When Football, Covid, Protocols, and Systems Collide

The NFL is down to the final four teams. On at least one of the games this past weekend the announcers talked about how successful the season has been. They said, and I paraphrase, back in July when training camps started nobody knew if they’d get the season in, but they did, with no cancelled games and only a few rescheduled games. They did much better than college football, which was a mess.

This newsletter is not about Covid, but it’s Covid that sets the tone for the business message below. The NFL did it by implementing some protocols we all can follow. They state high-risk close contact as:

  • Less than six feet of proximity.
  • For five minutes or longer in duration.
  • Indoors.
  • Unmasked.

Things we all can’t do are:

  • Daily testing.
  • Having players wear trackers and then investigating any potential close contacts.
  • Using surveillance video.

What it shows to me is diligence can suppress Covid. And before you think I’m in agreement with the Governor of Washington (New York, California, and others) on all the shutdowns, I’m not. My friend Pete McDowell sent me a University of Oregon study saying people don’t catch Covid in (reduced capacity) gyms (I agree based on my going to the gym last fall). I’ve followed contact tracing results a bit and there’s no way people get the virus in (reduced capacity) restaurants.

It makes me think that following the right protocols and having proper systems works, with Covid and other areas in our lives, including:

  • Business buyers who have a plan, set up systems, and follow their protocols will do better at locating, analyzing, and closing a deal on the right business at the right price.
  • Business sellers who take the time to think about what they’ll do if they sell and also get professional input on if the net price of the business is enough for their next great adventure in life will have less seller remorse.
  • Employees who follow the proven plan will advance quicker and be more productive. And if they show how to add value to the current plan all the better (instead of thinking they know more than anybody else and get disengaged).
  • Owners who are willing to listen, act, and delegate have better businesses with more value. It’s not how important the owner is to the day-to-day, it’s how little are they needed in the day-to-day.

It really is pretty simple. If you have a plan that works, and you follow the plan, you’ll be successful. In business, health, and life.

“We are pathetically eager to believe that, if human affairs are managed right, nothing unpleasant need befall anyone.” (Journalist) Max Hastings

Is Your Business Ready to be Sold?

The first and most common set of questions having to do with the owner’s readiness to sell his or her business tend to be about the owner. And, they’re a lot easier to answer than questions about the business’s readiness. For reference, my first three questions to owners are:

Have you worked with a financial advisor to see how much money you need from the sale to support your next great adventure in life (and do you know what your business is worth – not just what you want for it)?

What will you be doing after the sale?

If this means retirement does your spouse want you around 24/7?

Pretty straightforward, right? But what about the business, not the owner? Keep in mind, every owner thinks their business is so very special, especially when compared to all the other companies out there. But what really needs to be asked and done? Let’s start with a recent Seattle Executives meeting where five members talked about multi-generation businesses, succession, transition, and selling. The most powerful message came from Brian Quint with Aqua Quip, who sold to Leslie’s Pools a couple years ago (hear more from Brian on his podcast interview with me). I sent him an email during his talk saying he must be reading from my book, If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want?). Here are the intermixed highlights from Brian and the book, with Brian’s direct comments in quotation marks.

