of fresh air). Here are a few more examples from a variety of clients:

  • Spending the first few days of ownership doing, “Management by walking around” to get to know the employees and small-group meetings. He said they told him the previous owner never did either.
  • Immediately learning the team’s skills and delegating. Did they sure liked that.
  • Taking routine tasks off management level peoples’ job description so they could concentrate on growth and productivity. 
  • Doing a survey of the management team to find out what they thought were the strengths and weaknesses. 
  • Sitting down and listening to the employees. Listening. Wow, what a concept.

But what if the owner doesn’t want to sell and let a buyer be the breath of fresh air? Here are some tips and realize when doing these things you’re really preparing the business so you can exit with style, grace, and more money.

  • Perform a “mock” due diligence. The best is to have an outside pair of eyes make the observations, ask the questions, etc. Next best is to have a group of managers do it. The worst is the owner doing it themselves because they’ll see and hear what they want to see and hear. This is a lot more than the numbers. It’s diving into customer relationships, employees, management, IT, suppliers and supply chain, etc. 
  • Work on eliminating dependencies, starting with any owner dependency, and moving on to customers, employee, supplier, the lease, a certain technology, etc. When the owner is the business, it reduces value the same way as if there’s 53% of sales to one customer or one supplier who in effect controls the business.
  • Exploit any growth opportunities. Don’t just take orders, reach out. I have a quote in my computer from my friend Keith Jackson with Industrial Revolution and it’s, “It’s amazing what happens when you pick up the phone and call your customers.” That’s being a breath of fresh air.
  • Take action. As another good friend, Rod Jones, says, “Have a Nike moment.” Every strategy advisor will tell you there’s no shortage of good strategies but there’s a lack of implementing.

Many years ago, a wise old business broker told me the unprepared business (and seller) will have it take twice as long to sell (vs. a prepared business) and sell for much less. He added, “Selling a business is like painting a house. All the hard work is in the preparation, the painting is the easy part.”

Was he right with his comments? You better believe it. In a just released survey by the International Business Brokers Association in conjunction with M&A Source we see the following from deals in Q2 2021:

  • About 2/3 of sold businesses in the survey did no exit planning. None.
  • About 20% did some exit planning, for less than a year, which includes simply talking to a broker.
  • Depending on the size of the business, anywhere from 45% to 71% sold because of an unsolicited offer.

About 20% did some exit planning for less than one year, which includes simply talking to a broker.

Depending on the size of the business, anywhere from 45% to 71% sold because of an unsolicited offer.

To summarize, they weren’t ready, they were probably thinking but not taking action, and when the situation arose, they jumped on it. Ready or not, here we come, was the mantra.

As I’m writing this a friend emailed me and asked for a couple copies of If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want?) for friends of this thinking of exiting. I’ll make the same offer to those of you reading this. If you’d like a complimentary copy of it (or any of my books) for yourself, a friend, or client let me know and I’ll get one to you.

Realize what I write above is not easy. It takes time, effort, leadership, and buy-in. To quote 2021’s favorite seer, Ted Lasso, “Takin’ on a challenge is a lot like riding a horse. If you’re comfortable while you’re doin’ it, you’re probably doin’ it wrong.” But it’s worth it.

When They Ask About Fees…

We all run into a lot of different people in our day-to-day business. After a while we get triggers as to how things might go. For example:

  • When someone wants to dive deep on fees in the first call it means we will never work together. Never. Recently one guy brought up fees three times in a 15-minute introductory Zoom call with the last mention being a question about if I would take my fee in equity (in a company they haven’t bought, much less identified yet).
  • I meet someone, I give them a copy of one of my books, we meet again or talk within a week, and they say they’ve finished my book and really liked it. Bottom line, 90% chance we’ll work together.
  • If someone asks a lot of questions about how we work together, the process, timing, etc. it also means there’s a good chance we’ll work together. Being inquisitive means seriousness.
  • On the flip side, if excuses start to flow and the message changes, guess what? (Especially for business buyers) they’ve changed their mind, i.e., they got cold feet, so they come up with alternatives like, “I might be getting a promotion” or “We have to decide where we want to live” or “My spouse isn’t sure this is the right time.”

