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How To Sell a Wireless Cell Phone Store, with Tamer Shoukry, Wireless Dealerz

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Tamer Shoukry
How to Sell a Business
How To Sell a Wireless Cell Phone Store, with Tamer Shoukry, Wireless Dealerz
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Tamer Shoukry

How To Sell a Wireless Cell Phone Store, with Tamer Shoukry, Wireless Dealerz (How To Sell a Business Podcast, Episode 13)

There is more to a wireless store than just a storefront selling and repairing cell phones. On this edition of How To Sell a Business Podcast, Tamer Shoukry, owner of Wireless Dealerz, talked with host Ed Mysogland about how he got into the business and gave an overview of the industry. They discussed the flow of cellphones from dealer to consumer and from the US to other countries. Tamer covered how they make their money, margins, the challenges of retaining techs and managing inventory, why wireless dealers don’t usually get SBA loans, his advice as a business broker, and much more.

How To Sell a Business Podcast is produced and broadcast by the North Fulton Studio of Business RadioX® in Atlanta.

Tamer Shoukry, Owner, Wireless Dealerz

Tamer Shoukry, Owner, Wireless Dealerz

Tamer Shoukry AKA Mr. Wireless Ohio Wholesale had been a leader in the Prepaid Wireless Marketing , Sales and Fulfillment. He has assisted many leading Prepaid brands in Establishing Their Markets since 2006 such as Page Plus, Boost Mobile, Simple Mobile and H2O.

Sign up for any of these services and work directly with him and ENSURE  success in implementing these services. Tamer posseses the experience, know-how and connections to make these services increase a shop’s income.

Tamer started in the wireless industry in 2006 when he started in regional sales which allowed him to build a network of small and medium sized wireless retailers. He moved into selling in bulk to small carriers, started a repair business, and also started a wireless repair school.

In 2o15 Tamer started his wireless software company that serves independent wireless dealers.

Website | LinkedIn | Facebook | Instagram

Ed Mysogland, Host of How To Sell a Business Podcast

Ed Mysogland, Host of “How To Sell a Business”

The How To Sell a Business Podcast combines 30 years of exit planning, valuation, and exit execution working with business owners. Ed Mysogland has a mission and vision to help business owners understand the value of their business and what makes it salable. Most of the small business owner’s net worth is locked in the company; to unlock it, a business owner has to sell it. Unfortunately, the odds are against business owners that they won’t be able to sell their companies because they don’t know what creates a saleable asset.

Ed interviews battle-tested experts who help business owners prepare, build, preserve, and one-day transfer value with the sale of the business for maximum value.

How To Sell a Business Podcast is produced virtually from the North Fulton studio of Business RadioX® in Alpharetta.  The show can be found on all the major podcast apps and a full archive can be found here.

Ed is the Managing Partner of Indiana Business Advisors. He guides the development of the organization, its knowledge strategy, and the IBA initiative, which is to continue to be Indiana’s premier business brokerage by bringing investment-banker-caliber of transactional advisory services to small and mid-sized businesses. Over the last 29 years, Ed has been appraising and providing pre-sale consulting services for small and medium-size privately-held businesses as part of the brokerage process. He has worked with entrepreneurs of every pedigree and offers a unique insight into consulting with them toward a successful outcome.

Connect with Ed: LinkedIn | Twitter | Facebook

TRANSCRIPT

Intro: [00:00:00] Business owners likely will have only one shot to sell a business. Most don’t understand what drives value and how buyers look at a business. Until now. Welcome to the How to Sell a Business podcast, where, every week, we talk to the subject matter experts, advisors, and those around the deal table about how to sell at maximum value. Every business will go to sell one day. It’s only a matter of when. We’re glad you’re here. The podcast starts now.

Ed Mysogland: [00:00:35] On today’s episode, I had the opportunity to visit with Tamer Shoukry. And Tamer is a business broker out of Ohio, and his claim to fame is Mr. Wireless. And it’s funny during our interview, I was thinking I was talking about wireless stores. And what I didn’t realize is just how deep that business goes. And what I’m saying is the resale market. I’m thinking we’re talking about new cell phone sales and products and services. But it was so much more than that.

Ed Mysogland: [00:01:17] So, it was a fascinating interview. And I’m certain that you will sit there and never look at another wireless store without going, “Wow, I had no idea.” So, my point is, it’s a good one. And so, I hope you enjoy my conversation with Tamer Shoukry.

Ed Mysogland: [00:01:35] I’m your host, Ed Mysogland. On this podcast, I interview buyers, sellers, dealmakers, and other professional advisors about what creates value in a business and then how can that business be effectively sold for a premium value.

Ed Mysogland: [00:01:48] On today’s show, like I indicated in my introduction, I’m really excited about Tamer Shoukry, who’s known as Mr. Wireless. And so, you can imagine to get that moniker, that is a real special person. And this industry is not quite what you might think. You think of it as a retail operation, but it really is so much more than that. So, Tamer, welcome.

Tamer Shoukry: [00:02:16] Well, thank you. Ed, thank you so much for having me today. I really appreciate that.

Ed Mysogland: [00:02:20] Well, I didn’t do your practice justice, so I was hoping that maybe you could talk a little bit about the work that you’re doing and your practice and your specialty.

Tamer Shoukry: [00:02:37] Awesome. Awesome. Well, in 2006, I started working for this nationwide distributor for wireless products. And, basically, what they did, they made me travel city to city, state to state, especially Indiana, to sell their product, which was Boost Mobile and Page Plus. And I had to go and flourish the markets. The market would not be familiar with these products, so I would move and I would spend weeks there until everybody starts selling this product, other retailers will start pushing the products.

Tamer Shoukry: [00:03:17] And that gave me a very, very strong stronghold when it comes to networking with small business owners who own retail shops, you know, corner shops, gas stations, all these mom and shop businesses, and bigger size retailers to introduce the products to them.

Tamer Shoukry: [00:03:40] I spent three years there and then I decided to start my own distribution company, that was in 2009. I became the master dealer for Boost Mobile, and number one distributor in the Midwest. So, we grew up from there. And then, I started selling devices in bulk to small carriers. So, smaller carriers will buy 5,000, 10,000, 20,000 devices per month, so I focused on this side of the business.

Tamer Shoukry: [00:04:14] Later on, in 2012, I started the first repair store in my area in Dublin, Hilliard, Ohio. And after one year, I started a cell phone repair school in Houston, Texas. And after that, I came back to Ohio. After three years, I came back to Ohio, and I started a little wireless software company that serves cell phone stores. So, I have a very good existence in the wireless industry in the country and overseas.

Ed Mysogland: [00:04:49] I would say. So, I guess the first place I would want to start – and I know this is a big ask – what’s the overview of the industry? Because like we were talking about before we got started, I mean, it’s not necessarily what everybody thinks that it’s just a retail operation. So, can you kind of give me a little bit of an overview on that?

Tamer Shoukry: [00:05:13] Sure. Yeah. The cell phone service or the telecom service is part of the infrastructure of any country and everybody is getting the service, any business, any field, medical, industrial, science, education. Everybody is using the wireless industry. And when it comes like this, you find yourself in a situation. There is always high demand on these kind of services and there is not enough people providing the service. You can imagine —

Ed Mysogland: [00:05:48] How is that? Is that true? I mean, how does that work? What you were saying was that there’s not enough people providing the service, I mean, what does that mean?

