Rick Krebs brings a unique blend of sales, entrepreneurial, and financial experience to the Business Sales Group. He began his career as a CPA, working in Nevada and Utah where the valuable financial experience was gained. He uses those skills every day. He graduated with a Master of Science Degree and a Bachelor’s Degree from Utah State University.
As a business owner, he started Liberty Mortgage, a mortgage bank licensed in 23 states nationwide. He eventually sold the successful company to an investor from California. He has been in the M&A space helping people sell their businesses since July 2010. During his first year with BRC, he listed and sold more businesses than the entire office combined.
As a sale-side and buy-side advisor for Mergers and Acquisitions transactions Rick’s advisory, accounting, and management skills are invaluable when advising sellers as they maneuver the intricate details of the deal through closing. Rick is also a CNA (Certified Negotiation Expert) which helps him negotiate the most favorable terms for clients in a transaction.
He was quoted by FORBES as an expert sales-side advisor who helps Sellers avoid the pitfalls of selling a business.
Connect with Rick on LinkedIn.
What You’ll Learn In This Episode
- Current Landscape for Selling a Business
- Advisor Types and Specialties
- 3 Things You Absolutely Need to Address in Your LOI
- Taxes – How to Minimize Taxes When You Sell a Company
- IRS Form 8594 – How Knowing About This Saved My Client $80,000
- The First Step to Selling a Business
- Common Mistakes Business Owners Make When Selling
This transcript is machine transcribed by Sonix.
Intro: Broadcasting live from the Business RadioX studios in Atlanta, Georgia. It’s time for High Velocity Radio.
Lee Kantor: Lee Kantor here another episode of High Velocity Radio and this is going to be a good one. Today on the show, we have Rick Krebs with Business Sales Group. Welcome, Rick.
Rick Krebs: Thank you. Good to be here today.
Lee Kantor: I’m so excited to learn what you’re up to. Tell us about business sales group. How are you serving folks?
Rick Krebs: Sure. So business sales group specializes in selling businesses in the lower mid-market. So those are businesses typically between 2 million and enterprise value up to $30 million in enterprise value.
Lee Kantor: So what’s your backstory? How did you get involved in this line of work?
Rick Krebs: So I started as a bean counter. I started as a CPA, strong financial background, and I just got tired of counting other people’s money. I started a business on my own and I ended up selling it without any help and sold it the wrong way. I really should have had some help and I ended up hiring attorneys to get paid and it was a horrible experience. So I learned how not to sell a business by selling my business the first time the wrong way and decided to go out and to help other people to not make the same mistakes that I did.
Lee Kantor: So what are some ways people sell it the wrong way?
Rick Krebs: I made the first mistake of not hiring someone. I didn’t know that there were M&A advisors or business brokers or investment bankers out there, and so we tried to do it on our own. Myself and my and my partner. And that was the first one not hiring the help which we needed. And to I would say not not planning. I see a lot of people that come to me and they want to sell their company and they just aren’t quite ready or they they are waiting till the gas tank is empty. They don’t have a lot of energy to run the business. And so I would say if you’re going to sell your company, start planning for that exit early. Don’t wait until the last minute because the earlier you start to plan, the more money that we’re going to be able to get you when you do sell.
Lee Kantor: Now, how are you defining early? Is that a year? Is a five years? Is it when you start the business?
Rick Krebs: Yeah. So I would say when you start your business, start it with the end in mind, you would look and say, okay, this is and it’s kind of counterintuitive, right? It’s kind of like the prenuptial agreement on again, when you’re getting married, it’s the last thing you want to think about, but it’s absolutely the first thing that you should be thinking about how am I going to exit? How long a time horizon do I have? And and you start building it in a manner which will help it make more, help it make more attractive to buyers when they when they do buy.
Lee Kantor: So let’s assume we have a person that’s your ideal client. They come to you say, five or six years ahead of time, and they say, okay, I’m going to I want to sell my business in five or six years. How do you help me today? So I get the most valued, you know, down the road.