  • “Start thinking about selling, think creatively, and do so well before its time.” This fits with my saying, “Most owners don’t get up and drag down the business’ proverbial dimmer switch to prepare over a few years before selling, they flip the switch and say, ‘Sell now’.”
  • “Know the realistic value of the company sooner versus later” (Brian emphasized the word realistic). It’s not based on your best year or wishful thinking; it’s usually based on the last three years of financial performance plus an analysis of the non-financial factors.
  • “Understand what drives the business and its value. Is it expertise, the products, services, process, or IP? Know these things. Drill down on them with an advisor.” I say you need to exploit your value drivers as they’re your competitive advantage, which you leverage to grow.
  • “Know the best buyer for your business.” In my book I cover seven types: individuals (or partners), search funders, family or management team, other small business owners, larger (strategic), companies, private equity, and family offices.
  • “Know the number at which you’re willing to walk away (from the business). This takes some soul searching as it’s a huge decision. If your business isn’t worth what it needs to be now you’ve got some work to do.”
  • Understand it’s not what you get but what you keep. Look at the deal costs and taxes. If your deal is large enough, consult with a tax attorney sooner rather than later.
  • “Understand the risks of selling.” Is there a note? Is there an earnout? Are you expected to, and do you want to, work for the buyer?
  • Brian recommended getting your advisors involved before you sign an NDA. Definitely get them together before you discuss an offer, i.e. Letter of Intent.
  • “Have accurate and timely financial information that accurately reflects your expenses. Minimize your personal expenses run through the business.” Things like car, travel, non-market rent, etc. Also, “Minimize your recast expenses because buyers don’t want to see a lot of them.” If there are too many of these add-backs (to profit) the buyer and banks will discount some of them. And make them realistic. The buyer will have a salary, medical benefits, pension contributions, a mobile phone, etc. 
  • He followed up by saying you should, “Expect a financial colonoscopy as the buyer will want to trace every dollar through the company.” I say expect a business colonoscopy as the buyer will do a detailed scope of the non-financial factors (customers, employees, suppliers, etc.) as well. Expect the buyer to (blindly) talk to customers, meet key employees, and they’ll have to talk to suppliers to get credit terms solidified. And don’t forget the landlord and the buyer’s lease, which needs to be at least as long as any note (bank or your financing) as nobody wants the buyer forced out while owing money.
  • “Do you have a team in place?” The larger the deal, the more the buyer will want a team. Will the team stay, will there be retention agreements, will they be asked to sign a non-compete agreement? A good team will be able to run the business if you’re not there (maybe not grow it like you can but keep it running).
  • Brian had a three-year strategic plan, which buyers like. This shows a sustainable business model.
  • “Realize even with an advisory team you, the seller, will be infinitely involved with driving the deal and driving business growth during due diligence. If the business suffers or stutters the price will go down.”
  • “Once the Letter of Intent is signed the real work begins.” Very true and most sellers don’t understand the amount of information a seller must provide the buyer, the bank, and written proof of everything for the purchase and sale agreement. A client recently told me, “We really aren’t prepared for providing all the information required for a deal.”


Selling a business is like selling a house in some ways. In both cases the more prep time you put in the better the results. Homeowners clean, paint, fix things, and give it “curb appeal.” Business owners need to do the same. It takes longer, a lot of the work has to be done or directly supervised by you, the seller. It’s not like hiring a landscaper, painter, or cleaning service. It requires having the right processes, metrics, documentation, and culture.

Where they differ is home sellers put a sign out front, open the doors, and welcome people in. Business sellers’ shudder at the thought of customers, competitors, employees, and even suppliers finding out they’re (even thinking of) selling. Advice on this – when you get close to the time let people know. Believe me, if you’re 73 years old and taking a dozen weeks of vacation a year, they’ll figure something is up.

Business Buy-Sell and 2021

It’s 2021 and I sense a lot of optimism, or at least hoped-for optimism. Of course the vaccines are a huge factor in this and there’s good and bad news on this subject.

Good news: Reports are while two doses give 95% protection one dose gives protection in the 80-85% range (and arguing about it among experts takes off), meaning the same amount of vaccine can treat a lot more people. And the hospitalization rate of those vaccinated is near zero and the AstraZeneca product was at zero for the first 30,000 recipients.

Bad news: The government is in charge of the distribution and it’s another case of the left hand not knowing what the right hand is doing. Bottom line, both Democrats and Republicans are really good at self-promotion and really ineffective at getting anything done.

So what do I see in the buy-sell world? Here are three thoughts:

I expect it to be busy at all levels. From micro-businesses like deli’s, dry cleaners, and other small retail to businesses where the owner can actually work “on” the business versus “in” the business to middle market firms.  

Why? It’s still a demographic thing. There’s still a disproportionate share of (non-tech) companies owned by people 55-75 (as regular readers know, I believe most owners still working at 80 or close to it want to die at their desk). Things happen as we get older, health issues, burnout, death, etc.

I’m interested in seeing the deal stats for 2020 from bizbuysell.com, Pitchbook, and others. I don’t know what to expect but guess the numbers will be a bit lower than in 2019. That’s one reason I think 2021 will be busy. And that leads me to two sub-points. 