Tamer Shoukry: [00:06:00] Well, if you look at the country here, we have mainly, like, three or four major carriers – you know them – and they’re providing the airtime. And then, you have the dealers or retailers who are working under them providing the service. And then, you have the repair shops that do repairs for the devices when they have any problems or issues. And then, you have companies producing the devices, you know, Apple, Samsung, whatever. So, there is always high demand and there is not enough devices. I don’t think there’s enough devices in the market.

Ed Mysogland: [00:06:38] Really?

Tamer Shoukry: [00:06:40] Yes.

Ed Mysogland: [00:06:40] That was what caught my ear. I’m like, “Wow. There’s not enough devices in the market.” And as large as this market is, that’s a staggering statement. But you would know.

Ed Mysogland: [00:06:58] So, we have the market now. And I guess, when you think of a wireless operation – because when you were talking a little bit about your practice, you are not only talking about retail operations, but you were also talking about in truck stops, gas stations, things like that, where those are respective profit centers – tell me what does that look like, the mechanics of that. I know from a retail store, but does the retail store then go and sell to the truck stop? Or is there some other operation that has the cornerstone on that type of business? You know what I mean?

Tamer Shoukry: [00:07:47] Very, very good question. This industry is not stable. It’s changing every other year. It’s changing dramatically. So, back in the days when I started, we used to sell in corner stores. We used to sell in barbershops. We sell the device activated already with airtime, so you just turn on the phone and it has minutes and you can start talking and texting.

Tamer Shoukry: [00:08:11] But, now, all these venues start shrinking. But we have something new or we have the repair shops. The repair shop will be independent, will be providing services like fixing devices, activating new lines, and doing more than that. With the high price of the devices now, it becomes more like a car dealership. And this is the real — in the business, when you buy broken phones, fix them, and resell them. Huge margin. It’s more than anything you can imagine.

Ed Mysogland: [00:08:54] Now, I’m following you. So, where do you sell the repaired phones? Do you now turn online? Or are you getting foot traffic? Where is the source of that profit center?

Tamer Shoukry: [00:09:08] Okay. Perfect. So, if somebody who owns a store, usually the customer would walk into the store and they will ask do you have any affordable iPhone, for example, I don’t want to pay the full price. I said I have this model, I have that model. It sometimes will be like 30 percent off, 50 percent off from buying a brand new one. So, he would sell this, or he would sell them online, or he will export all the devices overseas for higher margin.

Ed Mysogland: [00:09:42] I get it. So, how do you – yeah. Go ahead. I’m sorry.

Tamer Shoukry: [00:09:45] So, you have some company that is selling, let’s say, 100 phones a month and some other companies selling 20,000, 50,000 phones for a month. You have this size and you have that bigger —

Ed Mysogland: [00:10:01] Sure. So, what’s a good size as far as revenue goes? What’s a reasonable operation? I mean, is that a half-a-million dollar revenue store? Or is that a $5 million revenue store?

Tamer Shoukry: [00:10:18] Usually, the independent one, the repair shops, they would be between 50 to mil. Some of them can reach mil. Especially if you’re in a busy city like New York, you can reach this number. The other bigger size companies, they do not do retail. They don’t face the end user. They would collect the devices, repair them, and then send them overseas for higher prices. And that margin will go up to $300, 400, 500 million.

Ed Mysogland: [00:10:57] Wow. So, the companies you just referenced, the ones that are buying up the damaged and subsequently repaired phones, they’re going around to all these shops saying, “Hey, I want to buy your damaged phones.” They refurb them and then sell them, right? That’s how that works?

Tamer Shoukry: [00:11:19] This one of the venues they do this. And the other way is they go directly to the carriers, because carriers will always — returns. And they will buy it through an auction. And the auction is not for everyone. You need to get certain certifications, like the R2 Certification, to be able to participate on those auctions.

Ed Mysogland: [00:11:45] So, what’s an R2 Certification? What does that mean?

Tamer Shoukry: [00:11:48] Responsible Recycling Certification. It’s very similar to the — but it comes to the electronics.

Ed Mysogland: [00:11:58] I got it. So, I’m based here in Indianapolis and so I know that there’s all kinds of retail operations that are selling phones, so that’s easy. But what about the folks that you just mentioned, the ones that are approved by the vendor to collect the phones, I mean, is that a big market? I mean, is there five people or 50 people that are buying up these phones?

Tamer Shoukry: [00:12:28] No. No. I would say the certified companies would be around maybe 30 certified. It’s not a big number. I can tell you the names of the owners of each company very easy because they don’t change that much. They don’t go out of business that quickly. I’d never seen any one of those companies dealing with the assets on the large scale getting sold. I never seen that.

Ed Mysogland: [00:13:03] Yeah. Those kind of margins, I’d hold them too. I wouldn’t sell it.

Tamer Shoukry: [00:13:09] There’s only a few companies that are the biggest companies. They’re going with billions of dollars. They got sold to private equities and entities like that. So, as I wanted to mention to you, it’s not only the small shop in front of you that one guy is working there. No. It goes way, way beyond that.

Ed Mysogland: [00:13:33] Sure. No, no, no. That’s where I was going with it, is that, it seems as though that’s the entry point but it just broadens out from there. And there is all kinds of money after just the retail side of the business.

Tamer Shoukry: [00:13:49] Yes. And there is also the companies that doing special type of software, companies doing finance technologies, and these guys are way beyond your imagination.

Ed Mysogland: [00:14:05] Well, circling back to the retail, I’ve always wanted to know how they make money. I mean, I know we’ve been focusing on, “Look, we’re taking damaged phones and we’re reselling them.” So, that’s a little bit of a profit center. But it would appear that the real profit is the guy that’s buying it, not necessarily the guy that’s selling the damaged phones. So, they’re getting a little bit of a hit, but it’s downstream that they’re making all the money. So, when I look at the retail operation, where are my profit centers? I know probably, you know, cases and things like that. But where else? Where am I looking at?

Tamer Shoukry: [00:14:57] When you go and you pay your bill, the monthly bill, this is profit. You get a margin. You get a small percentage. But by the time you will have more people coming to your store and doing the payments, that can pay your rent. For example, it can be, like, $2,000 or 3,000. When you are doing the repairs, you charge at least $50 up to $100 per device, so that is another thing. The accessories is another thing. In the accessories, usually you can make up to ten times your cost. So, you buy a charger for $2 and you sell it for $20. You bought this for $5 and you sell it for $25.

Ed Mysogland: [00:15:50] Yeah. Okay. So, the locations, the ones that I see, like when I’m looking at these locations here in Indianapolis, it seems as though – I don’t want to say they’re in the lower income, but it does appear that there’s a concentration in some of our lower income communities. I mean, conversely, where you would see like a Verizon not necessarily down in those same areas. Is that true or not?