I bet most of you reading this have similar “signs of action (or no action)” in your memory banks. After a while it gets easier to figure out who to concentrate on helping.

“Some things are just too coincidental to be a coincidence.” Yogi Berra

We spend our time looking for security and hate it when we get it.” John Steinbeck

A School Lunch is Better Than No Lunch

I was a cafeteria monitor for at least my senior year in high school (maybe my junior year also). It wasn’t a bad job. We made sure kids didn’t act like kids, food wasn’t thrown, the lines moved along, and the finished trays didn’t back up on the conveyor back to the kitchen. The benefit, monitors got as much food as we wanted, and we had a great team of cooks who served 2,700 kids a day (it was a closed campus) and growing boys need a lot of food.

I hadn’t thought about this in way-too-many years until I saw a headline in the Wall Street Journal on July 26 that said, “Supply Chains Pinch School Menus.” Food suppliers to schools are having a tough time getting food and other supplies, they don’t have enough workers, and transportation is an issue.

Just like almost every other business these days. It’s tough operating a business when you don’t know when you’ll get materials, will you have enough employees, will your customers want what you have if they can’t get other things needed to make their product or do their business. The article mentioned one company “gambling” on stockpiling fruit without knowing what the schools would be ordering.

It also changes due diligence for business buyers. They must now look at the supply chain, the suppliers, how they get the product, etc. For a while the top worry was easily employee availability and if supply chain worries haven’t overtaken that worry, they’re a close second. Another example in the article was about suppliers backing out on their customers. Tip to owners (especially soon-to-be sellers), have multiple suppliers and always be in contact with them.

For buyers, it’s be cautious and investigate the heck out of the supply chain.

“We can understand things better. We can never understand things fully.” (Physicist) David Deutsch

Overpacking in Life and Business

We recently took a long-weekend trip to Denver to see a client and relax for a few days. I noticed something I often notice in airports and it’s most people overpack. It’s summer, there aren’t too many places to go where it’s not warm (meaning no parka to pack), and I can’t see how people need more than a carryon size suitcase plus a backpack for their computer, headphones, book, etc. Face it, most people go places where there are stores and wash machines.

Of course, most of us overpack in life and business also. Too much stuff around our houses, too many clothes in the closet, too large a list of things-to-do around the house, etc. And in business, it’s just as bad or worse. 

Business owners and sellers overpack as follows:

  • They make things too complicated, often for employees and for customers (ordering and reaching someone for service should be easy not hard).
  • They don’t invest in up-to-date technology or processes. Business buyers like it when there’s low hanging fruit, meaning easy upgrades that save time and money and I can’t remember the last time a sold business had all current hardware and software.
  • Micromanaging, which slows down productivity and employee growth.
  • Making the business, or a critical part of it, dependent on the owner. This is a big one and, as I wrote a few months ago, an owner told me a large firm “beat me up on price” because they said the business was too dependent on him.:

Business buyers also overpack:

  • Dreaming there’s a perfect business out there. Wake up, there are no perfect businesses or perfect deals.
  • Getting analysis-paralysis. As I say in the preface to Buying A Business That Makes You Rich, buying a business requires a leap of faith and you want to make it off a chair not the roof. But you’re still making a leap, so make a decision.
  • Not realizing it is work. It takes effort to locate, analyze, and structure a deal on a mature, profitable (and fairly priced) business. It’s pretty darn easy to buy a crappy business or grossly overpay.

And, in my market of sub $10 million deals, realize relationships rule. Nobody will buy from or sell to someone they don’t like (which also means they don’t trust them). Unpack the ego, get rid of excess baggage, use your team, and get the deal done.

“Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose.” Steve Jobs

“You can lead a man to congress, but you can’t make him think.” Milton Berle

Under My Thumb

It’s not only the title of an old Rolling Stones song but the mantra of some business owners. I recently witnessed this twice and the corresponding uplift when a buyer took over each business. Here’s a great story about how the culture can be changed, quickly – the owner of the coffee shop next to a client’s business said he noticed how happier the employees are since the buyer took over. Wow!

