Joseph Pergolizzi with Website Closers

Intro: [00:00:07] Broadcasting live from the Business RadioX studios in Atlanta, Georgia. It’s time for Buy a Business Near Me, brought to you by the Business Radio X Ambassador Program, helping business brokers sell more local businesses. Now here’s your host.

Stone Payton: [00:00:32] Welcome to another exciting and informative edition of Buy a Business Near Me. Stone Payton here with you this afternoon. This is going to be a fantastic episode. Please join me in welcoming to the program Exit Coach, Business Broker and advisor Joe Pergolizzi. How are you, man?

Joseph Pergolizzi: [00:00:52] I’m great. I’m great. Stone, nice to talk with you.

Stone Payton: [00:00:55] Well, we are delighted to have you on the show. I’ve got a thousand questions. We won’t get to them all. But before we go there, let’s give the folks a little bit of a primer, mission, purpose. What are you and your folks really out there trying to do for people?

Joseph Pergolizzi: [00:01:12] Yeah, it’s a great question. I put it succinctly, you know, for the business owner, we create life changing events for them. You know, there’s a lot of sweat equity that goes into building a business and and there’s a lot of appreciation that can get built into it. So, you know, that’s sort of their victory lap when they exit a business. And for some business owners, it’s actually a sigh of relief, as we all know. And then for the buyers, you know, that’s their their next big opportunity. The buyers are on the hunt. And so they’re looking for a business that has inherent value and they want to scale it. So, you know, we work both sides. And again, you know, we we like to say we create life changing events and we also help people hunt for their next big opportunity.

Stone Payton: [00:02:01] So let’s talk about time and timing for a moment, partially because I think our listeners will benefit, but also, you know, this kind of this some of this kind of content is really helpful for me. My business partner and I, we’ve got we’ve got a good business. And, you know, I don’t think we’re close to an exit, but when, for example, when should a business owner or a set of partners be sort of trying to get their ducks in a row and be thinking about prepping for a productive exit?

Joseph Pergolizzi: [00:02:32] Yeah. Yeah. To talk about, let’s say, business partners first. It’s important to to be on the same page, right? Because people’s timelines can be a little bit different. Someone might be close to retirement or maybe somebody has plans for another venture. So communication is everything. Sometimes your business partner is really like a second marriage. And, you know, I think just sitting down and start to having the conversations and, you know, keeping things open, what’s your plan or when would you like for this to happen? And, you know, do you want to stick around? And I’m thinking this and sometimes, you know, you have a business partners that will buy out other business partners. So I think for the partnership, the first thing is to start having the conversations yesterday and after you guys have come to some sort of agreement, then the clock is ticking, right? Because what you start to see is some business owners are starting to make decisions a little bit differently if they’re planning, let’s say, for their exit in a year or two. So maybe they’re investing a little bit more money, maybe in initial biz dev or maybe they’re looking at their hiring plan or scaling back. So I think once it starts coming up in your mind, then that’s the best time to start talking to somebody. Because again, one of the biggest things is we deal with is people who, you know, we talk to and they’re like, wow, I wish I spoke to a year ago. I didn’t realize there was so much to think about or I would have done things differently and there’s no pressure. A good broker, it’s all about a relationship. So a business owner should never feel like it’s too soon because it never is. Never.

Stone Payton: [00:04:25] Is that. Yeah. Well, as you were describing that process, I’m trying to envision Lee and I in the same room with a broker. And I wonder if sometimes, you know, you mentioned like a second marriage, you almost have to put your your your therapist hat on. Maybe sometimes as an advisor, do you ever find that’s the case?

Joseph Pergolizzi: [00:04:47] Oh, yeah, absolutely. There’s a fine art to to choosing the right words, to setting the stage, to making everybody feel comfortable about something that could be very personable to them. So absolutely, there’s a finesse. And I think that that gets lost. It’s not really on the radar for for a lot of business owners. But there are some ways where we’re building trust independently and hoping to get everybody to to feel candid about about talking about what their plans are. So, so yeah. And in other situations, too, what we. I do is we might, let’s say, talk to you first, Stone, and have a candid conversation with you and then have a candid conversation with Lee. And then the three of us might get together. So, you know, that’s common to we we’ve done that. Yeah. Yeah, absolutely. It’s a fine art. We you know, we tend to think that sometimes we’re a CPA, sometimes we’re a business coach, sometimes we’re out. We are a therapist, sometimes we’re a confidant. Yeah. The good brokers are really wearing multiple hats. Absolutely.

