If you’re hoping to sell your business, we have some bad news: According to Steve Forbes, 8 out of 10 businesses will never sell. In this episode of The Agent of Wealth Podcast, host Marc Bautis is joined by Michelle Seiler Tucker, an expert in the business of selling businesses. Seiler Tucker is a business broker with over 20 years of experience and over a thousand businesses bought and sold. She is also a two-time #1 best-selling author, speaker, TV and radio host, and the co-author of the book Exit Rich: The 6 P Method to Sell Your Business For Huge Profit. Tune into to learn how you can fix and grow your business for a better outcome when selling.
In this episode, you will learn:
- The best time to sell a business.
- The five types of business buyers.
- The importance of a business valuation.
- How your industry plays a role in selling your business.
- How to find buyers for your business.
- And more!
This is the first installment of a two-part series for business owners. Listen to the second part, “How a Business Owner Can Calculate Their Freedom Point” with John Warrillow.
Disclosure: The transcript below has been lightly edited for clarity and content. It is not a direct transcription of the full conversation, which can be listened to above.
Welcome back to the Agent of Wealth Podcast. This is your host, Marc Bautis. On today’s show I brought on a special guest, Michelle Seiler Tucker, the founder and CEO of Seiler Tucker Incorporated. Michelle has sold over 500 businesses to date and currently owns and operates several successful businesses of her own. She holds the following professional designations and certifications: the Merger & Acquisition Mastery Intermediary and Certified Senior Business Analyst. She’s also a best-selling author and a panelist for Mergers & Acquisitions Source. Michelle, welcome to the show.
Thank you for having me, Marc. It’s a pleasure to be with you.
And, I think you have your own podcast as well. Is that correct?
I do. It’s called Exit Rich.
So I’m hosting a three-part series for business owners. The focus is on how they can increase their business value and prepare for an exit. So many business owners don’t know how to tap into the value of their business, so I’m really excited to talk to you about this.
I know, from being a financial advisor and working with business owners, that a lot of people are great at running their business, but they don’t know what exactly to do with the entity, in terms of financial planning. Some include the business in their retirement plan, while others don’t. And those who don’t might be sitting on a multi-million dollar business. What’s the first step someone takes to really figure out what their business is worth? Then, how do they put a plan together to exit the business?
Surprising Statistics About Selling A Business
First and foremost, I think it’s important to know the statistics. Steve Forbes says 80% of businesses will never sell, meaning eight out of 10 businesses on the market will not sell.
Those are pretty strong statistics. If you’re trying to sell your business, you do not want to end up in the 80%.
The number one reason why businesses don’t sell is because business owners never think about their exit. Usually, they start thinking about selling after a catastrophic event has occurred — internal or external. An internal event could be health issues, disputes with partners, a divorce or death. An external event is something like the COVID-19 pandemic or a recession.
The worst time to sell your business is when you’re going through a catastrophe. Because the business is doing badly, it’s turning downward, you will never be able to maximize the value. The best time to sell your business is when it’s doing well.
The GPS Exit Model
I work with my clients to help them plan what I call the “GPS Exit Model.” Marc, when you want to drive somewhere, what do you do? You pull out your phone, you go to Google Maps and you plug in the…
The address of where I’m going.
The address, a destination. What happens if you don’t plug anything in?
I won’t make it there.
Exactly. The same thing will happen with your business. If owners do not plug in their desired destination, they will never know their end game. And, if they don’t know their desired sales price, they’ve got no target to hit — risking exiting poor. I tell my clients what Stephen Covey says: “Start with the end in mind.”
“Business owners don’t plan to fail, they fail to plan.”Michelle Seiler Tucker
The first step of the GPS Exit Model is to pick a desired sale price. You might hit it, you might not. But, you can always adjust yourself along the way.
The second step is determining your starting location. What is your current business evaluation?
Most business owners have never had their business evaluated, as they don’t think about getting an evaluation until they want to sell their business. Usually, when this happens, they’re shocked that their company’s worth is a lot less than expected.
You really need to get your business evaluated on an annual basis, just like you go for an annual physical checkup and take your car for an annual tune-up. Not getting a yearly business valuation is financial suicide, because there’s events that increase valuation and events that decrease valuation.
The next thing that the model needs is the desired timeframe, whether it’s two years or 10.
Then the next step is determining who your buyers are going to be. Notice I say buyers — plural — not buyer — singular. I have potential clients call me all the time and say, “Michelle, I need you to represent me with this one buyer.” And I reply, “No, I’m not going to do that.” The reason being that one buyer is going to fall apart in due diligence, and we won’t have any backup buyers.