This was about the same time another client told me about how the staff had a very unflattering nickname for the previous owner, which was a play on his name. Is it any surprise there are survey results and articles about how about one-third of employees plan to look for a new job?

I recently changed my phrase for what makes a business buyer qualified (besides money). A good business buyer should be able to manage, to some varying degree, people, processes, money, and enthusiasm (the latter recently added). As per the above vignettes, the enthusiasm part just might be the most important.

Business owners, sellers, and buyers should not assume all is well in paradise (the company). It’s a very employee friendly market and jobs are plentiful. It’s true most people don’t like change but when the grass appears greener on the other side of the fence, they’ll be more tempted than ever to make a move, knowing there are a lot of other options. Buyers especially be careful and perform more due diligence than ever.

Bottom line, in today’s world the overbearing owner who treats people like numbers, servants, or a piece of meat is in for a shock. I know that in the above two stories there were key employees on the verge of leaving until the new owner came into play (key employees usually meet the buyer during due diligence and these employees did meet the buyer).

“Total liberty to the wolves is death to the lambs.” (Philosopher) Isaiah Berlin

It’s not only the title of an old Rolling Stones song but the mantra of some business owners. I recently witnessed this twice and the corresponding uplift when a buyer took over each business. Here’s a great story about how the culture can be changed, quickly – the owner of the coffee shop next to a client’s business said he noticed how happier the employees are since the buyer took over. Wow!

This was about the same time another client told me about how the staff had a very unflattering nickname for the previous owner, which was a play on his name. Is it any surprise there are survey results and articles about how about one-third of employees plan to look for a new job?

I recently changed my phrase for what makes a business buyer qualified (besides money). A good business buyer should be able to manage, to some varying degree, people, processes, money, and enthusiasm (the latter recently added). As per the above vignettes, the enthusiasm part just might be the most important.

Business owners, sellers, and buyers should not assume all is well in paradise (the company). It’s a very employee friendly market and jobs are plentiful. It’s true most people don’t like change but when the grass appears greener on the other side of the fence, they’ll be more tempted than ever to make a move, knowing there are a lot of other options. Buyers especially be careful and perform more due diligence than ever.

Bottom line, in today’s world the overbearing owner who treats people like numbers, servants, or a piece of meat is in for a shock. I know that in the above two stories there were key employees on the verge of leaving until the new owner came into play (key employees usually meet the buyer during due diligence and these employees did meet the buyer).

“Total liberty to the wolves is death to the lambs.” (Philosopher) Isaiah Berlin

“To be or not to be. That’s not really a question.” Jean-Luc Godard

“To be or not to be. That’s not really a question.” Jean-Luc Godard

Do the Frogs Really Boil?

There’s an old story, about how if you put a frog in boiling water, it will hop out but if you put it in cool water, slowly raise the temperature it will stay in the water and eventually die. I don’t know if it’s true or not, but I get the concept because when my electric shaver blades get dull, I don’t notice it until they’re really dull. The change from day-to-day, week-to-week is so small it’s not noticeable.

The same thing in business, old practices (habits) are hard to change. Take the company that manually entered about 400 transactions into an online portal for payment. The new owner found a $50 a month software package that did all of them at once, using information already in the system.

Or what about the companies still writing and mailing checks when most vendors make it easy to pay online (and many take credit cards). One client manages credit card payments to get an extra 45 days of working capital, plus the points or cash-back.

It’s why I say new owners of a business are often “A Breath of Fresh Air” and it’s not just culture. They often are more in-tune with technology and employees love it when they have tools to be more productive. Heck, many years ago a client doubled his (newly owned) business in two years and he said the main driver was an online ordering system to book jobs versus phone calls (and phone tag).

A good idea is to look around your business and notice all the things you’re doing the same way you’ve done them “forever.” I’ll bet there are some tools out there to make mundane processes less burdensome. 

“One of the symptoms of an approaching nervous breakdown is the belief that one’s work is terribly important.” (Philosopher) Bertrand Russell

Rotary and Business Buy-Sell – Part One

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. This newsletter will cover seven similarities of projects with business buyers and next month I do the same for business owners/sellers.