Tamer Shoukry: [00:16:26] Yes. Yes. Usually, the lower income areas where you make most of the money. And it’s funny that you mentioned Indiana, because Indiana is very close to my heart. I started my career in Indiana. I consider Indiana as my school to understand the cell phone industry. And every city will have this one store that everybody likes to go there. And you had one, I guess, in the east side of Indy, and the store was amazing. Generation after generation, this is the spot. Everybody wants to go there. It’s not the nicest part of the town, but you know what? Everybody just go there.

Ed Mysogland: [00:17:09] Great service. I know what you’re talking about.

Tamer Shoukry: [00:17:11] But when it comes to the stores owned by the carriers, they usually go for the nicer areas. They usually go for prime locations. And the individuals do not like to open next to them because you cannot compete with the carrier. The carrier can hire the best executives, nicest looking sales people, the best devices. It’s not going to affect them. But if you’re an individual business owner, you cannot compete. You cannot compete. You want to be integrating with that company.

Ed Mysogland: [00:17:50] Well, that was where I was heading next. How does a company like this compete when you’re looking at online, you’re looking at BestBuy, you’re looking at where else can you activate —

Tamer Shoukry: [00:18:03] Amazon.

Ed Mysogland: [00:18:04] Yeah. And some of the bigger box stores. So, how does the mom and pop shop compete against something like that?

Tamer Shoukry: [00:18:12] I’m going to tell you a fact. It’s funny, when you go to one of the big boxes, you don’t get the service. You can grab the device, but no one is going to talk to you about it. No one is going to want to explain the plan. No one is going to tell you this is the most suitable plan for you. And if you have a problem, guess what? Nobody’s going to be able to answer your question. This is why they go to the repair shop to do the activation, to ask questions, and fix problems. And the same thing goes for the bigger carriers, they don’t have this technicality to sort issues with the device itself.

Ed Mysogland: [00:18:55] Yeah. I follow that. And I think one of the biggest challenges that I see, and we’ve tinkered around with a couple of them, has to do with repair. And I know you alluded to this just a minute ago that there’s a lot of profit baked into the repairs. And I have some children that have broken, you know, phones and iPads and so on and so forth, so I am well aware of the cost to repair it.

Ed Mysogland: [00:19:31] But one of the things that we continue to see is the difficulty in finding and then retaining help, especially with that. I think you can be easily trained on selling and understanding the product and the needs of the consumer. But a technician, that’s a different animal. So, how do I find them? How do I retain them?

Tamer Shoukry: [00:20:03] When it comes to technicians, this is the rarest type of employee you can ever — it’s very hard.

Ed Mysogland: [00:20:13] No, I’m with you.

Tamer Shoukry: [00:20:14] And usually, if I’m new in town, I don’t know everybody in town already, I would go to Google them and they said phone repair. And these guys, they would spend a lot of money just advertising online. So, when it comes to Google Maps, MapQuest or whatever, it will show you he’s there. He’s there. There is no single town, big town in the whole country without two, three, five stores doing repairs now. When I started my first store, I was the only one in my whole town in Dublin and Hilliard area. So, now it’s different — very well.

Ed Mysogland: [00:20:59] Yeah. And now what? You’ve got the major repair repair franchises. What, Cell Phone Repair? And I think there’s two or three others.

Tamer Shoukry: [00:21:09] CPR.

Ed Mysogland: [00:21:10] Yeah. CPR.

Tamer Shoukry: [00:21:12] Yeah. It’s funny, because these guys, they are not franchised really. It’s something – I don’t know how to explain it. The company used to be a franchise. CPR used to be a franchise. And then, they went to every individual store and they convinced them to change their sign and become under them. So, it’s Mike Repair, and everybody likes Mike. They will come to you and tell you, “Come join us. You will have certain kinds of benefits.”

Ed Mysogland: [00:21:44] I get it.

Tamer Shoukry: [00:21:46] I know the guy who started the CPR. He’s a friend of mine, I can say that. But when the company got sold a couple of times, now corporate is really separated from the store owners. It become a full franchise, really, you know.

Ed Mysogland: [00:22:08] Yeah. No, no, I get it. But circling back to the retention of the technician, I mean, is that just an economic thing or is there any other way to induce that type of person to stay with the company? Because if I’m looking at it as a buyer, I’m sitting here going, “All right. I got to figure out how I’m going to keep this guy.” Because what you just said is that the other shops are looking for a repair guy. And my guy probably has a target on his back. You know what I mean?

Tamer Shoukry: [00:22:39] True. This is a very important point, and from my experience, the best thing is to be generous to your technician. And, you know, you always have to have two or three of them. You can’t just depend on one.

Ed Mysogland: [00:22:55] That’s true.

Tamer Shoukry: [00:22:56] Once you have one technician, you hire somebody to be trained under him. Just in case something happened, he got sick, he had to travel, he got married, he got divorced, whatever, you always have a backup. You always have a backup. Somebody will get in and finish all the repairs. When I had my store, I had three. I had three all the time. Because if somebody got sick, we get heavy loads of repairs coming in, I always have enough people to do the repairs.

Ed Mysogland: [00:23:29] I get you. So, moving to financials, so are there various metrics or benchmarks that I could say, you know, if I have a 10 percent net profit margin, I’m doing great. If I have a 50 percent gross profit margin, I’m doing great. Are there any, like, ways to quickly look at a business and say, “Yeah. You know what? That’s a good target for me.”

Tamer Shoukry: [00:23:58] I would usually go and see how many repairs they do per month. I would see how many phones they sell per month. From my side, from my experience, I prefer the stores that sells more devices than the stores that repair more devices, because the biggest goal for you is to have the biggest sales. You need to sell more devices. So, it’s okay, you can do repairs, but you cannot focus on repairs only and neglect selling.

Tamer Shoukry: [00:24:33] So, I would like always to go to the store that’s selling the most devices in the whole area. You sell 100, I know exactly how much money you’re making. Because I would know he would at least make $50 to 100. So, if you sell 100, that’s $5,000. You sell more, you make more money. The rent shouldn’t be more than $2,000 under any circumstances. Some guys, they will go with more, but it will be always a big risk.

Ed Mysogland: [00:25:07] I get it. So, I guess as it relates financially, most people need their cell phone, so my question originally was centered around, you know, is the industry correlated to disposable income. And I think just from our conversation thus far, I can tell that’s probably not the case. There is no correlation to any part of the economy because people are going to need some means to communicate. Right?

Tamer Shoukry: [00:25:49] — percent true. And nowadays, with a device costing you up to $2,000, it’s not only people who do not have money, they go and fix the phones. I had a lawyer used to damage his small tablet all the time and come and spend $300 because all the documents that he has on these tablets.

Ed Mysogland: [00:26:13] Oh, sure, sure.

Tamer Shoukry: [00:26:14] Every time, every day he can buy brand new. But with the documents he has there, it’s worth his life. His career is only in this small device. He will come and spend $300 to fix it.

Ed Mysogland: [00:26:29] Sure. So, one of the challenges that I continue to see is this business as well as a business that is dealing with repairs as well as retail of new, and that’s inventory management. I got to imagine that it is a real challenge in this industry, isn’t it, to keep track of your inventory? Or is there like a universal point of sale type inventory management service or no?