First, buyers are going to be fussy (fussier than before) and really digging deep (or at least should be). Banks will be more inquisitive than ever, and both should be concerned with the Covid non-financial factors as much as the standard non-financial factors.

To put up with the increased scrutiny sellers really need to be prepared. I wrote recently about one client who said he realized his firm was not ready for the diligence requirements demanded by the buyer. It starts with the financial systems and statements (get an outsourced CFO if you need to up your game in this area) and move on to all aspects of the business, especially the people.

Bottom line, while it will overall be busy it will be busier for those who are pro-active.

“I feel that it is healthier to look out at the world through a window than through a mirror. Otherwise, all you see is yourself and whatever is behind you.” Bill Withers

The Advantages of Two Broker Negotiations

By Gregory Kovsky with IBA

My firm, IBA, has a long history of welcoming “buy side” business brokers into the transactions we facilitate as a “sell side” business brokerage firm serving Washington, Oregon, & Alaska.  The guiding philosophical principle at IBA is the “Golden Rule” of do unto others as you would want them to do unto you.  Applying this principle to our clients, our mission statement goals for each of our engagements is to facilitate a “win-win” transaction in a timely manner while maintaining an environment of confidentiality where a communication atmosphere of full disclosure and the utilization of “best practices” exist between the parties. 

One fairly common business brokerage practice at peer firms that has always seemed counterproductive and not in a “sell side” client’s best interest is discouragement of the participation of a “buy side” broker in the transaction.  The reason for an anti-collaboration attitude is frequently financial, as “buy side” brokers commonly request the ability to share commission, as is common in real estate, something that is financially detrimental to a listing broker.  This position makes sense from the listing broker’s position, if they can potentially sell the business at the same price to another buyer, but is the position in the “best interest” of the seller and the mergers & acquisitions industry.  The position at IBA is “NO”.  The reason for the negative response is multifold.  First, at a superficial level a business broker should be ambivalent to who the buyer is and whether they are represented.  Their goal should be to deliver the best buyer in terms of price, terms, and ability to their client.  Personal self interest should not be a component to the decision process.  

Self-serving financial motivation aside the following are the five primary reasons why it is beneficial to have business brokers on both sides of the table.

  1.  Knowledge – Plain & simply many buyers, “Don’t Know What They Don’t Know”.  There is no substitute for relevant, specific knowledge at an appropriate place and time. A common place where buyer’s brokers add value from a knowledge perspective involves knowing what questions to ask and documentation to review when assessing a company for acquisition.
  2. Experience – Knowledge is beneficial if you have time to comprehend and apply it.  However, in a dynamic marketplace where buyers are competing for a specific company, the ability to make decisions in a timely manner through application of negotiating strategies can be the difference between obtaining a mutually executed letter of intent and being the buyer who needs to find another company to acquire. Experience is the key to being able to act with confidence in a timely manner.
  3. Ability – The end goal or a middle ground compromise can be self-evident in negotiations, however the ability to get there can be problematic, if the pathway in terms of communication and persuasion are not able to be navigated.  There is a reason that significant training is provided to military pilots before they are asked to land on an aircraft carrier or fly a combat mission. The skill they possess is significantly greater than that of a private pilot flying fixed landing gear small planes. Skill takes time and repetition to develop to excellence.  Mergers & Acquisitions intermediaries are the fighter pilots of business negotiations.  It is not recommended to enter a dogfight with a party of greater acumen in the sky or a negotiation without equal skill on both sides.
  4. Resources – The purchase and sale of a privately held company is a team process.  Both sides commonly will have attorneys, accountants, and other professional advisors.  Assembling a team of knowledgeable, experienced, highly skilled transaction team members can be the difference between completing an acquisition or not.  A business broker can be a great source for names of “deal making” professionals to interview as potential support professionals.  Another important member of the “buy side” team is commonly a SBA or commercial banker.  An experienced, knowledgeable business broker can be a great source for banking community referrals, as they will have current knowledge of present credit approval underwriting standards and the appetite for loans at specific banks in the community.
  5. Communication – Anyone who has studied negotiations knows that often the greatest achievements are made through secondary parties or back channel communication.  In a business purchase and sale negotiation, it is common for parties to mentally & emotionally to dig into positions.  Losing face can become an issue that prevents agreement.  I have witnessed many times where intermediaries and/or attorneys get a transaction “out of the mud” and moving forward by continuing communication and based on familiarity for parties that had “stomped off” thinking the deal was lost.  

