Selling Your Business, with Cliff Bishop, Brady Ware Capital (Inspiring Women, Episode 42)
If you’re a business owner considering selling your business, this episode of Inspiring Women is for you. Cliff Bishop of Brady Ware Capital joined host Betty Collins to discuss the environment for selling a business, understanding what your business is worth, the toughest part of selling a business, and much more. Inspiring Women is presented by Brady Ware & Company.
Betty’s Show Notes
We’ve been starting this year with optimism.
My guest in my last episode was Randy Gerber from Gerber Clarity and we discussed first-generation wealth and wealth transfer.
In this episode, I speak with Cliff Bishop of Brady Ware Capital. Cliff is a good friend and colleague of mine. We talk about how he and Brady Ware Capital help business owners and entrepreneurs understand, increase, and unlock the value of their businesses. Cliff talks about how we can help you buy a business, sell a business, raise capital, understand the value of your business, and more. Is this a good time to sell your business?
2021 was an exceptional year. We see all the fundamentals being really strong for 2022. There’s just a lot of capital in the market looking for good companies. So the answer is yes!
What are the most important factors that drive the valuation of a business?
There are a lot of things that are going to drive the ultimate valuation, but a couple of things jump out. One is growth, and the second thing, no matter what the industry, is predictability and recurring or consistent revenue.
What is the toughest part of the selling process that you’ve experienced with business owners?
I think without a doubt, it’s the due diligence process. Just because it’s a very good time to be selling right now and there’s a lot of money out there, it’s not easy money.
What options does an owner have when they’re considering the sale and transaction of their business?
I think most business owners, there are a lot of business owners that envision that when they sell the business, they’re going to call her biggest competitor and they’re going to take over. And that the owner is going to clear out their desk and ride into the sunset. And that rarely happens.
Cliff goes on to talk about what a business owner is not supposed to do when selling their business. They make mistakes. What are those things that they fall into that can be avoided? And finally, what does a business owner need to do to prepare? And what’s the timeline?
This is THE podcast that advances women toward economic, social, and political achievement. Hosted by Betty Collins, CPA, and Director at Brady Ware and Company. Betty also serves as the Committee Chair for Empowering Women, and Director of the Brady Ware Women Initiative. Each episode is presented by Brady Ware and Company, committed to empowering women to go their distance in the workplace and at home.
For more information, go to the Resources page at Brady Ware and Company.
Remember to follow this podcast on Apple Podcasts and Google Podcasts. And forward our podcast along to other Inspiring Women in your life.
[00:00:00] Betty Collins
I am so glad that you are joining us today. We’ve been starting this year with some, some different people and that are kind of really in an optimistic mode, and one of those was Randy Gerber with Gerber Financial and and he’s a guy who who loves the marketplace. I mean, he is optimistic for twenty twenty two, even though we all still kind of live on the edge because of twenty and twenty one, right? I mean, we all think maybe we could go back to two thousand nineteen, but that’s not what we’re going to do. Instead, we’re going to head into twenty two, and he was really optimistic. So I encourage you to listen to that podcast. It was about a lot of times that first generation business is who he really works with. But I have a guest today that works with not just first generation, second and third and the whole point of owning a business in for Betty Collins. As a shareholder of Brady, we’re and Schoenfeld is one day I’ll sell it right. One day I have stock and I can and I can pass it on to somebody instead of working for someone all my life. And so today I want to introduce you to someone who helps businesses do that when they get to that point of selling and or wanting to sell or wanting to buy or wanting financing to go all those things. So I’m with today the president of Brady, where capital who of course, is related to Brady, where in Schoenfeld and I’m going to let him talk a little bit. It’s Cliff Bishop. He has a great team around him. I would tell you to go to his website. He will direct you there to see his team of seasoned people on selling businesses, and we’re going to find out if twenty twenty two is a good time to buy and sell. He’s going to go into that. So Cliff, welcome today and just tell us a little bit about you and Brady. We’re capital.