Tamer Shoukry: [00:27:06] There are. There are. It would work for smaller shops. And there is software for wholesalers. But from the bottom of my mind, there is no real solution until today. I’m not saying this to bash the companies that designed those software, but you can do better than this. It can be more in details than what we have now. You can use QuickBooks like any other business. But when it comes to tracking your inventory, there is some software being used now, but I am not satisfied with the results.

Ed Mysogland: [00:27:49] No, no, I get it. So, who buys these things? Because I know you’ve sold a lot of them and I’m just kind of curious to know what does that person look like or does it vary?

Tamer Shoukry: [00:28:04] It varies. You can be a mom. You can be a dad. You can be a teacher. You can be a — you can be a government agency. You can be individual who is sending these devices, selling overseas. So, everybody is — but who’s buying more? You can ask me who is the most who’s bought more?

Tamer Shoukry: [00:28:27] And I would answer the question honestly. If you have any market with lots of immigrants, they would buy these devices more than anybody else, because the relatives back home in their countries, they’re going to ask them, we need devices, we need iPhones, we need Samsung, we need this, we need this. And there is no place in the whole Earth is cheaper than the U.S. when it comes to devices. So, the demand is crazy high.

Ed Mysogland: [00:28:59] I get it. That’s interesting. I mean, market multiples, do they vary in the industry or they stay fairly consistent? Because I got to imagine the risk remains the same, so I would assume the multiples fairly consistent or no.

Tamer Shoukry: [00:29:24] I would say it’s different between cities. Because if you’re new, it’s not the same thing. If you are in Kansas or Arkansas, you have less people, so your ability to sell devices is less than if you are in a bigger city.

Ed Mysogland: [00:29:46] So, multiples increase based on the density of the population in the area.

Tamer Shoukry: [00:29:55] Of course. Of course.

Ed Mysogland: [00:29:55] I get it. No, I mean that makes sense. So, as we talk about selling these things, is it a normal lending environment? I mean, it’s just based on cash flow and it works? Or is there a special way that these things get financed given the inventory fluctuations and such? I would assume it’s just like any other business. If it can support the cash flow, you know, you’re in business. Or is that not the case?

Tamer Shoukry: [00:30:31] Well, I would say, the biggest chunk of the business done cash upfront. And I was involved in one of those companies that provides a tool for financing for the independent store owners. So, the software will go and check the background of the person who’s buying the device. It will give you colors: red, don’t give him the device — it’s up to you; and green, go ahead and you can sell him, you can trust him, he has a good credit background, and he has the ability financially to give you the payment every week, $50, $20, whatever you agree on.

Tamer Shoukry: [00:31:17] But I would say cash is the biggest chunk of what’s happening here. Everybody just go and pay upfront. The financing comes from the bigger companies. If you go and buy from Apple, that’s brand new, expensive devices. They have their own financing and they make it easy.

Ed Mysogland: [00:31:37] Okay. But as far as buying the company, is it just like any other SBA lender? You know what I mean? From that standpoint, it seems that this is just based on cash flow. I would assume based on what we’re talking about, I would imagine my cash flow to revenue ratio has to be 20, 25 percent. That’s two-and-a-half, three multiple, which then takes me, as I look at it, to a bank. I mean, that’s plenty of cash flow to support some reasonable debt. What I’m trying to establish is the risk associated with, if I’m a lender, where is my risk in loaning that money, aside from the borrower him or herself? You know what I mean?

Tamer Shoukry: [00:32:40] I’ll tell you something, when it comes to small businesses, like individual stores, I never got any lender involved, just usually cash. But talking about bigger companies, the multiple million dollars, then it’s a totally different story. It’s a totally different story.

Ed Mysogland: [00:33:00] But if I come in some of the lower income areas, you had already indicated that the buyer pool tends to be —

Tamer Shoukry: [00:33:17] Competition.

Ed Mysogland: [00:33:18] Yeah. So, there is consolidation, so they understand it. But as individual buyers, so seller financing – because I’m sitting here, let’s just say it’s $200,000, would you risk 200,000 to buy this business that a lot of which is cash? You know what I mean? It’s almost like a food and beverage business. And to me, this seems harder to track my cash or no?

Tamer Shoukry: [00:34:00] True. This is why I mentioned that most of the buyers will be people from the industry itself. He can be somebody from outside the certain city or town. It can be the guy next door who always wanted to eliminate the competition. He would say, “Okay. I’ll buy it. I’ll take this place.” And usually it goes cash. They pay everything cash. If they have terms that’s between the buyer and seller, I do not recommend that at all because the consequences might escalate to a —

Ed Mysogland: [00:34:39] No, that’s great advice. Like I said, I didn’t anticipate that coming out of your mouth, but it totally makes sense. So, since we’re bumping up on time, the last question I asked every single guest, and you being the expert in the industry, what’s the one piece of advice that you would give, I guess, business owners in the wireless retail or the wireless industry? What piece of advice would you give them that would have the greatest impact on their value and their ability to sell?

Tamer Shoukry: [00:35:15] Do not buy a business based on your emotions. Never. You have to always —

Ed Mysogland: [00:35:21] Okay. So, that’s the buyer.

Tamer Shoukry: [00:35:24] Yes.

Ed Mysogland: [00:35:25] So, what about the seller? How is the seller? What does the seller need to do in order to make this business saleable?

Tamer Shoukry: [00:35:33] Your business has more value than what you think. Your business has more value than you think.

Ed Mysogland: [00:35:43] So, how do I get that out? Because I’m certain there are plenty of sellers that just heard that and say, “Tell me more. How do I get more money out of my business?”

Tamer Shoukry: [00:35:55] Hire a broker, like me. And I will go to your finances and I will make sure to represent your business in a better way than if you try to represent by yourself, based on numbers, facts.

Ed Mysogland: [00:36:14] Yeah. Yeah. I got it. So, the quality of your financial statements, even though you’ve got a bunch of cash that is flowing in and out of the business, that will determine whether or not you’re going to be able to sell at a premium value.

Tamer Shoukry: [00:36:32] Yes.

Ed Mysogland: [00:36:32] Perfect. So, Tamer, what’s the best way we can connect with you and how can people find you?

Tamer Shoukry: [00:36:38] You can search my name on Google or you can find me on Facebook at Tamer Shoukry. You can find me on Instagram, @cellphonesinbulk. Or you can call me at 614-226-2723.

Ed Mysogland: [00:36:56] Okay. Well, Tamer, I got to tell you, I didn’t know what to expect out of this. I’ve always seen it. I’ve always heard that the business was lucrative. I just had no idea that there was so much more to it than just a storefront. So, thanks for the education. I’m certain everybody’s kind of in the same camp with me of like, “Wow. What a crazy business. And, boy, that might be a nice little business for me to buy.” So, thanks for coming on and telling us all about that.

Tamer Shoukry: [00:37:33] You’re welcome. And thank you so much for inviting me.

Outro: [00:37:36] Thank you for joining us today on the How to Sell Your Business Podcast. If you want more episodes packed with strategies to help sell your business for the maximum value, visit howtosellabusinesspodcast.com for tips and best practices to make your exit life changing. Better yet, subscribe now so you never miss future episodes. This program is copyrighted by Myso, Inc. All rights reserved.