When I’m working with clients, when they’re under an LOI (letter of intent), I always take backup offers because I know that deals can fall apart. You also can’t maximize value by creating a bidding war if you only have one buyer. The goal should be to create competition.
The 5 Types of Business Buyers
There’s five types of buyers, and you need to know all five.
1. First-Time Buyers
First-time buyers make up 90% of business purchases. They buy small businesses like coffee shops, restaurants and cleaners.
2. Turnaround Specialists
Turnaround specialists buy distressed assets. They don’t buy $20 million companies.
3. Private Equity Groups (PEGs)
PEGs buy two ways: Based on platforms and ad-ons.
Let’s say a PEG wants to get into food manufacturing, and they have never been in that industry before. When buying platforms, they won’t even look at your company unless the business has at least $3 million in earnings before interest taxes, depreciation, amateurization (EBITA).
An example of an add-on is let’s say a seasoning company or something within that food manufacturing space. PEGs will buy it and consider it for less than a million dollars in EBITA.
4. Strategics and Competitors
Strategics and competitors typically pay the most for your business because they’re buying synergies that can catapult their current business to the next level. They’re taking advantage of economies of scale, which decreases overhead. Plus, they’re looking at the infrastructure to see what they can cut, which increases EBITDA.
The last type of buyer is the serial entrepreneurs, sophisticated buyers and industry agnostics. They chase cashflow.
Is there any reason to target one buyer versus another?
I tend to target PEGs, strategics and sophisticates. A lot of sophisticates have a cap. They might not go over $3 or $4 million in EBITDA. But, I would definitely target them, private-equity groups and strategics/competitors.
The Importance of a Business Valuation
You mentioned getting a business evaluation done every year and starting that GPS Exit Model. Are you recommending that someone do that, even if they don’t have the intention to sell in the next, say, three years?
Yes, absolutely. If you’re trying to eventually sell your business for $20 million and if you don’t get a valuation checkup every year, how do you know where you are? How do you know how close you are to that goal?
For business valuations, I wouldn’t use your local CPA (certified public accountant). I would align with Mergers & Acquisitions, or someone whose valuations include projections.
When I do a business valuation, I also look at what I call the Six Cylinders (Six P’s), which we’ll talk about in a few minutes.
What are some reasons why businesses don’t get valuations?
Because they got their heads in the weeds! Many business professionals are busy working in their business and not on their business, so they’re not thinking about it.
“Work on your business, not in your business.”Michelle Seiler Tucker
Even if you don’t want to sell for five or six years, you still want to build a sustainable business and scale it. You want it to be able to operate without you, right? So you need an annual checkup.
Also, a lot of business owners have unrealistic expectations, because they’re basing their desired selling number on what they need. Whether it’s what they need to retire, or to put five girls through college or to buy another business. Buyers don’t care about what you need. Buyers care about what the value is to them.
So let’s say a person gets their business valued. What’s the next step?
Well we have different programs. In one, a business gets a valuation, and then an annual evaluation checkup every year thereafter. We have another program where we consult business owners monthly, working with them on eliminating their bottlenecks and strengthening their weakest P’s, to get them closer to their sales price.
So you’re basically working as a business coach?
Yeah, although I don’t like the word “coach”. It’s more of a mentorship program where we help tweak business and build synergy.
For the annual re-valuation program, do you compare metrics to see if the business is on the right path?
Yes. We also look at their overhead and what they could be decreasing. Until the COVID-19 pandemic happened, a lot of business owners never looked at their overhead. At the start of and during the pandemic, many began cutting different elements of their overhead. Obviously the one thing you should never cut is marketing, but there are things in your overhead that you can decrease, which increase EBITDA.
How Your Industry Plays a Role in Selling Your Business
That brings me to my next question. What are some of the differences between industries? I’m sure there is a big difference in terms of how your business is valued and how easy it is to sell.
There are different comps for different industries. When we do a business valuation, we’ll follow the market approach. We’ll look at what’s going on in the market, such as what, for example, manufacturing businesses are selling for. Then we pull solds — businesses that have actually sold and the dollar amount they sold for. Then, we pull industry standards.
Common Mistakes Business Owners Make
Do you see business owners making the same mistakes?
What are some of the mistakes you see?
Very seldom do I see a new mistake that nobody’s made before. The biggest mistake I see, and the reason why 70% of businesses are going out of business, is lack of aim. Business owners stop innovating and marketing. They get too married to their concept and don’t change anything.
Toys “R” Us did nothing new in 75 years. Blockbuster saw the writing on the wall when Netflix came about. They had the opportunity to purchase Netflix, but did nothing and ended up out of business.