In my twenty-eight years as a mergers & acquisitions intermediary, I can recall numerous successful transactions where business brokers on both sides of the table played critical roles in getting the deal done.  One of the best “buy side” brokers in the Puget Sound area is John Martinka.  Mr. Martinka has successfully completed deals with IBA representing buyers since the 1990’s.   Our team often recommends him to buyers desiring professional representation and view his participation as a value adding benefit to the deal. Few possess his knowledge, experience, skill, resources, and communication ability.  I look forward to the next time I walk into a conference room and see John sitting on the other side of the table with a buyer who is prepared and ready to purchase a company.    

Gregory Kovsky, the President & CEO of IBA, is available as an information resource to the media, business brokerage, mergers & acquisitions, real estate, and estate planning communities on subjects relevant to the purchase & sale of privately held companies and family-owned businesses.  Professionally, as an intermediary, Mr. Kovsky specializes in the sale of manufacturing, distribution, technology, industrial, marine, and horticulture businesses. Mr. Kovsky can be reached directly at (425) 454-3052 or .  Additional information on IBA, the Pacific Northwest’s oldest business brokerage firm, can be found at www.ibainc.com.  

Dependents Save on Taxes; Dependencies Reduce Value

Here’s an exchange I recently had with a supposedly seasoned businessperson, growth consultant, and business broker:

Me: “There are a couple issues with this business, one in particular seems serious.”

Him: “Oh, what are they?”

Me: “The main issue is the top two customers are 60% of sales.”

Him: “I don’t see why that’s an issue.”

Really? He doesn’t see it’s an issue? Two customers dominating, the top one at 37%. And this in an industry with larger players, low barriers to entry, and the number two customer moved over from a competitor three years prior (and probably would move again to save a few bucks).

It reminds me of a story in my books about a call from a desperate owner who wanted a buyer for his business. He had helped his 80% (of sales) customer get started (as a contract manufacturer), the customer’s owner brought in a new management team, the new CEO had a friend whose company made the same products, and the rug was pulled out with no notice. Bye-bye big customer, bye-bye business.

Ours advice to one and all (especially owners planning to exit at any time):

Get rid of your dependencies.

  • No dominant customers.
  • No key employees (who would be hard to replace).
  • No major supplier (with limited options other than this supplier).
  • No owner dependency. The less the owner does day-to-day the better. It might be tough on the ego but it sure builds value. Strategy, vision, and growth (including by acquisition) should fill the owner’s calendar.

“I guess a man is the only kind of varmint who sets his own trap, baits it, and then steps in it.” John Steinbeck

Hangout with Smart People

I was watching some football over the weekend and some post-game interviews. One question to a quarterback was about why a certain player has made such a big jump this year. The answer, “His intelligence.”

One of my friends and client is Fred Barkman, owner of Spectra Labs. If I’ve heard Fred say it once I’ve heard him say it a dozen times (the old standard), “A people hire A people, B people hire C people.” It’s the same as a boss saying they want to hire people smarter than they are. Or a sales manager stating they want all their salespeople making more than they do.

I’ve been on numerous boards, both for for-profit and nonprofit organizations. There are always a lot of smart people, which is needed because none of us have all the answers (and it’s tough getting through to people who think they have all the answers). I know firsthand as my dad figured there were two ways to do just about anything, the wrong way and his way.

Most importantly, it’s utilizing the smart people you know. For example:

  • In a recent online presentation, a person who recently sold his business advised the audience to use their advisors to help drive the deal.
  • Your team. They often have the answers and need to be encouraged to contribute.
  • Friends and family can add value, as long as you give parameters versus getting unsolicited input on any and every subject.

Bottom line, there’s a reason collaboration works. It turns 2+2=4 to 2+2=22 (or more).