Stone Payton: [00:06:09] So speak to this this idea, I think the right word is valuation. But figuring out what the true market value, practical market value of your business is, because I can anticipate that sometimes, you know, I mean, this is our baby. You know, we’ve worked on this thing for 18 plus years. I was telling you before we came on the air and I don’t sometimes we may not have the realistic view. Can you just speak a little bit to the valuation process?

Joseph Pergolizzi: [00:06:36] Yeah, absolutely. So the way I’ve grown to learn about valuations is that there’s actually, let’s say, three valuations happening at the same time. And so to to put this more into context, a business owner is selling for one of three reasons. They’ve come to the conclusion that they are burnt out. They’re done. Time is very important to them. It’s not so much the money. A lot of entrepreneurs are thinking about their next venture, and some entrepreneurs are just looking for their price. So sometimes it’s burnout, sometimes it’s on to the next venture, and sometimes they’re just building their business until they get to the price. Now, on the flip side, the market is the second sort of valuation. You know, the market speaks. We always say that I could think what a business is worth. You could think what a business is worth. But at the end of the day, what’s the buyers? What are the buyers going to think? And this is an interesting predicament because sometimes you are exactly the right thing that a company is looking for and or a business owner is looking for, and they’re evaluating, build or buy. So they’ll look at your business and they will actually potentially pay a little bit more of a premium. And then you have other buyers who are just discount shoppers, and they’re going to look for every single way to, let’s say, lower the valuation or I should say lower the value of your company.

Joseph Pergolizzi: [00:08:13] And again, to not to to a broker’s warn. But, you know, we’re always assessing where is this buyer coming from? Who are they? So the buyer is going to have their own valuation. And then there’s the business valuation. And what we look at is historically and what we also look at is what the scalable opportunities are, because that’s the buyer speak. Buyers are always looking for how to build this business back up. And when we look at a business, we’re always looking for what’s the low hanging fruit, what’s the feasibility, what are the opportunities, how do we get the cream to come to the top? So we will look at what the average multiple is. Let’s say on seller discretionary earnings. And seller discretionary earnings are the net revenue bottom line of the business, plus all the, let’s say, fringe benefits that the owner partakes in the cell phone, the travel, the coffee. So those get added back into the bottom line as well as the owner’s salary. So seller discretionary earnings comprised of net revenue depreciation, fringe benefits, owner salary, and then we apply a multiple to it. And multiples can range depending on the type of business you’ll see. You know, the multiples can range from someone who’s desperate, wanting to get out. Maybe it’s around two X, it’s a very good business. You can have 4x5x67x on software companies.

Joseph Pergolizzi: [00:10:00] And you know, the other thing that’s commonly overlooked, Stone, is the deal structure. So a lot of business owners don’t necessarily understand that they’re not going to get a check for their full price at close. And for some, that presents a problem. But if let’s say I listed your business at $1,000,000, someone might come in and offer you 900,000, let’s say, in cash and 100,000. In seller financing. Other people might say, okay, your list price stone is $1,000,000. How about I give you 600,000 cash? But I’m going to ask and I’m going to actually give you I’m going to ask for a 700,000 seller note. I’m going to give you 7%. I’m going to pay you over the course of three years or two years. So now your $1 million business valuation is actually getting $1.2 million because of the structure of the deal. And again, those are just loose numbers. Yeah, but there’s just such a database of of different deal structures that kind of can influence a purchase price. So again, to overview, there’s your timeline, there are your reasons, there’s the market, what they think, what they want. Then there’s the actual financials and the business, the scalability. And then maybe the fourth thing is what the terms are. So yeah, it’s a matrix and a good broker should probably be able to go through this with somebody over the course of 30 minutes an hour. And yeah.

Stone Payton: [00:11:47] Well, it’s it’s such a fascinating arena to me. I got to know the back story, man. How did you end up in this line of work?

