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

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

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

Businesspeople Aren’t Like Politicians; Thank Goodness

You only have to read the headlines to realize there’s very little political collaboration these days. And that’s within the two parties as well as between them. The ends of the spectrums are the noisiest and yet all surveys say most people aren’t radical left or radical right.

Could you see if our businesses were like that? We wouldn’t be in business. The buy-sell industry is very collaborative. Business buyers and sellers must get along and collaborate, as must their attorneys, CPAs, and intermediaries. Most do a pretty good job of it. But what about within a business?

Employees rule! There’s a war on talent these days. Employees have more choices and as per the June 14 Wall Street Journal (and other publications) workers are quitting their jobs at a higher rate than any time since the year 2000 and April 2021 saw a record number of people quit, almost 4 million. 

Attracting and, especially, retaining good people is more important than ever. Covid still scares some of them, younger workers in particular. Many of those used to working from home like it, for at least a couple days a week. Employers have to be flexible or their employees will go somewhere else.

It reminds me of the dot com boom when fired employees went out and played until they had 30 days of severance pay left and then went and found a new job with better pay and better benefits. When speaking at outplacement agencies it was tough to get the agency’s clients to pay attention to entrepreneurship because jobs were so plentiful.

For business buyers the seller’s employee age range, the availability of good workers, and the flexibility they can offer people should be on the top of the due diligence list. And if business owners/sellers think it’s not their issue they’ll be in for a surprise.

“Experience is not what happens to a man, it is what a man does with what happens to him.” Aldous Huxley

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Buying a Business; Operating a Business; Selling a Business Employees are More Important than Ever

The US is opening. The EU is opening. And the owner of a painting company told me he could do twice as much work if he had more (good) employees. Owners of electrical contracting businesses, hospitality, manufacturing, and other owners have said the same thing. No matter how open the governments make it there still must be willing and capable people to work.

Publications from the Puget Sound Business Journal, to the New York Times, to the Wall Street Journal and everyone in-between regularly have articles on the job market. Bottom line, it’s an employee friendly market. Some of the facts:

  • Four million people quit their job in April, an all-time high (NYT, June 19).
  • Retirements escalated during covid and those people are not un-retiring (WSJ, June 17).
  • Up to one-third of tech workers plan to do a job search this year. (WSJ, June 19).
  • People saved money over the last year and some feel they have a cushion to get the job they want versus taking what they had (NYT, June 19).
  • It’s an incredibly tight job market (WSJ, June 21).
  • Being able to work remotely at least some of the time will influence employees staying or leaving (PSBJ, June 16).

One of my top four things an owner should do to increase value is, “Show you can attract and retain good people.” The above statistics says this is more important than ever. Heck, in some places fast-food restaurants are offering incentives just to be interviewed. 

Yes, I know some of the not-returning people have underlying conditions and some are getting as much or more money being unemployed, but what I’m seeing a lot of is a mismatch between skills and openings. 

A client company is treading carefully on returning to the office, office protocols, taking PTO, being vaccinated, and all other aspects of work given there’s a lot of burnout. Many people worked harder than ever when working from home, didn’t see much of others, and didn’t travel. They now want to catch up and if their current employer won’t give them the freedoms they want they know another company will.

The above are facts and the question is, what do all these facts mean to small business owners and buy-sell deals?

  • Anybody with office employees (not in the field like tradespeople, delivery people etc.) should do all they can to make sure their people have some life balance. It’s tough to find good people and now is not the time to be shorthanded because there’s a lot of business to be had. An example of taking care of people is our recent mega-heat wave in the Puget Sound area. I know of businesses that closed to protect their employees, monitored the effect of heat on people, and changed hours to let them off before the hottest part of the day.
  • For owners planning a transition my advice is to pay attention to what’s in the paragraph just below the above bullet points. Attracting and retaining good people is always an issue, always. On a buy-in deal I’m working on the owner/seller keeps saying, about employees who bid work, “any monkey can do this job.” Funny how he’s had to go through a lot of “monkeys” before finding some people who can correctly bid and get good jobs.
  • For business buyers, if employees and the management team weren’t on the top of diligence topics they better be now. Many employees fear change, not realizing the buyer wants them more than anything as what they’re buying is really the people. Buyers should be concerned about the pay scale (is it fair or under market), benefits, which must be competitive, work-life balance (I’ve had three clients in the last year tell me about people who left for lower paying government jobs because of a predictable and consistent work schedule. 