“Lack of innovation and marketing is what will put a business owner out of business, quickly.”Michelle Seiler Tucker
It’s basically cyclical. Businesses go on this upward trajectory, and owners think everything is going to be great, forever. Then, all of a sudden, business starts to trend downward. By that time, most are thinking it’s time to get out.
Absolutely. The problem is that they stop asking their clients what they need and what they want. Businesses should seek an answer to the question, “How can I make it easier for you to do business with me?” Whoever makes it easiest for the consumer to purchase products and services, wins.
Amazon’s winning because you can practically buy anything and have it delivered in two days.
You have to go back to the bases and ask your clients, what do you need? What do you want? How can I make it easier for you to do business? Really listen to them because if you don’t, somebody else will.
The other mistake business owners make — and I’m going to weave this into the 6 P’s — is they go to work every day, versus creating a business that works for them.
The First P: People
Many business owners work in the business, instead of on the business. This is a huge mistake. Business professionals have to start hiring based on their weaknesses. Their first P that I talk about in Exit Rich is people.
You have to let go of control to grow. Focus on your strengths, hire based on your weaknesses, put the right people in the right seats and ask these questions:
- Who opens the door?
- Who handles customer service?
- Who manages marketing?
- Who is in charge of legal accounting?
- Who handles manufacturing, logistics and transportation?
The key is that the business owner’s name should never be next to the ‘who’.
“The number two reason why some businesses are not sellable is because they one thousand percent depend on the owner.”Michelle Seiler Tucker
Grow the people to grow your business for you, so your business is not dependent upon you.
The Second P: Product
The second P, and another area where business owners make a lot of mistakes, goes back to innovation. While whatever a business started doing may have been needed at the time, constant innovation and change is important. This goes back to the examples of Blockbuster and Toys “R” Us. Business owners have to ask themselves, is my product, my industry, my service on the way up, or on the way out? Is it thriving or dying?
Back in the 90s, Amazon asked themselves what business they were in. The answer was simple: the book-selling business. They fulfilled book orders. But what did they do better than anyone else? Fulfillment. Then, a third question came about: What business should they be in? Amazon realized they should be a fulfillment business — fulfilling all products, not just books.
Those three questions transformed Amazon from a small bookseller to the multi-billion dollar worldwide conglomerate they are today. Employ a similar approach by asking yourself those same questions:
- What business am I in?
- What do you do better than anyone else? This is your unique selling proposition (USP).
- What business should I be in?
Another mistake that business owners make is they have one profit center. One restaurant, one store, one service and no e-commerce business or other ways to generate revenue. You have to have multiple congruent revenue centers.
The Third P: Processes
You need processes before you or your business suffers a catastrophic event. So you really need to design your processes from the beginning. They are ongoing, so keep your policy and procedure manuals open. Make sure you design your processes around your customer experience, not your own agenda.
McDonald’s did this really well. Have you seen the movie “The Founder,” based on the McDonald brothers?
Yeah, great movie.
Yes. They said, back in the 1950s, that they wanted to create a fast food system designed around the customer experience. The goal was for customers to experience great tasting food that’s hot, fast.
The brothers took to an empty tennis court and, using chalk, drew all of the processes out. They were out there for nine hours. Next, they implemented and streamlined the processes. This is why you can eat at McDonald’s around the world and get the same experience.
You need to “McDonald’s your business”. Design productive, efficient and well documented processes with a customer experience in mind. Use policy and procedure (PP) manuals, SOP checklists, employee handbooks, non-competes and employment contracts.
What do you advise for a business that has gone years without documenting processes? Do they retroactively go back, one process at a time?
Yes. One process at a time until you build up your database. They have to.
When it comes time to sell your business, one of the first things a buyer is going to look at — other than financials — is your policy procedure manuals and SOP checklists. If you don’t have them, you’re not running your business efficiently. Processes are the difference between decreasing or increasing your overhead, so you really have to have them in place.
The Fourth P: Proprietary
Branding, Trademarks, Patents, Contracts,
Next is proprietary. There’s lots of mistakes business owners make when it comes to proprietary. First and foremost is branding. The more well branded you are, the more you can sell your company for — as long as your brand is relevant in the mind of the consumer.
Do you know what the most valuable brand in the world is?
Apple, you’re right. The brand alone is worth $359 billion. That doesn’t include the cash flow, inventory, assets, real estate, etc.