[00:01:44] Cliff Bishop
Sure, Betty, thanks for having me. It’s good to join you on this. Brady, where capital? Just a quick overview is related to Brady. We’re in Schoenfeld, but we focus exclusively on transactions, mostly helping sellers sell part of a business. We also do some financing growth capital, and we work with some companies on growth strategies, helping them acquire other businesses. But there’s a group of seven of us. We have over one hundred and fifty years of experience with that group. And what we’ve really found over the years is that a successful transaction is not defined just by the dollar amount, which is always important and we focus on that. But it’s also the other things, including personal goals, the legacy of the business, protecting employees and things like that. So in addition to being financial people, we’re also consultants and psychologists sometimes and really enjoy working with entrepreneurs and business owners to to find out what works best for them.
[00:02:41] Betty Collins
Yes, and I’ve done several transactions with Cliff. We’ve worked through that. And when he says we’re sometimes counselors, they are always counselors. It’s a big deal to sell your business or to buy one. And so that’s where Brady, where capital gets you through this process.
[00:03:00] Betty Collins
So what I really want to know, though, and my audience wants to know and the whole world wants to know really is, is this a good time to sell your business?
[00:03:10] Cliff Bishop
Yes, I think it is. And of course, it depends on the specific business. But twenty twenty one was an exceptional year. We see all the fundamentals being really strong for twenty twenty two. Quite simply, very. There’s just a lot of capital in the market looking for good companies. Public companies have record amounts of cash. Many private companies have have high levels of cash due to good operations, but also to funds that they receive from the PPP program. Private equity groups have almost a trillion dollars invested money that they’re looking to put to work. And all of these companies, you know, if you’re going to grow right now, it’s kind of hard to do it organically. They’re looking to acquisitions as a main component of that growth strategy. So you’ve got all this money out there looking for for businesses and ways to put it to work.
Absolutely. I know as an accountant, as a CPA who looks at financials all day long, the balance sheets are solid. And so it’s obviously a great time to sell that really good balance sheet. But but when you have a good balance sheet, it’s a good time to buy as well. And it’s not just let’s talk beyond the balance sheet.
[00:04:21] Betty Collins
I mean, what are the most important factors that that drive the valuation of a business?
[00:04:26] Cliff Bishop
Yeah, that’s that’s a good question, Betty. And there’s a lot of things that are going to drive that the ultimate valuation, but a couple of things jump out. One is growth, and it’s not always just historical growth. So buyer is typically looking to double the size of a business in a three to five year period. They’re going to put a good value on it, so they’re going to look at the historical growth for the business. But more importantly, they’re going to look at what is the potential to grow once they acquire it. Many of our clients to the point in their business where they haven’t focused on growth recently. They built a very strong business, it’s very profitable, accomplishes all the goals that they have, and to kind of restart it and invest more money and time and effort. They don’t always do that. But what’s really important and we work with entrepreneurs to do this is to lay out a growth strategy for the people that might be acquiring it. So for instance, if you can say, Hey, this is where we are now, we could expand geographically or we could expand our product line or we could add more salespeople. Those are the things that you really need to do to to get the answers from potential buyers and maximize your valuation.
[00:05:35] Cliff Bishop
The second thing that we see that no matter what the industry that is really important is the predictability and our recurring or consistent revenue. So tech companies usually have very high multiples because their technology, but it’s really because most of their clients are sending sending payments in monthly or annually. And it’s the same clients month after month, year after year, so that more predictable and recurring revenue you have with with a large customer base is going to drive valuations. There’s there’s other things that go into it, but I think those two are the key things that some people don’t always focus on.
[00:06:13] Betty Collins
Yeah, they also don’t. What I find is they don’t focus on the team. You know, everyone thinks I’m selling my goodwill or, hey, I can make money. But the team that’s in place is also usually pretty huge. When you’re when you’re buying and selling it, it definitely if you have that team that you’ve developed that you can be the business owner and not be there because this team is so good right now, will they stay with the new buyer? There’s always a question, but but at the same time, that team is a crucial thing to be building.
When you’re looking at when I sell one day, I really want a good group that is there with me and that could stay on without me. And people kind of overlook that, you know, sometimes.
[00:06:59] Cliff Bishop
But I’m going to it down to that because I think that’s a that’s a great point is building a team is extremely important because most of the the owners that are selling want to either exit the business or at least reduce their involvement in it. And most of the buyers don’t have a lot of people on the bench that are going to parachute in and run the business. They want to supplement what’s already there with with that management team. So you know the perfect scenarios where the owner has kind of worked his or herself out of out of their job?