 

 

How to Maximize Profit as a Car Dealership, with Max Zanan, MZ Dealer Services and Author of the Perfect Dealership Series

by

Max Zanan
How to Sell a Business
How to Maximize Profit as a Car Dealership, with Max Zanan, MZ Dealer Services and Author of the Perfect Dealership Series
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Max Zanan

How to Maximize Profit as a Car Dealership, with Max Zanan, MZ Dealer Services and Author of the Perfect Dealership Series (How To Sell a Business Podcast, Episode 11)

Max Zanan, owner of MZ Dealer Services and author of Perfect Dealership, a four book series dedicated to helping car dealership owners adapt and thrive in their business, joined host Ed Mysogland. They discussed the industry as a whole, how dealers make their money, where the profit actually is, why dealerships are not likely to stay in the owner’s family, the role of the service department, how to keep qualified employees or train them, why buying a car takes so long, and much more.

How To Sell a Business Podcast is produced and broadcast by the North Fulton Studio of Business RadioX® in Atlanta.

MZ Dealer Services

Max Zanan is an automotive industry leader offering a comprehensive automotive consulting service for car dealers nationwide. His goal is to improve customer experience and retention while increasing dealership’s profits.

Contact Max today to build a better dealership including automotive compliance, F&I optimization, sales strategy, and more. He welcomes phone calls at  917-903-0312.

Website | Facebook| YouTube

Perfect Dealership Books by Max Zanan

Remember travel agencies? They were a thriving business not so long ago. Then online services transformed the industry, and brick-and-mortar travel agencies died—and died quickly.

Today, traditional car dealerships are facing much the same threat. Innovative and convenient digital startups and services threaten to disrupt the traditional car-sale process, egged on by consumers who aren’t happy with the existing sales process. If car dealerships don’t adapt, they too will face an industry-wide extinction.

Perfect Dealership offers help and hope for dealerships struggling to adapt to this digital-based paradigm shift. Consultant Max Zanan applies fifteen years of automotive-industry experience to the future of the car dealership. Arguing that dealerships must make significant changes if they are to survive the coming storm, Zanan takes a close look at every department within the business, including

    • human resources,
    • business development centers,
    • information technology,
    • parts and service, and
    • finance and insurance.

By improving the role of each department and transforming them from individual echelons into a cohesive whole, Zanan offers a road map for the creation of a perfect dealership—the only way to remain relevant and solvent in the digital age.

Find all of Max’s books here: Perfect Dealership

Max Zanan, Owner, MZ Dealer Services, and Author of the Perfect Dealership Series

Max Zanan, Owner, MZ Dealer Services, and Author of the “Perfect Dealership” Series

Max Zanan is the author of four best-selling books on automotive retail management: Perfect Dealership, Car Business 101, The Art and Science of Running a Car Dealership, and Effective Car Dealer. Each book is a top-ranked Amazon category leader and have received many 5-star reviews from prominent car dealership owners and managers. Max’s success as an author, general manager and entrepreneur has helped to cement his position as a preeminent voice leading the charge for modernization of the auto retail industry.

Max Zanan is a seasoned automotive industry expert with 20 years of experience in sales, F&I, compliance, and dealership management consulting. His goal is to help car dealers improve profitability while increasing customer satisfaction and retention. Zanan is a thought leader, organizer of the Perfect Dealership Conference, keynote speaker, and frequently quoted in trade publications such as Automotive News, Fixed Ops Journal, and Auto Dealer Today.

LinkedIn

Ed Mysogland, Host of How To Sell a Business Podcast

Ed Mysogland, Host of “How To Sell a Business”

The How To Sell a Business Podcast combines 30 years of exit planning, valuation, and exit execution working with business owners. Ed Mysogland has a mission and vision to help business owners understand the value of their business and what makes it salable. Most of the small business owner’s net worth is locked in the company; to unlock it, a business owner has to sell it. Unfortunately, the odds are against business owners that they won’t be able to sell their companies because they don’t know what creates a saleable asset.

Ed interviews battle-tested experts who help business owners prepare, build, preserve, and one-day transfer value with the sale of the business for maximum value.

How To Sell a Business Podcast is produced virtually from the North Fulton studio of Business RadioX® in Alpharetta.  The show can be found on all the major podcast apps and a full archive can be found here.

Ed is the Managing Partner of Indiana Business Advisors. He guides the development of the organization, its knowledge strategy, and the IBA initiative, which is to continue to be Indiana’s premier business brokerage by bringing investment-banker-caliber of transactional advisory services to small and mid-sized businesses. Over the last 29 years, Ed has been appraising and providing pre-sale consulting services for small and medium-size privately-held businesses as part of the brokerage process. He has worked with entrepreneurs of every pedigree and offers a unique insight into consulting with them toward a successful outcome.

Connect with Ed: LinkedIn | Twitter | Facebook

TRANSCRIPT

Intro: [00:00:00] Business owners likely will have only one shot to sell a business. Most don’t understand what drives value and how buyers look at a business. Until now. Welcome to the How to Sell a Business podcast where every week we talk to the subject matter experts, advisors and those around the deal table about how to sell at maximum value. Every business will go to sell one day. It’s only a matter of when. We’re glad you’re here. The podcast starts now.

Ed Mysogland: [00:00:36] On today’s show, I get the opportunity to interview Max Zanan. Max is the author of four bestselling books on automotive retail management, and they’re entitled Perfect Dealership, Car Business 101, The Art and Science of Running a Car Dealership, and Effective Car Dealer. Each book — and I did this in my — reviewed them in my research for this interview. Each book has plenty of stars right next to it. So each book is a top-rated Amazon category leader and certainly has received many five-star reviews from prominent dealership owners and managers.

Max’s success as an author, general manager, and entrepreneur has helped position himself as the premier preeminent voice of leading the charge for modernization of the auto retail industry. He has 20 years of experience in sales, compliance, dealer management, consulting. And everywhere I looked, his name kept popping up. So I hope you enjoy my conversation with Max Zanan.

I’m your host, Ed Mysogland. And on this podcast, I interview buyers, sellers, dealmakers and other professional advisors on what creates value in a business and then how that business can be effectively sold at a premium value. So as I — in the introduction, you heard me talk about Max. And Max Zanan of MZ Dealer Services is literally the authority on automobile dealerships. I looked high and low for my research, during my research, and he is just that guy. And so I’m so grateful to introduce to you Max Zanan. So welcome to the show.

Max Zanan: [00:02:34] I mean, Ed, thank you for this wonderful introduction and the opportunity to be part of your podcast.

Ed Mysogland: [00:02:41] Well, I’ll tell you, I’ve been looking forward to this because it’s a different animal. And like I said in my research and all the things that, all the different pieces that go into making a successful dealership, there’s a lot going on there. But before we get into my questions, can you talk a little bit about MZ Sealer Services?

Max Zanan: [00:03:07] So MZ Dealer Services is me. There’s nobody else.

Ed Mysogland: [00:03:12] That’s the MZ part.

Max Zanan: [00:03:14] Right. There’s nobody else. Meaning literally, I do not even have an assistant.