Joseph Pergolizzi: [00:11:56] Oh, thanks. You know, I was a studio art major in college, and a small business opportunity came across my plate. It was a business I knew really well, and I think my parents understood that I was a struggling student. And back in 1994, they lent me 15,000 to to buy out this business. And I put my heart and soul into it and it made $30,000 its first month. So I knew I had something. And then about five years later I sold that business. So I had my first exit when I was around 26. And then, you know, I waited around, I knew what opportunity felt like and I started a food franchise. And, you know, when I had that franchise, I was so fortunate. I had a great mentor, the late Ira Noxon. I always say his name incorrectly. I’m looking at a picture of him, and Ira wrote the book on how to buy and sell your business for Entrepreneur magazine. And I learned so much from Ira. He was such a salt of the earth guy. And, you know, you think you think business at a certain high level is all this polish. It’s really not. It really is a little scrappy at the end of the day. And Ira taught me quite a bit and, you know, just life experience dealing with big companies. I’ve worked with Apple, Steve Jobs, I’ve worked with Burton, Airbnb, and just to better understand everything from the first time entrepreneur all the way up to the biggest companies in the world, what’s the fabric? What are the makeups of the people? And I had probably just enough confidence to to think I could do it at a certain point in my career. And then, you know, you take the leap. I’m learning every single day. What I what I know today is very different than my approach. Four years ago, I think, like you said right before the call, we’re always learning. So. So, yeah, I’ve had the colorful career and really, really fortunate. You can only connect the dots going back, as they say, not forward. Yeah.

Stone Payton: [00:14:22] So you mentioned, in my words, you’re working both sides of the equation. You work with buyers and sellers. How does the whole and so I know you’re helping sellers get ready to sell and do well, but how does the whole sales and marketing thing work for you? Like, how do you get to to write new business and and help folks? What is that? That looks to me like it would be a real challenge.

Joseph Pergolizzi: [00:14:52] Are you talking about finding businesses to help sell and also find buyers as well?

Stone Payton: [00:14:58] Yeah, yeah. Particularly finding buyers I would think would be tough, but. Yeah.

Joseph Pergolizzi: [00:15:02] Oh, wow. There’s so many buyers.

Stone Payton: [00:15:04] Oh, okay.

Joseph Pergolizzi: [00:15:04] All right. I have exponentially more buyers right now. And then I do having that. I do have sellers. There’s you know, there’s these are my formulas. I’m giving out my there’s three types of entrepreneurs. There’s the pioneer. Let’s call them the artist, the people that have the creativity. Then there’s the guy that’s into systems and scaling. And then there’s, let’s say, the expert who knows how to turn around a business that’s failing. And you’d be surprised the artists are really in the minority. And there’s so many people who are scholars who are on the hunt that don’t possess the creativity, the artistry, the passion, but they understand operations. So we develop our networks pretty easy because anybody that inquires about a business that’s a pass on a business, they’re abi on any number of businesses thereafter. So if we get 100 leads, 100 bylines on a deal, those are now 100 buyers that are now in my CRM and every buyer I deal with first time entrepreneurs all the way up to private equity and family offices. And those people are really neat to talk to. They’re buying and selling businesses all day long on their own. You know, the hardest thing for a broker is, is can be finding the sellers and cultivating those relationships. And, you know, that’s networking. The best form of networking that we find is referrals from our sellers and spending time with great people like you.

Stone Payton: [00:16:57] Well, thank you for that. But what this is underscoring for me and I mentioned this yesterday, we did an episode in this series. As I’m learning more and doing more interviews in this arena, I’m finding I’m beginning to understand this. This world is far more relationship oriented, relationship dependent, relationship centric than I guess I originally had it framed up in my mind. In my mind it was so transactional. And that’s not the case at all, is it?

Joseph Pergolizzi: [00:17:28] Not? Not. Not at all. Not at all. It there’s so much we have to know and understand. It’s well beyond an MBA. But at the end of the day, like we said in the beginning, it’s somebody’s baby. And and the good brokers, I think, have some form of, let’s say, like moral responsibility to do the right thing for everybody because it’s the gravity of the situation is a big deal. And we have to be able to invest in people. That has to be a genuine relationship. And and, you know, there’s there’s a lot a seller doesn’t know. They don’t know what they don’t know. And we have to tread lightly because at the there’s always curveballs and sometimes we’re a firefighter. And the more transparent, the more trust we have, the more trust there is in a relationship, the easier it is to overcome the unexpected. So it’s both. I think there’s an ethical or moral component to our work, you know, because it is someone’s perhaps, you know, family wealth lineage. We could be creating generational wealth. And and how great is it? How great is that? But it also is for the preservation of of the deal, looking out for everybody’s best interests. And it really counts to have a great rapport, you know, which is I always feel like I’m selling against that, right? Because when I was before I was in brokerage, I used to think brokers were put in the same category as a used car salesman. Right. But, you know, to your point now, I’ve realized I’m a therapist. I’m a psychologist.