Rick Krebs: So the first thing that I would recommend is we do a valuation. Let’s look and assess your value. And as part of that valuation process, we would look at weaknesses and I’m strong into financial items. And so I think we would take a look at your books. Where are your books at? Or do you have good books or the things that we can do to make your books better? A lot of times what I see is people only do financial reporting at the level at which they have to, which is for tax returns. But there’s a lot of things that you can do with your books and your financials to make them to be better tools to help you manage your business. So valuation is number one. The second thing I would say is let’s let’s get with a financial planner, and I’m not a financial planner, but I would recommend getting with a good financial planner and looking at your overall financial plan as part of this exit. It takes a team of people to help these people exit in in the best manner. And so I would get a financial planner to look at their overall financial plan, their debts, where they want to be, how old they are, their life expectancy, their cash flow needs. And then the third thing I would do is I would get with an M&A advisor or business broker or banker, depending on the size of your business, and I would start a conversation with them. I’m planning to sell. And what do I need to know? What do I need to do to get this business ready? And these people will tell you.
Lee Kantor: Now are most people, when they come to you and say, I’m looking to sell. Let’s do that valuation. Are they pleasantly surprised with the number when you do the valuation? Are they negatively surprised? Like what? What is? Have they overestimated or underestimated the value of their business?
Rick Krebs: Well, believe it or not, most people overestimate the value of their business, right? You and I see that with their with their houses or anything. A lot of times we think that it’s worth more than it actually is. Once in a while it will be worth more than what they think it is. But most of the time they they tend to overestimate the value. And what I would recommend is we we do an assessment of value from an independent third party person. And I’ve got a company. We do those. It doesn’t cost you a lot of money. And then once you have that and you have a realistic number, then you start to reverse engineer and say, okay, my company is worth 5 million today. I need to be at $15 Million for my exit. What do I need to do to get it there? And then I would recommend hiring a business coach as well, someone that’s going to help you move the needle, scaling your business, get it prepared, get your financials where they need to be, and get you operationally where you need to be. These businesses need to run better in the owner’s absence than they do the owner’s presence. And so that’s one of the things that I would include in this in this overall exit plan.
Lee Kantor: Now, is the business valuation just strictly math? Is it like, okay, it has this much revenue or this much profit, so therefore it’s worth X?
Rick Krebs: So a formal business valuation will include both financial metrics, which is the math, right, and non financial metrics, which include things like risk. What is your industry risk? What is your customer concentration risk? The risk of losing management? How is that going to impact business? Those are at a minimum, those are the things which the valuations that include. There’s a lot of other things that that can move the value of your company. For instance, we have companies that that are on the lower end of the scale. When we pull comparables, like with real estate or the business, we have comparable sales and some will sell for say a three multiple of EBITDA and some will sell for a six multiple of EBIT in the same industry. So you want to look at your business and say, okay, what about my business? Would make it sell for double than it should make it sell on the higher end of the spectrum? And so we really get into the financials, we get into the operations, we get into the management and get into the things that and we start planning it early. The things which should get you a higher multiple and a higher ultimate selling price when you’re ready to sell.
Lee Kantor: Now, when you’re working with clients, how important is the kind of tax mitigation? Because I would imagine if you structured the deal in one way, you might have a more beneficial tax situation as if you do it just haphazardly.