[00:07:28] Betty Collins
Right. So, you know, I would say to business owners, a lot of times you want to they want to be the smartest one in the room. They want to be the guy, they want to be the gal. They are it, they are it. But man, if you’re looking at the value of your business, it’s also really not just you, it’s the value of you not being there. It’s the value of that team that you could sell and be in place, and it makes that buyer so much easier to come in, right? So but but you know, we’re making it sound so easy that you just do these things and it all happens.
[00:08:02] Betty Collins
What is the toughest part of the selling process that you’ve experienced with business owners?
[00:08:08] Cliff Bishop
Yeah, I think I think without a doubt, it’s a whole due diligence process, so it’s a very good time to be selling right now and there’s a lot of money out there. It’s not easy money. And what we’ve seen over the last five years or less is that no matter what the size of the deal, the amount of due diligence now is more like it used to be if a public company was selling. So the buyer is going to bring in outside accountants, they’re going to bring in business strategies, they’re going to do background checks. Sometimes they bring in psychologists to say, Hey, do testing on employees and everything. It’s just a company that’s open to new ideas and things like that. So it’s really a gauntlet, and it’s for two reasons. I mean, the buyer really wants to know those things. But the second reason is they also use due diligence to try and beat price down. Sure. So being organized and due diligence, having all the numbers together, making sure that we have the experience to know what the due diligence looks like. And if you well prepared in your aggressive in that, you can usually usually get through it unscathed. But it is a process and every business owner we work with said, Wow, when we get done, they say, you told me that it was going to be tough, but I had no idea what you meant. Yeah.
I mean, this is these are people coming in and scrutinize everything you’ve ever done and built as a business, and now it’s being completely scrutinized. You know, and on top of that, as you and I have done some deals together and I’ve been part of merger and acquisition, one of the things that is really tough in the selling aspect is just as much as they want to go. They don’t know that they can’t go. Letting go and wanting to keep staying is also one of those things. That’s where the counseling comes in, right? That’s where you really play a role. So it’s not all just numbers and easy stuff in Evita. There’s so much to it. But, you know, in today’s market where there is a lot of capital and there’s a lot of options and there’s there’s buyers who are still very, Hey, let’s keep this going. There sellers who want to maybe get out, but they still like being in the game. You know, what are options?
[00:10:21] Betty Collins
What options does an owner have when they’re considering the sales and transaction of the business?
[00:10:28] Cliff Bishop
Well, Betty, this this is a fun part for me because I think most business owners, there are a lot of business owners and vision that when they sell the business, they’re going to call her biggest competitor and they’re going to take over and that the owner is going to clear out your desk and ride into the sunset. And that rarely happens. There’s all kinds of options that that that don’t require you to just just leave. Now, some people, if they want to exit, we can do that. But most of them, and probably over half the deals we’ve worked on in the last couple of years involve selling maybe 80 percent of the company, retaining 20 percent or some something in that range, and then focusing on helping the new owner grow the company. But they can get rid of a lot of the things that maybe weren’t so much fun. So all the air can be turned over so they don’t have to worry about employee problems or hiring or when there’s disputes on the floor. They may not have to deal with the banking or the insurance or regulatory environment, type things. So we’ve seen the entrepreneurs be able to focus on what they really like, which might be new business development. Product development might be focusing on trade shows and developing a bigger network.
[00:11:40] Cliff Bishop
And then they also have the capital of their new partners. So they’re not doing out with their own money. They’re not signing any bank notes or anything like that, right? They’re using somebody else’s money to really grow the business. And we’ve had, you know, I would say not all entrepreneurs are good employees, so it doesn’t always work. But many, many people that we’ve dealt with have really become reinvigorated and said, Boy, I thought I wanted to retire and get the heck out of this business where I’m having a lot of fun now and doing the things I like and I still have my identity with the business. Right. So that’s that’s one option. And then there’s other other options other than than selling completely. There’s transitioning of other family members, and we can help put together that financial roadmap for that. There’s management buyouts, which, you know a lot of times honestly sound good, but it’s hard to come up with the money for the management, but we work on that. And then there’s also the ESOP options. So really counseling the owners, and it’s really fun. The first time we go in and meet with somebody and say, Hey, do you want to sell? Let’s consider all these options and figure out what’s best for you and your business and your family.