Objective – We must articulate, in detail, what our project hopes to accomplish to get a grant approved. In our case, it’s supply technology and train teachers on how to reach their students more effectively with technology (versus using a 3’x5’ rolling blackboard). A business buyer must know what types of businesses they don’t want, what skills they bring to the deal, their capital, and an attitude of being open to business types they’re not familiar with as many deals come in through the “side door.” And most importantly, a good personality to build a relationship with sellers.

Team – Last time we had 14 students (who setup the computer labs and Wi-Fi networks) and 10 adults. We get a lot done. Buyers need to build a team and it should include a transaction attorney, CPA, deal pro (me), banker, and other experts as needed for environmental, HR (a big one and getting bigger), etc.

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 actually get results. We then triple it with a Rotary Foundation grant. Business buyers need to get their capital put together before starting to search. How much capital will come from the buyer’s savings and investments, is the spouse on board with that amount of investment, if investors are needed will they be friends and family or professional investors? Once this is settled it makes sense to talk with bankers.

Timing – We run our project on tight timelines. Grant submission, approval, shipping by a certain date, travel when the students are on break, etc. Buying a business has timing and timelines also. You’d think most things would be concurrent not consecutive but that’s not the case. For example, many buyers won’t fully engage their attorney until they are absolutely positive their loan is approved. Customers and employees can’t be talked to until the agreement is finalized (and often signed in advance). It’s why I tell buyers if they found a business today it will easily take 90-120 days to meet, build a relationship, get information, analyze, work out a deal, financing, legal, etc. All while the seller is running the business.

Implementation – Once our grant is approved we start implementing. Actually, 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. Buyers need to do the same. Often, they don’t. Life gets in the way and a story in Buying A Business That Makes You Rich demonstrates this. Michael would tell me, “I’ll get to it after my next game of golf.” I quickly figured out there is always a next game of golf. We talked, he got it, he moved at lightning speed thereafter.

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. We did have a year where we didn’t do a project because the government was behind on their obligations and from what I hear, one out of 11 is really good in that part of the world. Buyers need agreements also. They’re with the bank, landlord (the landlord waiver is often a challenge and Jessica recently lost a deal because the landlord wouldn’t offer a long enough lease), vendors, employees, customers, and others.  

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. The same with buyers when they get near the end. It’s why I have a form, edited by seven buyers who had recently closed on deals, of all the annoying little things that need to be done before (and just after) closing.

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, only they have more tools to help.

You Have to be Better Than the NY City Election Board

New York City finally announced the results of the Mayoral primary. As per a variety of sources I deduced because of ranked choice voting this election was slower and more troublesome than usual (like announcing results that included over 100,000 ballots used to test the new system).

But let’s not go over their inefficiencies, let’s look at why (as per experts) and how it relates to businesses, especially those wanting to sell (for top dollar). As per the reports, the election board is filled with people who have been there way too long, has (political) cronyism, and nepotism, which makes for a culture none of us would want in our companies. As it relates to small business:

Nepotism – and it’s not always bad to have family members in the business but look at this situation. The owner of a nice, growing, and profitable business has his two sons working for him and they are key employees. He needs the money from the sale to retire but says the sons don’t have enough for a down payment (even with a bank/SBA loan at about 10% from the buyer). A first reaction of any outside buyer is going to be, what are the sons going to do if dad sells to me? It’s solvable (we’re meeting soon to go over options) but it will take more time, effort, and money than if the planning had started three years ago (there’s a story in If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want?) about a couple that planned to transition the business to their son).

Old, long-term employees – an owner states how many of the employees have been there 20-30 years and what I hear is they’ll all be retiring at about the same time. The situation is amplified when there are three or four owners who all want to sell and leave. A good succession plan phases the owners out over time so when it’s time to sell the whole management team doesn’t have to be replaced at the same time. 

Culture – the NY election board (supposedly) has a culture of, “Who cares when the work gets done, I have things to do.” Things like go to the gym, run personal errands, long lunches, etc. In a business, a lifestyle culture is sometimes seen as an opportunity and sometimes as the threat. When an owner told a buyer his sales team and he work just enough to make the income they want, it scared off the buyer. He saw opportunity but it would take effort. He knew (from his meetings) these people weren’t going to change. They’d either keep working with limited results or leave. And having to hire a new team is a sign of disaster.