Rick Krebs: You know what? That’s a that’s a really good point. There are tax saving strategies for taxes, both in the structure of the deal and in the planning for a business setup. So, for instance, if you if you’re getting ready to sell your company and you’re going to want to have a really good CPA that has has done this before, that understands there’s an IRS form called 84, 85, 94, which you have to allocate the assets of the business and you want to get someone who understands that allocation. Most people don’t because they only do it once in their life. Right? But you want to make sure that you understand how that allocation works, because it can certainly flip your tax bill hundreds of thousands of dollars. The second thing is you want to look at some other structures, tax saving structures, I’m going to call them number one. There’s something called an asset exchange or tax trust, which allows you to defer. You don’t eliminate, but you get to defer the taxes. The other things that you can look at are donor advisory funds. The third is there’s something called the CRT Trust or a credit. And those are three tools which off the top of my head would help people or could help people reduce their taxes, because if you don’t do it, you’re looking at a 30 or 40% tax bill. And so this is the single largest financial transaction of your life. You want to make sure that you get it right and that you hire the right people to help you with that. And if your accountant is not telling you what you think, what you think is right, don’t be afraid to get a second opinion. Get some advisors, some people that are professionals that can help you with this.
Lee Kantor: Now, is this a good time right now in this kind of, I would say, uncertain, chaotic economic situation we’re in right now? Is this an optimal time to sell or is it something that you should just kind of pause for a bit and let this play out a little bit, see if there’s a recovery into next year? What would be your current thinking right now?
Rick Krebs: Yeah, you know what, That’s a great question. And I would say it’s a really good time to sell. The reason being a lot of money has been moving out of real estate. People are feeling like real estate is overvalued. They’ve been selling their real estate and so they’re sitting on cash. That cash has moved over into private equity hands and those guys are looking to deploy that capital that they’re sitting on, and most of them are wanting to deploy it and to buy businesses. So as far as the landscape for selling a business right now, the environment is very good. I don’t see it quite as good as last year because interest rates are increasing SBA loans, interest rates have gone up from 4% to about seven and one half percent. And so that does tend to erode prices. But for good businesses, they’re bringing top dollar still, and I would anticipate that’s going to continue for the next two years.
Lee Kantor: Are there any industries that are better than others right now?
Rick Krebs: Yeah, tech businesses are really hot. I sold two SAS companies this year. Sas stands for software as a service company, so their software businesses, domestic manufacturing is very hot. Real estate was hot, but I’ve seen that cool off just a little bit. So I would say tech companies and anything in domestic manufacturing is really strong right now.
Lee Kantor: So any advice for that person that is on the you know, maybe he hadn’t thought about it. Maybe he’s thinking about it now after hearing you speak. Other than get the valuation, is there anything they could be doing themselves right now to prepare for an exit?
Rick Krebs: So what I would do, I’m part of an exit planning group. And this is a this is something that’s sweeping the nation right now. And this is the notion that business owners need to plan for their exit. I call it Minding Your exit, not blinding your exit. I would get with a good financial planner and a good exit planner in your area. If you’d like to reach out to me, you certainly can. Do you share the emails and the information?
Lee Kantor: Yeah, sure. But you can say it also.
Rick Krebs: So. So my my website or my email is Rick at B for business record B sales group. And you can certainly email me and I can align you with someone in your area. We have a we have a nationwide group of exit planners I would give with an exit planner because they will be able to align you with with people that are like myself, that sell businesses. They’ll be able to align with business coaches, but understand that it takes a team to help you with this transaction and start assembling that team, get you an exit plan or get you a business coach, get you an M&A advisor, business broker, investment banker, depending on the size of your company and start talking to these people early. Start asking them questions. Start. Some of these exit planning groups allow you to go to their meetings and talk to other business owners who have recently sold. The name of that group is the Exit Planning Institute. And I would can get on their website that API is the is the acronym that you use, but it’s the Exit Planning Institute. I would look at them and look at your local chapters and start attending those meetings, learning all you can. I also have a book. If you get on w w w dot design my sail dot com. There’s a lot of good information in there. You can. The book’s really inexpensive. Is one of Amazon top sellers. For $20 you can buy a book audible or Kindle version or a paperback, whichever you’d like, but just start learning, getting all the information that you can now start learning about the process, talking to people that have done it in the past. Attending these chapter meetings of the Exit Planning Institute will be very helpful to you and feel free to reach out in, get my email address, feel free to reach out if you have any questions. I’m happy to answer those questions and help you with this process to give you the ultimate exit.