Stone Payton: [00:19:38] Now, don’t a lot of sellers and maybe I’m just projecting my own my own bias and preconceived notions. But but don’t some sellers really want to keep the fact that they’re selling the business kind of on the down low like they don’t?

Joseph Pergolizzi: [00:19:51] Absolutely. Yeah, we see that every single day, which is great. It’s best it’s it’s so best to not play that hand if you don’t have to, whether it’s looking out for employee retention or, as I say, putting, putting blood in the water. If you’re a shark to your competitors, you want to be really strategic about that. And to my to your first question, when should you start to look for selling your business? And I said the sooner the better. And that’s because a broker then has time to assess the. Target’s right to have conversations with the sellers to extract as much information as possible. You know, my my food franchise that I sold, I thought someone who was Italian was going to buy my pizza franchise, and it was someone from Sri Lanka who knew. So so yeah, the to answer your question, it’s always best to just hold those cards tight, consult with a broker you trust, have a strategy around that. Sometimes it doesn’t impact a business at all because potentially you have, you know, the next CEO or or operator in the business. But it really helps if a good broker can sort of put out all the cards, put out all the scenarios, weigh them, put them in sequential order on how to approach, what to say, all those things. So hold the cards. Start talking about start talking to a broker yesterday. Yeah.

Stone Payton: [00:21:38] Okay, so let’s, let’s talk about me some more. It’s like one of my favorite topics, but no. And I have talked about we have studio partners, we call them, they’re really our highest level of client. But we we have several physical studios around the country and we have presence in other markets. And one of the thoughts that Lee and I had was selling most or all of the business to that group of people. You know, almost like I don’t know, is that like an internal sale? So is that something you would ever advise on? Do you still is that still kind of the same path? You would still want to seek out a professional to guide us through that process, right?

Joseph Pergolizzi: [00:22:18] Yeah, absolutely. And. I, I would say you have you have identified a really good, let’s say, buyer network. And the strategy that I would impose there would be learning more, let’s say, about your top five. Which ones do you have the best relationship with? Which ones have the best upside to? And, you know, another thing that goes along with the valuation is which transaction is going to give you the least amount of brain damage? Because something that a lot of sellers don’t realize is there’s a period of due diligence and you might think that you sign and know why you’re done. You’re not a good broker is going to assess a buyer and say, well, what are they going to be asking from stone? What kind of financials, what kind of contracts, what kind of consulting contract are they going to really ask you for? What what are their expectations? So there is really something to relationship with a buyer and assessment of who actually is going to close because the buyer can back out at any point in time unless once, of course the APA is signed. So that would be something that I would do. We would do with you is take a step back, look at all the markets, look at identify some targets and then which ones have you had conversations with? Which one are you most friendly with? And by all means, we would still take you to market. And the only caveat I would say to that, though, is if the stars really aligned where you had a really good buyer who you got along with, who’s going to close and you got a good, fair price, just be done, you know, like don’t go back to market for an additional 5%, even 10% just be done because it’s a roller coaster ride. And there is really something to say for eliminating brain damage. That is your question.

Stone Payton: [00:24:39] No, it absolutely did.

Joseph Pergolizzi: [00:24:41] Okay.

Stone Payton: [00:24:42] All right. So before we wrap, let’s if we can, let’s leave some pro tips. I guess you’d call them for some buyers and sellers. I mean, the number one pro tip is reach out to Joe and his team and have a conversation with them. But just some things that they maybe can begin to think about. I don’t know if it’s a book they should read, if it’s something that they should be talking about amongst themselves. But let’s let’s leave him with a few tips to kind of help them begin to think through this kind of thing.