“I love playing with smart players.” Aaron Rodgers

“Intelligence is quickly seeing things as they are.” George Santayana

Lingering On

I’m writing this on November 16. The headlines and stories over the last two days are filled with President Trump tweeting, “I concede NOTHING,” how his administration is not cooperating with the Biden administration on a transition, and his people are saying they expect to be in their same jobs after January 20. Not the graceful transition from one party to the other we’ve had every other time  this has happened, is it?

What does this have to do with small business and business in general? When “uninvited guests” overstay their welcome it leads to stress, a deteriorating culture, and less productivity.

Every, and I mean every, time a business owner brings up the subject of a problem employee and wonders what to do the answer from those who have “been there; done that” is, get rid of them ASAP and you won’t regret it. I have one client who sat on it for five months. Not too bad compared to another who took four to five years. The result is usually a breath of fresh air.

There’s some logic to the SBA rule requiring business sellers to not (officially) be part of the business (as an employee or consultant) for more than one year. I’ve seen instances where the seller staying on worked great, because the seller loved the job and/or the project but hated running the business. I’ve also seen instances where the seller said they wanted to stay and do sales or design products and absolutely couldn’t stand working for someone else. A couple times the seller sabotaged the business by creating conflict within the employee ranks. In one case it was constantly making snide comments about how he (the seller) wouldn’t do things the way the buyer was doing them (implying the buyer didn’t know what he was doing).

A change of ownership requires cooperation. Bringing in a new employee, especially replacing the bad apple, means teamwork. My advice is to have a plan, make the decision, and take action. Don’t stew over it, do it.

“Television is an invention that permits you to be entertained in your living room by people you wouldn’t have in your home.” David Frost

When is a Business Prepared for Sale?

“I guess we’re really not ready to sell” was said to me by a client recently. Here’s the backstory. 

I got a call from a past client, with whom we worked together on four prior projects, telling me two companies in his industry, including his top competitor, were interested in acquiring his firm. He asked if I would help him structure a deal. Of course, I said and please send me what you have so far. FYI, this business is in a slow-growth industry, offers very specialized services, and growth comes mainly from acquisitions, which is how my client grew his business. And the business (industry) has suffered a decline due to Covid.

He sent over an offer from one of the firms, I asked if he was happy with the offer, he said, “No, but I’ll sign it and then we’ll negotiate” (I can “see” all the lawyers cringing as they read this). I advised him not to sign it, but he did anyway. Then he retained my services, which started with my telling the buyer my client was confused on the process, and we needed to work out a different deal.

Over the first few weeks many of our conversations dealt with getting some emotional clarity about what he really wants. He bounced from, “I’m happy to leave” to “I want to phase out over three years.” He’s said he’s prepared to take an offer and close the deal but also realizes both could say no. At one point his spouse thanked me for being there, especially regarding the emotional issues.

We’ve got two buyers, two offers, one more overall money, and the other with more guaranteed money early. One buyer is a fast-moving middle market company driven by information, metrics, KPI’s, etc. The other is smaller, slower paced, and more relationship driven. Both offers have an earnout component so one topic I’ve brought up repeatedly is about how his staff will relate to each buyer because my client’s company does not run at super speed. If the management team, or part of it, leave and sales go down so does his ultimate payout.

Due diligence is overwhelming my client and his staff. I suspect one member of the management team is purposely moving slow because he made it known he doesn’t want it sold to a middle-market firm. This person still has dreams of the management team buying the business even though they are short on capital and have never run a business, just divisions of it.

Back to the opening line, about the same he told me he realized they weren’t prepared to sell I was talking to some estate planning attorneys and we agreed with what the Wall Street Journal wrote years ago, that only about 10% or so of business are ready to sell for maximum value and with a smooth transaction.

Given the above, I feel it’s good to revisit my ACTION™ to sell a business in order to maximize price and streamline the selling process a business seller should follow my ACTION plan. Follow this plan and you will set yourself apart from other sellers. ACTION stands for:

Arrange all the affairs of the company 

Coach and counsel the company. Its people, process and systems

Transmit and teach all the good “things” about your firm

 (and those “things” are)

Intricacies that make your company special, i.e. the non-financial factors

Operations and management systems in place that will make a transition smooth 

Numbers, all the financials in understandable form, straightforward with no “tricks” 

Every deal is based not only on numbers and also on the non-financial factors including customers, employees, lease, suppliers, technology, the market, competition and others. In 2020-21 we also have Covid related non-financial factors, some of which include:

  • Government intervention, for example, are you an essential or non-essential business, can your capacity be capped, hours restricted, etc.
  • The safety of your employees, the cost, and the potential liability.
  • The Covid affect – short, medium, and long term.
  • Increased costs for medical insurance, unemployment insurance, employee turnover, and more.