A lot of what it takes to eliminate the big red flags a buyer sees as lowering value are not hard to fix. They take time and effort. Get an experienced guide, pay attention to the details, and allow enough time to do it right.

“If a politician found he had cannibals among his constituents, he would promise them missionaries for dinner.” H.L. Mencken

“Tradition is the living faith of the dead.” (Historian) Jan Pelikan

Avoiding Taxes Like the Big Guys (and Gals)

The Trump Organization allegedly avoided paying taxes on almost $2 million of compensation to an employee. The allegations and prosecution shouldn’t surprise anybody because:

  • There’s politics involved.
  • There seems to be a family history of this.
  • Most business owners do the same thing but do it to reduce the owner’s taxes not the taxes of an employee.

One of the most irritating aspects of small business buy-sell is when the owner blends their personal and business checkbooks. I’m not talking about a meal or ballgame or round of golf now and then, I’m talking about paying for obvious personal expenses with business funds. One owner (I know his son, who bought out dad’s half of the business) felt the role of the business was to pay for his and all his kids personal bills (insurance, Costco, groceries, etc.). The son doesn’t feel the same way because he plays it straight and gets audited financial statements.

Of course, then the seller will say it’s the job of the buyer (and the bank) to determine what is really a legitimate business expense and what isn’t. In other words, “I’m cheating the IRS, but I won’t cheat you.”

But what if there’s an “Oops” and you must sell? A deal from years ago had an owner who was like the dad mentioned above, and she knew it. When a medical issue arose, she was stuck. She knew the risk and understood the increased price of the business would be more than many years of tax savings. And she’s right! Ignoring the time value of money, it’s 10 years or longer of tax savings to equal the increase price. 

Nobody wants to pay more taxes than they’re obligated to. There’s an inherent desire to get the tax bill as low as possible. But consider the big picture and it’s why I tell owners (and it’s in my book If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want?)) to not play any games for three years (or more) because in the long run you’re way ahead.

The point of this memo is, just because you can do it (and others, including big names also do it) doesn’t mean you should do it.

“We must believe in free will. We have no choice.” Isaac Bashevis Singer

“At 50, everyone has the face he or she deserves.” George Orwell

Are You a Hunter or a Trapper?

Over the weekend our 14-month-old puppy Coco caught another squirrel. Dogs do catch critters but there are some things you should know about Coco. She’s half-lab and half-husky, 85 pounds, not the fastest dog around by far, sort of a klutz, and she’s hilarious when she slinks towards the bird feeders, where the squirrels hang out and get fat. She thinks she’s sneaking up on them.

She makes up for h er lack of speed and grace with smarts. She doesn’t sit and wait for a squirrel (trapping); she moves to corner them (hunting). And she doesn’t bite them or eat them; she plays with them.

I have an old book by Lionel Haines, written well before my time in this business, and one of his best lines, for business buyers, is, 

“You must act like a hunter not a trapper.”

It is important for business buyers, especially individuals and small business owners, to get the word out and see as many opportunities as possible because it’s hard to find a match. The “perfect” type of business for a buyer may be too large or too small, it could have a serious owner dependency, or a customer concentration issue.

It’s also important for:

  • Job seekers – I hear from outplacement clients 70-90% of good jobs are never advertised or listed. You have to get out and find them.
  • Salespeople – Find customers and/or referral sources means not being just an order taker.
  • Business sellers – going after the pool of logical buyers in such a way word doesn’t get out the business is for sale.
  • Business startups – you must always be on the hunt.

My world is buy-sell, so I emphasize this to buyer clients. Know what you want, go after it, keep in touch with brokers, network like crazy, and don’t be afraid to pick up the phone.

“Mother Nature, in her infinite wisdom, has instilled within each of us a powerful biological instinct to reproduce; this is her way of assuring that the human race, come what may, will never have any disposable income.” Dave Barry

Are You a Hunter or a Trapper?Are You a Hunter or a Trapper?Are You a Hunter or a Trapper?“You know you’re getting old when you get that one candle on the cake. It’s like, ‘See if you can blow this out.’”