Lee Kantor: Now, before we wrap, can you share a story of maybe a company that you helped exit and you don’t have to name the name of the company, but maybe come to share, You know how they came to you and maybe not so great shape and how you were able to put them in a position to get a selling price. Maybe that was I don’t want to say surprising, but maybe it was a little bit like, Wow, that was just like you promised.
Rick Krebs: Yeah. So I’m going to tell you the story of the last one that I just sold. These guys came to me a couple of years ago. I had a software business and we did a valuation and I knew the number that they were trying to get and they they weren’t ready. Right. I call it. They were more in the incubation stage than the final stages of of being ready to sell. And so I aligned them with a really good business coach. A friend of mine has an interest. Christianson and Rich helped them grow their business and help them clean it up. It’s just like when you’re selling a car, you know, you got to go out and get a wash it. You got to fix the dents. You got to make it look look as good as presentable as you can. It’s the same with businesses and it takes an outside person to do that. And we got them with a good business coach. We were anticipating up the business ready. We spent a couple of years helping them, working with management, working with the owners, fine tuning it, and then we brought it to market. You know, we thought we were going to get an $8 million price tag and we ended up getting more than half, more than double that. So that was because we ran the process. We took the time that we needed to get the business ready. And in that two years that we worked with them, we were able to double the value of their business more than double the value of their business. So it’s so important that you get with a good advisory team, you give with a good exit planning team because your your numbers increase and the value can be exponential, as we saw with this one.
Lee Kantor: Right? It’s one of those things where you have to surround yourself with trusted advisors in this area because as you mentioned, you’re doing this, you know, one time, two times in your entire life. And these people are doing it every single day. They know where the problems are, the landmines, where the opportunity lies, and you don’t know where you don’t know. And these people do know. So you have to surround yourself with these trusted advisors. If you want to get a selling price that you’re going to be happy with.
Rick Krebs: That’s that is right. And and a lot of us, I think as entrepreneurs and business owners, we try and take on things ourselves. We’re like, you know what we’ve got? And we and the problem is, it’s that that’s worked very well for us, right? We’re able to tackle problems. We’re able to do things that other people are not. And this is something you do not want to do on your own. You absolutely want help and you don’t just want mediocre help. You want the best help that you can possibly get. You want people that have done this many times, that have been down that road that can walk you through this, because we joke about a little bit and say it’s a knife fight. Right? If you go in, you go into a knife fight, you got to have a knife and you got to have someone that’s going to help you tell you what’s going to what’s around the bend, what’s going to happen, what to expect, and help you get your business ready. Like I’m the one we just sold. You know, they took them from we doubled the price of that business by doing this work over two years. And you definitely want a great team to help you with that. Good point.
Lee Kantor: Right. And also the person who’s buying it, they probably have trusted advisors helping them. So you want to, you know, like you said, arm yourself at least to have the same type of knowledge as you as the person buying.
Rick Krebs: That’s right. And in oftentimes we’re on those calls and there’ll be four or five of us on the cell side, but sometimes there’ll be 15 people on the buy side. Right. And you go in there outnumbered. And so you’ve got to get your team together and your team of people that are going to help you with this team of professionals. I call them deal guys, people that have done this time and time again, that have that have swam with the sharks before and understand how to maneuver and what to do to to help you sell your business in the best way.
Lee Kantor: Well, Rick, thank you so much for sharing your story. The website one more time for business sales group.
Rick Krebs: W w w dot b the letter B sales group. And the website for the book is w w w dot design my sail dot com.
Lee Kantor: Well, Rick, thank you again for sharing your story, doing important work. And we appreciate you.
Rick Krebs: You’re welcome. Thank you. I appreciate it today. Appreciate your time. Thank you.
Lee Kantor: All right. This is Lee Kantor. We’ll see you all next time on High Velocity Radio