Joseph Pergolizzi: [00:25:09] Yeah, great question. One of the things that we spend a lot of time as brokers on is evaluating your books, and it’s really important to keep as clean as possible. Your books do not have have your own business checking account, have your own business credit card. If you can negotiate some good contracts, that’s first and foremost. Just make sure there’s a clear delineation starting today with your books between personal and business, get separate business accounts, do not co-mingle to businesses under one account, do not. That is just a nightmare. And talk about due diligence. You’re going to run into a lot of problems. So books are first. The second I think is working on your mindset. Do not be fixed either on a price or who’s going to buy your business. Leave that up to the professionals. So many people get in their own way, so start having a flexible mindset. The third is, Oh, just escape me, give me a second. Understand what your motivations are going to be. How much gas do you have left in the tank for something like this? What kind of price would you like for your business? Is something a little bit more attractive? Do not wait to sell your business. If revenues are good, the moment your revenues start to drop, that is the absolute worst time to sell your business. Going level on your revenue is fine, but as soon as you start tailing off in your revenues, it could almost be too late at that point.

Joseph Pergolizzi: [00:27:09] You could be potentially, quote unquote, a distressed asset. That’s why it’s so important. Talk to somebody tomorrow. Understand where your investing. Spins may or might mean may or may not should go in your business. You know, those are the big high level things, mostly around numbers, some around mindset. And, and yeah, I could talk for hours, but those would be sort of the main things to think about a book, you know, maybe, maybe even going back in your own mind and thinking, why did I start this business in the first place? You know, write your own book at that point. One of my favorite books of all time is I believe it’s How to Grow a business or How to Start Your Own Business. It’s a short book. I read it some 25, 30 years ago. Do I have it on my shelf? I do have it on my shelf somewhere. Maybe reading how to start a business book, you know, beginning with the end in mind, you know, playing little mind tricks on yourself like that to start really understanding what you’ve built. What do you want out of it? Yeah, I’m a big fan of reflection, if you can’t tell.

Stone Payton: [00:28:32] Well, I can. And I’m so glad that I asked the question because I think these are absolute pearls. And one of the things that you I don’t know about challenged my thinking, but certainly informed my thinking is apparently you can get a lot more creative with the deal structure than I anticipated as well. And back to that mindset. Be open to different ways to structure that deal 100%.

Joseph Pergolizzi: [00:28:57] I’d say it’s. You know, it’s 30 to 40% of what’s involved on my end is the deal structure. And in my world, if if I’m working with an adjacent buyer, somebody else who’s, let’s say, representing the buyer or seller, that’s that’s what we’re talking about. What deal structure do we need to get this deal done? How much cash does the buyer have or how much cash does the seller want? We always start there and, you know, all of a sudden we could throw down the equity card where equity could be a real good insurance policy for a buyer if they know a seller wants to stay involved, because then they’re sort of still confident in their business. And the seller could be like, Well, I can’t get my full price, but I might be able to retain 25% equity and I could have the option to sell the 25% at a higher price, higher valuation in 3 to 5 years, and still get a little, you know, nice little chunk of change after a year. So, oh, my gosh, you know, the deal the deal can be the deal is in the terms I say that cautiously, but I also say it from experience that the deal could be made in the terms.

Stone Payton: [00:30:30] Oh man, this is great stuff. I can’t thank you enough for investing the time to visit with us this afternoon. This has been an inspiring, informative conversation. You really have stimulated my thinking. I want to make sure that our listeners, if they’d like to reach out and have a conversation with you or someone on your team, let’s leave them with some coordinates, whatever you think is appropriate, a website, a LinkedIn, whatever works for you. But I want them to be able to connect with you.

Joseph Pergolizzi: [00:30:57] Oh yeah. And I would welcome any anybody reaching out, whether you’re planning selling your business yesterday or you want to start talking because you want an exit in two years or just any general questions, just please reach out to me. I love what I do every single day. First and foremost, you can find me on LinkedIn. It’s Joe Pergolesi. The way you spell my last name is P is and Peter is an Edward R as in Roger G is and George O as in Oliver L as in Larry I as in Ivan Z as in Zebra Z as in zebra eyes. And Ivan, so you can find me on LinkedIn at Joe Pergolesi. I’m not the doctor. So there’s a doctor in Florida. I am the execution and business broker. Or if you want to email me, it’s simply J. Pergolesi, which I just spelled out a moment ago. So J pergolesi at website closers dot com.

Stone Payton: [00:31:59] Well, thank you again, Joe. This has been fantastic. You’re doing important work, man, and we really appreciate you.

Joseph Pergolizzi: [00:32:06] Thanks so much for the opportunity. Stone Glad I could be a service to you and your listeners.

Stone Payton: [00:32:11] All right. This is Stone Payton for our guest today, Joe Pergolesi and everyone here at the Business RadioX family saying we’ll see you next time on Buy a Business Near Me.