In building your brand, trademarks are huge. Trademark your company name, your podcast name, your slogan, products — anything that is unique to you. Having a website URL is not enough, and neither is checking state and local trademarks if you are not checking the federal database. I’ve seen businesses operate for 15 years and then all of a sudden, they receive a cease and desist letter in the mail for their company name. So make sure you obtain Federal Trademarks so that everything is unique.
Patents are also big. If you’ve ever watched Shark Tank, what does every Shark say? “Do you have a patent on that?” or “Do you have a patent pending?”
I once sold a company for $18 million that wasn’t making that much, but they had 18 patents. Contracts are also very valuable — be sure to have them for manufacturing, distribution, vendors, clients, franchisees. If a business has a subscription model of recurring revenue, buyers will pay more money for contracts.
I will say that in the 20 years I’ve been doing this and thousands of deals later, I’ve never seen a business owner have a proper transferability clause in their contracts. Contracts must be transferable to a new entity if you are looking to sell. If the buyer doesn’t agree to stock sell, or you can’t get your customers to sign consent to transfer, then your deal’s going to fall dead in its tracks.
So if a business does not have that transferability clause in it, do they go back and rewrite contracts?
Yes, they have to try to go back and rewrite contracts. It’s doable when there’s 10 to 20 clients, when there are hundreds upon thousands it can be very difficult. So if contracts are not transferable, we have to find a buyer who will do a stock sale.
Is that similar to when you log onto a website and are prompted to agree to updated terms and conditions? Is that one way to make your contract transferable?
That’s one way to do it, yeah. If they don’t read it or they’re okay with it. But with these details, you need to be proactive instead of reactive. But if you’re doing a contract with a large corporation, you’re not just going to email them Terms and Conditions and hope that they sign it. Corporations have a legal team that it has to go through.
The Fifth P: Patrons
And then patrons is the fifth P. Businesses make mistakes here, too, because they focus on customer concentration not customer number certification. Most businesses follow the 80/20 rule where 80% of the revenue comes from 20% of the clients.
I’ll give you an example. We had a client whose customer concentration was with BP: 65% of their revenue was tied up in a BP contract, and they could not get BP to sign Consent to Transfer — no matter what they tried. The potential buyers were very concerned, because if their business lost BP, it lost 65% of its revenue.
The Sixth P: Profits
The last is profits. Everybody’s in business to make money, but the reason why I put it last is because lack of profits is never the problem.
“Lack of profits is never the problem, it’s always a symptom of not operating on one of the other P’s.”Michelle Seiler Tucker
When clients come to me and say they have a profit problem, I tell them “No, you don’t.” Maybe they have a people problem, or a process problem. If you’re offering all five P’s, you will be profitable, I can promise you that.
How to Find Buyers for Your Business
Earlier you asked how we find buyers. It’s very difficult for business owners to find the buyers on their own and not breach confidentiality — and confidentiality is the number one concern to most business owners when they’re looking to sell.
They don’t want employees knowing because employees get spooked, and clients don’t want to hear it. So confidentiality is one of top priorities.
I have over 28,000 buyers of all five types I outlined earlier in my database. I know very quickly whose a strategic buyer and whose a competitor buyer. I know who is going to be the best to offer us the highest price, who can take advantage of economies of scale and who can decrease infrastructure, which decreases operating costs.
Yeah, that makes sense. I know you have a book coming out, Exit Rich. What’s it about and how can people get a copy of it?
Exit Rich is about a lot of what we’ve been discussing today. It’s all about planning your exit the right way and determining your end game. It includes content about the best time to sell, the seller’s sanity check and has exercises to go through. Plus, it talks a lot about building a proper infrastructure on the six p’s.
Steve Forbes endorsed Exit Rich saying, “It’s a goldmine for entrepreneurs as they leave way too much money on the table when they sell their business.” Sharon Lechter is my co-author. She is a five-time New York Times Bestselling Author, CPA, financial literacy expert and the advisor to many presidents.
Exit Rich launches June 22nd and you can buy it today at exitrichbook.com for $24.79. We will email you the digital download immediately, so you can use it as a workbook, then ship the hardcover to your doorstep (no extra shipping for anyone living in the United States). With a purchase, you get a lifetime membership into the Exit Rich book club, where we have video content — on some of the strategies and topics that we talked about here today — plus documents that will help you operate your business and sell your business. My main website is seilertucker.com.
Awesome, that sounds great. We’ll link to all that in the show notes. I want to thank you for being on The Agent of Wealth Podcast. You packed on a ton of information in a short period of time, so I think business owners will really get a lot out of this. So thank you again.
Thank you, Marc. I like to over-deliver.
And thank you everyone for tuning in to today’s episode.