[00:12:47] Betty Collins
Well, I can tell you that it isn’t just one. How do I say this? It isn’t just one size fits all. There are so many different ways you can do and sell and stay and leave and and you guys do some great stuff and get creative. And I’ve been part of those times where that happens and then everybody wins in the end. Now you’ve really talked about what you should do, what you’re not supposed to do, but what.
[00:13:15] Betty Collins
Let’s talk about what you’re not supposed to do or what are some of the typical business owners? They make mistakes when it comes to selling their business. What are those things that they fall into that can be avoided?
[00:13:28] Cliff Bishop
Yeah, another good question. I think I think the biggest thing is focusing only on price versus the whole. All the things that go into deal. And as I said earlier, price is always important and I don’t want to diminish that. But it’s not the only thing, and we try and encourage the seller to understand what’s going to make you live happily ever after. Is it just the money? No, probably not. It’s it’s a lifestyle. It’s other things that go along with that. But when you when you start negotiating a deal, a lot of owners focus only on the price. And if they don’t have somebody like us involved or their attorney involved, they miss some of the key deals. Key deal points. I’m sorry, you know, some money all going to be up front. It’s going to be paid over time. What types of guarantees is the seller going to have to give to the people coming in to buy I. One of the buyers that we got to know pretty well has already said all that your seller name, the price, whatever they want, as long as I get to make the terms. So, you know, they want $10 million fine, you give me 20 years to pay him that we got a deal. So the point is the mistake that people make is to is to not look at the the all the terms that go into the deal. And then I think that the second thing would be what what you referenced earlier would be not building, not building out a full team, you know, saying, Hey, I’m going to do everything, I’m going to run the sales, I’m going to have all the relationships, I’m going to run the operations. And it’s really the opposite thing that you need to do is counterintuitive. You need to work yourself out of those things to build value. But those mistakes are pretty typical because, you know, entrepreneurs are wired that way. Type A personalities aggressive, which are all good things, but they need to be tempered a little bit in a process.
Right? Right. You know, one of the things when I deal with clients, when they kind of are getting to this point and they start talking about it and I’m a CPA, I’m not a broker, I’m not a consultant. But the one thing I say to them is, would you buy you? And you’ve got to really take that question to heart and look and go, Would you buy you? And a lot of times they’re go, No, that’s why I want to sell. So don’t you know, if you’re just going to focus on price, you’re going to focus on what you get. You have to also say, would I buy me and fix those things that would make it differently? That would make you want to buy you? Not always an easy conversation because they have to. They have to really be honest and open with themselves and look in the mirror. But sometimes they don’t want to. They don’t want to face that. And my mom always said it’s as the sale price is what someone’s willing to pay at the end of the day, you know. And so when you’re too focused on price and you’re too focused on what am I going to get now, you could really lose especially a lifetime of hard work.
[00:16:18] Betty Collins
So you don’t want to be in those mistakes making those things just my common sense approach. Cliff, I’m not sad. You know, I’m not a big broker like this of President of Brady recapitalise. But you know, a lot of times people don’t want to. They want to sell, but they want to sell like, Oh, right now, let’s just get this done. I’m tired. Instead of going, I probably should have prepared for this moment because it’s kind of like you’re almost resigning to. I’m going to retire. And now I’m older, I’m I’m giving up. But really, it is. You’re preparing to sell a business to be the most successful sale of your, of your time, of your, of your lifetime work, or even maybe a second third generation. So to effectively sell something and really get that optimization for you, your family, whatever it is.
[00:17:15] Betty Collins
What is it that the business owner needs to do to prepare? And the second question on that is what? What’s the what’s the kind of the timeline? Is it one year, six months, two days, five years? You know, those are something that I think my audience needs to hear you talk about now.
[00:17:33] Cliff Bishop
That’s exactly right. You hit it on the head. I mean, I think the high level comment would be that you really want to start the process when you still have gas left in the tank where there’s still enthusiasm for the business. I’ll call it a runway where the owner doesn’t say, I have to be out of here 90 days or, you know, there’s health problems that necessitate them leaving. So the enthusiasm shows in the in the process. So if somebody waits too long, that becomes clear. And like you said, it seems like a fire sale and take this thing off my hands and let me go to the beach. We’ve done those transactions, but that’s not profitable. The biggest, excuse me. The biggest thing that can be done is to build a good team, which we’ve already hit on, but also built out the financial statements. And this goes back to also what we talk about the due diligence. You have no idea the depth and how deep people are going to dig on the financial statements. For instance, almost every buyer is going to ask not just what your top and bottom line is, but where where are you making your money? So give me revenue and gross profit by product. Let us see revenue and gross profit by customer. So if you’re a company may have a customer, that’s 50 percent of revenue the buyer wants to know is that 50 percent of gross profit, or 20 percent or 80 percent? And you know, most most businesses don’t have a handle on that.