Ed Mysogland: [00:03:19] Okay.

Max Zanan: [00:03:20] And my job is to help dealers make money. And it sounds easy, but car business is so complicated and complex that there’s a reason why a lot of dealers do not make money. So again, there are different ways where you can make money. And I tried to bring all the options to the table, so the dealer doesn’t become a one trick pony. They can maximize profit opportunities in every single department because oftentimes, dealers make a mistake, and they obsess over the sales department, right, because they’re convinced that you can sell your way out of any trouble.

But when you buy a dealership, a franchised dealership, you’re not just getting a new car department. You’re getting a used car department. You’re getting a service department. You’re getting parts department. Sometimes you get in the body shop. So unless you’re maximizing every single opportunity that you paid for, you’re literally leaving money on the table.

Ed Mysogland: [00:04:37] Yeah. Some of the research that I had found was that you look at each of those respective divisions as almost their own business within a larger business and each has their own various attributes that contribute to value. One of the things that — you know, I’ve been appraising companies for 30 years or so. And the funny thing is that everybody says business valuation, it’s both an art and science. And the funny thing was in the research, I saw the same thing about what you do. So can you talk a little bit about the art and science of what you do?

Max Zanan: [00:05:16] So the science is easy, right? Because there are certain KPIs. Right, whether it’s profit per car, number of line items on the repair order, number of hours worked per repair order, stuff like that. But the art part is the hard part, right, because you’re right, sometimes and actually most of the times, each department operates in a silo. To a degree, where there’s zero communication with other departments. And the art is actually to bring them all together and make sure that they work towards a common goal. Because the common goal is to sell cars and then to service cars and then to sell cars again. So if the sales department and the service department are in silos, you will never get that full circle.

Ed Mysogland: [00:06:20] I get it. So is it a people issue? For the art part, is it a people issue? Is it a technology issue or is it an all of the above issue?

Max Zanan: [00:06:36] You know, it’s all of the above, plus lack of professional training issue. So the problem that we have is that I don’t think you’ll ever run into a Harvard MBA at a car dealership. Car dealers fail to attract talent the way Wall Street does.

Ed Mysogland: [00:06:58] So why is that?

Max Zanan: [00:06:59] Or the way Silicon Valley does.

Ed Mysogland: [00:07:00] Yeah. Why is that?

Max Zanan: [00:07:02] Well, because people think of car dealers — you know, car dealers have a terrible reputation, right, up there with Congressman. Right?

Ed Mysogland: [00:07:10] Right.

Max Zanan: [00:07:13] So, when there is this stigma attached to the industry, nobody is growing up saying that Ed, I can’t wait to grow up and get into car sales. But let’s say Wall Street doesn’t have that stigma and you do have kids finishing school, going to college with a goal of getting into Wall Street. Whether as a trader, as a broker, as an analyst, they just want to be part of that institution.

Ed Mysogland: [00:07:47] I get it. Well, the funny thing you would think, like, isn’t it John Elway? Doesn’t he own like a portfolio of —

Max Zanan: [00:08:00] Everybody wants to be a car dealer. John Elway, you know, Mark Wahlberg. You know, everybody. I mean, Warren Buffett.

Ed Mysogland: [00:08:09] Sure. That’s what I’m getting at. So you would think that with that kind of notoriety, that it would garner attention for more people to get into it, but it doesn’t seem to be the case. Maybe it’s a best kept secret in entrepreneurship.

Max Zanan: [00:08:27] Maybe, but it works against the dealer, right, because you cannot attract talented people.

Ed Mysogland: [00:08:34] I see.

Max Zanan: [00:08:35] You don’t even get an opportunity, right? You literally get the bottom of the barrel.

Ed Mysogland: [00:08:41] So how do you offset that? I mean, yeah, that’s a big problem.

Max Zanan: [00:08:45] The only way to offset it is to grow your own talent internally.

Ed Mysogland: [00:08:49] Okay. And then that begs, how do you keep them? How do you keep them from going to the — is it all economics or is there something else that keeps the tech, keeps whoever there?

Max Zanan: [00:09:03] There is definitely something else because it’s not just money. Right. It’s the organizational culture.

Ed Mysogland: [00:09:10] Okay.

Max Zanan: [00:09:11] So, and again, I think a lot of dealerships fail at that. You know, for example, if you talk about organizational culture, the best example I can give you is probably Zappos.

Ed Mysogland: [00:09:25] Okay. Oh, sure. The shoe company. All right.

Max Zanan: [00:09:27] That’s right. I mean, there’s a reason why Amazon paid billion dollars for a shoe company. Right. It was the culture.

Ed Mysogland: [00:09:35] I see.

Max Zanan: [00:09:36] And it’s that culture that keeps the people, you know, allows you to retain talent and attract talent so you can be the highest paying dealer on the block. But if the organizational culture is terrible, people will go elsewhere and work for less money and be happy.

Ed Mysogland: [00:09:57] Yeah. Yeah. And certainly — and I’ve got a question that I found. This is a statement from CDK Global. I don’t know who CDK Global is, but it said that, and I’ll just read it. So it says, CDK said that there are a lot of assumptions made about Gen Z loosely defined as individuals born between 1997 and 2012, the need for instant gratification from simple online purchase experience to real time social media engagement. However, when it comes to buying a vehicle, CDK discovered that Gen Z seems to be more thoughtful and spend more time weighing decisions while the experience of buying new and used cars, of buying a newer used car more frustrating than any other generation. With Gen Z, the most interested in understanding all of their options. So that was 81 percent compared to Millennials of 73 percent, Gen X of 60 percent, and Baby Boomers 45 percent. The need for education, both online and from knowledgeable representative at the dealership proves to be critical according to the study.

So that, my point to you is it’s exactly what you were saying regarding employees and the people that are representing the dealership that the expectation of those that are now buying it has to be a better experience. And those people have to be able to have the education and communication. Right or no?

Max Zanan: [00:11:35] You know, to me, the most frustrating part about the statement is the fact that CDK Global made it. Right. I don’t think they have any place to make that statement because CDK Global makes an operating system that dealers use.

Ed Mysogland: [00:11:52] Well, then that makes sense.

Max Zanan: [00:11:54] So I don’t know how much CDK Global knows about car buying, car selling or the demographics of buyers. But to be honest with you, this is what they say about every generation. I mean, if you look back, I mean, they were saying the same thing about Millennials, that Millennials are different. I’m a Generation X, right, the best generation.

Ed Mysogland: [00:12:13] Yeah, it is.

Max Zanan: [00:12:15] Yeah. And everybody was saying, oh, my God, you know, Millennials, everything’s going to change. They will not be buying cars. They will be using rideshare. They’ll be Uber, this, lifting that. But at the end of the day, this is what happens in the real world. You become an adult, regardless of your generation. And as an adult, you know what happens? You move to suburbs. You know what happens in suburbs? You can’t live there with Uber. You need a car. You become an adult, you get married. You become an adult, you have kids. Right. You can use rideshare if you got to take your kid to the soccer practice. Right. So at the end of the day, you become like the generation before you and you buy cars exactly the same way as the generation before you.