Successfully operating a business is not easy, which is why there are ample rewards when done right. And buyers want those successful businesses, which leads to another reward for the owner/seller.

I was on a conference call with a client whose business was hit by a triple whammy; Covid and two things that must remain confidential and which could have been avoided. We’re talking with the owners of a company in his industry that is the ONLY logical buyer for his firm. At one point my client says, “Life is not very enjoyable right now.”

This happens way too often. Owners get trapped into working “in” the business and don’t see the big picture, they pinch pennies and it costs them dollars, or they don’t have doublechecks on important elements of the business (all three in this case).There’s no easy fix, it takes effort, and often an outside pair of eyes and ears to see through the fog (of day-to-day operations). For more on this see my book If They Can Sell Pet Rocks Why Can’t You Sell Your Business (For What You Want?)

Decisively Solving Problems (Without Overreach)

“I hate lawyers” was how a client answered the phone. No hello, hi John, or similar. Just, “I hate lawyers.” And obviously not referring to any of my good lawyer friends (the lawyers he referenced are in the Midwest).

So what brought this on? The lawyers were overstepping their boundaries. Wordsmithing little things back and forth, trying to make it their deal by changing deal terms, and painting a “doom and gloom” picture for every little issue. It got to the point the client would write things like, I know what you’re going to say [kill the deal was a common reply from the attorney] but I’ve researched it and understand the risk.

It brings up the question, what are you doing for your client or customer? Simply, all of us, whether it’s advice, a service, or a product are solving a problem. If we can’t solve the problem, it’s not the right situation (and a fast no is almost as important as a yes-we-can).

We do this by asking questions and know we’re on the right track when we hear responses like:

  • That’s a good question.
  • I never thought of that.
  • Interesting.

And the best response being, “You ask great questions that get me thinking.”

A product solves the problem or it doesn’t. Advisory work is different, you give advice, tell your client what to do, and hope they’ll do it. A coaching client told me she would ask the client which of two strategies they liked best and my response was she’s getting paid to give guidance not simply point out options. Tell the client what’s the best option and why.

Despite the opening to this memo, I really like the attorneys I know, refer to, and work with. Someone at some time has said the same thing about accountants, consultants, coaches, salespeople, engineers, doctors, and just about any other profession. Ask questions, listen, and give good advice.

“A day can really slip by when you’re deliberately avoiding what you’re supposed to do.” (Cartoonist Bill Watterson)

The Benefit of (Good) Benefits

According to a Gallup study, one in every six workers stay in a job they’re unhappy with because of the benefits and the lower the income the more tied to the job people are. Benefits are a huge part of our lives.

Medical and dental insurance is essential and there are (at least) two aspects I don’t like about how it’s provided. I don’t feel it should be tied to employment and I don’t want the government taking it over. However, about three-fourths of people surveyed feel the government should “play a bigger role” in helping contain costs and reducing the financial burden of health care.

Some might say it’s good news people are tied to their job. Others would see it as reducing career advancement, reducing productivity because there are unhappy employees, and/or not letting a company hire better people (through normal attrition).

In the buying and selling of businesses benefits always come up in the discussion. Smart buyers want a company that takes care of their people. Contrast that feeling with this vignette based on what one owner told me a year or so ago:

He bragged about how little he paid people and how he didn’t (have to) provide benefits. Then he shared he was constantly hiring because of employee turnover. And, he had a serious issue with absenteeism, which was affecting his productivity and margins.

There’s no easy answer here but to get on the right track, small-business owners should do their best to provide what it takes to keep people happy, productive, and growing in their careers. It’s a lot less expensive than the cost of replacing people and having them not show up for work.