It’s easy for business sellers to get overwhelmed. The requests for information can be staggering, especially if the owner doesn’t want to bring key people into the loop. This is why planning makes the process smoother and buyers more willing to pay at the high end of the fair price range.

Make it Complicated or Keep it Simple?

Apple and Microsoft are trillion-dollar companies, very successful, have lots of smart people so why can’t either of them figure out how to have an email program without glitches? Email has been around for a few decades, so you’d think they’d have figured it out. 

Apple mail stalls on my laptop when getting new messages. Sometimes to the point of having to close and reopen the program. It slows down my desktop to the point I don’t use it anymore.

Therefore, I use Outlook on my desktop (and Jessica uses it for business email). We agree, it has a horrible search function, you can’t drag emails from one folder to another, and it keeps refreshing itself. Most annoying is when all of the emails in the Inbox disappear and you get a cheerful message about how nice it is to have an empty inbox. Then they reappear, sometimes with new date and time stamps. Sometimes with duplicate copies. Friends have shared they have issues also, some the same, some different. 

Outlook is over 30 times as big as Apple Mail, Contacts, and Calendar combined. And when things get that big, they’re like how battleships can’t maneuver fast, like an attack boat. Are both companies filled with people trying to make things perfect?

Just like in business. Small businesses should be able to move faster and have more flexibility than large ones (Amazon maybe being an exception). It’s one reason why people want to own a business; so they can make decisions and see the result of their actions.

And now is a good time to buy a business, or buy another one. Any time there’s a catastrophic event, like Covid or the recession (or both), it pushes owners thinking of exiting over the tipping point. To take control and benefit themselves from their hard and smart work.

“A marriage is always made up of two people who are prepared to swear that only the other one snores.” (Author) Terry Pratchett 

When You’re Sunk You’re Sunk

Forbes.com reported bankrupt Chucky Cheese is spending $2.3 million dollars to destroy 7 billion prize tickets, which would fill 65 cargo-shipping containers. Why? Because it’s about 25% of the $9 million cost if they were redeemed for prizes. 

We all deal with sunk costs. Buy a new car, decide you don’t like it, you’re out the 20% they say is the immediate market discount. Invest in a new machine, it’s not what you really need, you’re out.

Things like above always remind me of a past client who bought a (what turned out to be) great business for next to nothing (and this is not a pitch like the books and courses on how to buy a good business with little to no money – which doesn’t happen). 

How did this happen? The company expanded from Seattle into Portland, it wasn’t going well, and they got stubborn, as in, “We’ll sell our way out of this.” They didn’t. And, at a peak of the real estate market they bought a building. The buyer got the Seattle operation by paying off the State Department of Revenue, the phone company, and the top supplier. He later told me, “I knew it was a good business, I just didn’t know it would be this lucrative.”

About 8-10 years ago I came up with what I thought was a compelling idea for a line of service to potential clients. It wasn’t as compelling to them as it was to me, so I dropped it. The costs (mostly time and energy) were sunk, gone, and that was okay. I learned a lesson, picked up one client (five projects, none for this idea), a few good marketing tactics.

I mention these things because in the buy-sell world I see all the time owners (and their intermediaries) trying to convince buyers the failed advertising campaign is really profit because it didn’t work. Or, the ops manager who wasn’t as good as he or she claimed is really profit because it was a bad hire.

No. That’s business. That’s life. If you don’t try things you won’t learn what doesn’t work. Not every decision is a good decision (meaning didn’t live up to its potential). The good businesses often just have made more good decisions than not-so-good ones.

“It is inhumane, in my opinion, to force people who have a genuine medical need for coffee to wait in line behind people who apparently view it as some kind of recreational activity.” Dave Barry