[00:18:58] Cliff Bishop
So now they can get it fairly easily. So if they put together a team and work with their CPA and and other people, they can get those numbers, I think, and then also building the same thing on a legal side, making sure that everything’s in order with their attorney and all the records and things like that. So the timing can can be different. We met with some companies that are ready to go. You meet with them and say, Wow, your numbers are great, you have a good command of your business. You put together a good M&A type team. You know, we could get going in the next three months. There’s others we work three, four or five years with where the timing’s just not right. We can help them find the right people to come in and work on their numbers, put systems in place. And honestly, it’s usually not rocket science, it’s just a commitment to focus on that. The process itself, Betty, I mean, once a company is ready to go, it can go quicker than what most think. You know, from. We had one engagement letter that we signed in August of this past year and we closed at December thirty first. Most processes don’t take from the time they were to engage and really get going would take six to six to eight months.
[00:20:12] Betty Collins
Well, you know, one of the things I when I talk to business owners in twenty one was one of those years. I’m sure that you was a banner year. It was a huge year for people buying and selling mostly. There was a lot of fear. There’s a lot of unknown, right? What I tell people when you’re going to make decisions, especially like, Hey, I think I’m just going to sell because this legislation is going to get passed or there’s just there’s indicators out there in the market that tell you to not need your react, you know? And so I tell them, I get it that that the stock market was thirty seven thousand and now it’s thirty six and it’s going to thirty five something that’s not what you make your entire decision on your consumer price index, your interest rates, what is government in keeping a tax does play a role of how is that going to affect my buy or my sell when you’re making a decision of a lifetime business or hard work and you took the risk. There are so many factors that come into play before you just go make a decision that it’s time, you know, and I can’t emphasize that enough. And in talking with you over the years and certainly with Randy, it’s a great Randy Gerber.
It’s a great time to sell. Almost always, you know, I mean, you have those years, but there’s still a lot of good indicators out there and you’ve got to pay attention to those as well. When you’re making that, I’m ready now to make this decision, especially when you took the risk. You should get the reward and not make impulsive decisions. And that’s why I really wanted to have Randy Gerber and Brady worked capital on my podcast, talking about the good side. Talking about the optimism. Keeping that alive. One of the reasons I’m a business owner and I’m a CPA and I do what I do is because when the marketplace in this country works, the world works. And when employers can have employees, that means they’re there provision for households that form our communities. So it all plays a role and there’s all kinds of things you should be looking at as you’re making these decisions. So I know if you have questions and follow up and would like to get to know Cliff Bishop and Brady, we’re a little bit more.
[00:22:31] Betty Collins
Cliff, can you kind of direct us to the website as to where they can find you in your email?
[00:22:37] Cliff Bishop
Sure. The website is WW W Brady, Ware capital? And there’s also a link from the from the main Brady Ware site my email is. See Bishop Brady. Let’s see, I help at Brady. And my direct number is nine, three seven nine one three two five three eight, and I know if you want to contact that he she’ll be gracious enough to put us in contact as well. So really enjoy talking to entrepreneurs and look, even if you’re not ready to sell the business, you just want to talk about potential valuations and what’s going on in the market. We really enjoy those conversations. We have spent a time and we’ll love to talk to you. I personally enjoy hearing the stories that entrepreneurs have about how they’ve built their business and what they want to accomplish. So I really hope we get some, make some contacts and can help people make some good decisions.
[00:23:35] Betty Collins
Great. Cliff, again, thank you so much for taking time today, for joining my audience and everybody, you know, keep moving forward. Keep keep your optimism out there and grow. That business is the one thing that you control every day, right? For the most part, so buying and selling is something you need to be thinking about. And as an entrepreneur and I know that Brady Ware Capital can get you there. Have a great day.
Automated transcription by Sonix www.sonix.ai