Ed Mysogland: [00:13:08] And it’s such a great point. And you’re exactly right. And I didn’t think of it until you said it. But the same thing, the same concerns that I have put in my kids in cars and such are the same ones certainly my parents had, and your parents had.

Max Zanan: [00:13:25] That’s it.

Ed Mysogland: [00:13:27] So, as you know, I mean earnings drive business value. In reviewing the comments about all four of your books, it was a repeated theme that your tips led to increased profitability. Do you have any favorites that you could share without selling out?

Max Zanan: [00:13:50] Listen, the beauty of this business is there’s nothing I can trademark.

Ed Mysogland: [00:13:57] I get you.

Max Zanan: [00:13:57] The secret sauce is really understanding how every part of the business operates. And I’ll give you the easiest example. For example, when you buy a car, at the end of the transaction, you’re going to go into the office where they’re going to try to sell you an extended warranty or gap insurance or tire and wheel protection. And this is the true profit center for any car dealership. That’s the finance department. So you can make money selling this product. And that’s what probably 99 percent of car dealers do. But you can probably double your profits as a dealer if you reinsure these products.

By reinsuring, I mean you open your own insurance company. And you buy a contractual liability insurance policy for each policy that you sell from the insurance company. So that’s why it’s called reinsurance. A real insurance company is reinsuring your business. And then if the premium dollars that you pay to your own insurance company exceed the claims dollars that you pay out, you will enjoy underwriting profit like any other insurance company. And the crazy part is that the underwriting profit is not taxed. That’s the beauty of insurance business as opposed to car business.

Ed Mysogland: [00:15:35] I get it. Okay.

Max Zanan: [00:15:37] So think about it. You can have, if you reserve properly for each policy that you sell, and you control your claims because you recondition your used cars before you sell them, you make sure you do the right thing by the customer. That underwriting profit is definitely there to be had. On top of it, this money, they don’t sit dormant, right? There is investment income that grows on these dollars. That’s how insurance companies make money.

Ed Mysogland: [00:16:13] Sure, sure. No, I get it.

Max Zanan: [00:16:15] And the investment income is subject to tax. But again, at capital gains rate, not an ordinary income rate. So it’s a phenomenal, phenomenal opportunity for any car dealer to build an asset outside of the dealership.

Ed Mysogland: [00:16:33] Got it.

Max Zanan: [00:16:33] Not be dependent on the factory and build generational wealth. And unfortunately, a lot of these dealers do not do it.

Ed Mysogland: [00:16:44] No, I mean, I can totally see that the synergy between the businesses that support the dealership are where the profit is, which literally blows the next question right out of the water, but I’m still going to ask it. So I’m told that in valuing a dealership, it’s made up of four components, the market value of the parts inventory, the market value of the equipment, the market value of the real estate, and then a multiple on the goodwill. Is that a fair assumption?

Max Zanan: [00:17:25] So think of it this way. You can ignore parts inventory and inventory because it just comes with the building, right? You can buy a dealership and say, you know what Ed, I’m only going to take the dealership, but you keep the parts. It doesn’t work like that, right? Yes, you can definitely put a dollar amount on the parts inventory. But at the end of the day, you still have to buy it. You can say, well, you take the parts inventory with you, I’m going to start fresh. Just doesn’t work like that.

Same thing with cars. If you’re selling, let’s say Nissan dealership to me and you have brand new Nissans on the lot. I mean, I can tell you Ed, I’m going to buy the dealership on the parts department, but you keep the cars, right? It just doesn’t work. We’re going to have to work out a number, how much I’m willing to pay for these cars, but the real crux of the issue is the blue sky. Blue sky is the value of the franchise. And the value of the franchise is something that market dictates. It’s not dictated by the dealer.

Ed Mysogland: [00:18:35] Really? So where does the market get its multiple or factor to apply to the goodwill?

Max Zanan: [00:18:46] Well, you see most corporations in America report their earnings on a quarterly basis. Of course, car dealers are different, they report every month. So this information is public. And every manufacturer, so let’s say you are a Nissan dealer or you are a Chevy dealer, doesn’t matter. When the month is over, let’s say January is over, within the first week of February, your factory expects a complete financial statement electronically sent to them. They know the profitability of –.

Ed Mysogland: [00:19:29] Of the franchise.

Max Zanan: [00:19:30] Exactly. So I think that’s how the –.

Ed Mysogland: [00:19:34] Really?

Max Zanan: [00:19:35] Gets established. But then again, listen, a lot of it is common sense. For example, I’m sure there are more KIA dealers than Porsche dealers.

Ed Mysogland: [00:19:45] Sure.

Max Zanan: [00:19:46] And you sell more KIAs, but you make less money per KIA sold as opposed to Porsche, right. You sell a few of those, but you make a lot more per car sold. And then let’s say, usually the high line brands have a higher multiple. Porsche being the highest multiple. Last time I checked, Porsche was selling for 11 multiple.

Ed Mysogland: [00:20:13] 11 times what?

Max Zanan: [00:20:15] Earnings.

Ed Mysogland: [00:20:16] Okay.

Max Zanan: [00:20:17] But these are crazy earnings.

Ed Mysogland: [00:20:19] Sure, sure. No, I get.

Max Zanan: [00:20:20] Because you see what happens with the high line dealership, whether it’s Porsche or Mercedes, not only that you get to make money selling the car, right, because it’s a desirable product and people are willing to pay for the service and the car. But let’s assume for a second that you bought that Porsche, you’re not going to Jiffy Lube for an oil change. You’re not.

Ed Mysogland: [00:20:44] Yeah, I know. You’re right.

Max Zanan: [00:20:46] So that service retention is almost guaranteed as opposed to you buying a Toyota Corolla. You can easily go to Jiffy Lube. Easily.

Ed Mysogland: [00:20:58] You’re right.

Max Zanan: [00:20:59] So that service retention is basically guaranteed and the amount of money that you are charged in a service department. I think Mercedes, Porsche dealerships right now are over $200 an hour for labor. I mean these are almost like doctors.

Ed Mysogland: [00:21:23] Right. No, no, you’re right. You’re exactly right. Oh, man. So you said, so there’s, let’s just say the Porsche dealership, you have an 11 multiple on earnings. Is that all in? Like you were talking about like the reinsurance company, is that all dumped in? All right.

Max Zanan: [00:21:46] No, reinsurance company is out. It’s almost like an off of balance sheet.

Ed Mysogland: [00:21:52] Okay. So they’ll bring their own, if they want to do it, they’ll do it themselves. But that’s independent of the value of the dealership.

Max Zanan: [00:22:01] Exactly. So basically, your net profit, right, that you generated in sales, service, and parts.

Ed Mysogland: [00:22:10] I got it. So around here, there was a recent article about — and here in Indianapolis, we’re seeing some dealerships turning over. And these were family dealerships, and it doesn’t seem — the article was basically that the next generation, or I shouldn’t say that, the selling generation did not want to invest in modernization in order to make it more marketable. So then a different dealer from a neighboring town comes in and now they have a presence in Indianapolis. So are you seeing that the generation, I guess the generation before us, that’s trying to transition would rather sell than modernize?

Max Zanan: [00:23:13] So, I’m not sure because the way it works is that their brand standards that are dictated, let’s say, by Mercedes or Nissan or Toyota and they say Ed, if you are a Toyota dealer, your showroom has to look this way. That’s why they look the same regardless of whether you’re in Indianapolis or New York. And you have to spend your hardearned money to do that. It’s not open to negotiation. These brand standards are real, and I think generation is really irrelevant, right? Because whether it’s the older generation or younger generation, you just have to do what the factory tells you to do in terms of the brand standards. I think the generation that’s older than us, the baby boomers that are selling, I think they’re selling for one reason and one reason only. They’re selling because their kids are not interested in going into the business.

Ed Mysogland: [00:24:16] But why? They must have seen mom and dad print money. I mean, especially those that have been around for 20, 30 years.

Max Zanan: [00:24:25] So, unfortunately, you know, car dealers, probably like many other business owners, they don’t tell their kids to go into the same business. Right. They tell them, go become a doctor, go and become a lawyer. You know, do whatever makes you happy, and they do. Right. And they become high school teachers making $40,000 a year because mom and dad are gazillionaires, and subsidize their lifestyle.

Ed Mysogland: [00:24:58] No. You know what? That’s a great point and disappointing. But at the same time, it is what is. So you see industry consolidation more so than transfer from Gen one to Gen two. Fair statement?

Max Zanan: [00:25:19] You know, car business is extremely fragmented. I don’t think there’s another business like that because if you look you know, I mean, look at, let’s say, Internet search business, right? It’s Google or nothing. Right? Social media, it’s Facebook, Instagram, Twitter and Snapchat. There are 18,000 franchised dealers in America. The largest auto group publicly traded, it’s called AutoNation. They have 330 dealerships, out of 18,000.

Ed Mysogland: [00:25:57] Yeah. No, no. I see where you’re going.

Max Zanan: [00:25:59] So it’s super fragmented. So when we talk about consolidation, you know, even if it consolidates another 10 percent, it still be super fragmented.

Ed Mysogland: [00:26:08] Yeah. No, that’s a great point. Like I said, in communities like ours, it seems as though one family starts buying out another family. Like it seems in our community, it’s Tom Wood. It’s now, I’m trying to think of who’s buying them out but, Andy Moore. You know, he just continues to expand his market share, I guess. And it doesn’t seem — and that leads me to my next question. I mean, are individual buyers candidates for getting into this business or do you really have to, is the pedigree you really better have a real clear understanding of what you’re getting into because all the moving parts in this business is something unlike anything you’ve been accustomed to?

Max Zanan: [00:27:01] So listen, there’s this failsafe mechanism built into the buy sell process. For example, you would like to buy a Toyota dealership. Toyota will never approve you even if you have the money, because you don’t have the experience, because the factory is not interested in having dealerships failed because it’s a bad reflection on the name.

Ed Mysogland: [00:27:28] I got it.

Max Zanan: [00:27:29] So it’s not like, well, let me just have some money and become a car dealer. There’s a very thorough approval process. And if you don’t have the experience, you would have to bring in an executive manager that would probably end up being your partner.

Ed Mysogland: [00:27:47] I got it. Yeah, that’s fascinating. While I understand, like franchises, not necessarily automobile franchises, I do understand the rigors of going through the approval process. But again, I follow what you’re saying that it needs, you know, you need to have —

Max Zanan: [00:28:08] I think the difference between a Dunkin Donuts franchise and a Nissan franchise is that you and I can become Dunkin Donuts franchisees, but we will have to attend the Dunkin Donuts University.

Ed Mysogland: [00:28:21] All right.

Max Zanan: [00:28:23] It doesn’t work like that in car business. You can buy the franchise and then go to school provided by the manufacturer.

Ed Mysogland: [00:28:32] I got it. So the book you wrote during COVID. So in the book Effective Car Dealer: Selling Cars, Parts, and Labor After COVID-19, you talk about these are the silos, the sales, finance, financial and insurance compliance, service and parts. So what — and you alluded to this earlier, but I wanted to scratch the itch a little bit more on what area makes the biggest contribution to making the business saleable. I’m assuming it’s service, but I may be wrong.

Max Zanan: [00:29:12] SoSo there’s a huge problem in car business. And the problem is this, 97 percent of owners, partners, general managers all came up through sales.

Ed Mysogland: [00:29:27] Okay.

Max Zanan: [00:29:28] They don’t understand parts and service. So since 97 percent of your owners or future owners came up through sales, to them, sales department is it. So all they want to know is how many cars you sell, how much money per car you make. They don’t really understand KPIs that are in parts and service.

Ed Mysogland: [00:29:56] Got it.

Max Zanan: [00:29:57] And yes, you’re right. You know, parts and services are extremely profitable. For example, markup on labor in a car dealership is 75 percent. Markup on parts is 50 percent. You can never get these margins selling cars, ever.

Ed Mysogland: [00:30:17] Yeah. No, I get it, which leads me to my next question. So you mentioned KPIs a couple of times. So what are the leading indicators for a car dealer or are there tripwires that an owner needs to be aware of?

Max Zanan: [00:30:39] So to me, a huge indicator is service absorption. So service absorption means that the gross profit generated from parts and service covers all of your fixed expenses. For the entire operation, not just for parts and service.

Ed Mysogland: [00:31:00] Oh, okay. That’s a telling one.

Max Zanan: [00:31:03] Right. And so, for example, if your service absorption is 100 percent, that means you cover 100 percent of your fixed expenses through parts and service. Most dealers are nowhere near 100 percent. They’re below it. But there are some dealers that are above because you can be above 100 percent. You can be 110, 120 if you are a superstar. And what that tells me, if you are 100 or above, is that it doesn’t cost anything to sell cars. Right. It doesn’t cost anything. Meaning you can actually give cars away to grab market share because all of your expenses are covered, fixed expenses by parts and service.

Ed Mysogland: [00:31:52] Got it. So as the previous generation, we touched on this, and I guess I wanted to go back on how do you size up the next leader in the business? Like, for example, say the owner is going to just ride it out. I’m going to hold on to this, you know, and I’m going to leave involuntarily. They’re going to take me out in a box. So how does — I mean, are there certain attributes that you can see in dealer leadership? Like this is a man or woman that has, you know, this is the pedigree that I’m looking for that will preserve my investment?

Max Zanan: [00:32:48] You know, I wish it was that easy.

Ed Mysogland: [00:32:50] Me too.

Max Zanan: [00:32:53] So what usually ends up happening is that you have to grow your own talent. You have to invest into education. And this education is very, very limited. It’s not like you can go to school and major in dealership management. It’s not really an option. So you have to find information elsewhere. And there are good resources out there. There’s National Association Dealer — Association of Automotive Dealers, NADA. They have a university where you can enroll your employees. And it’s not cheap, but it’s worth every dollar.

And then usually a State Dealer Association would have some other courses available to its local dealer body. And again, you have to take advantage of it because these courses are available. But if you actually go there, you will see that the attendance is really, really poor. Because, you know, car dealers, as I mentioned before, they have to report every 30 days. So they live in a 30-day cycle, which really is counterproductive. It prevents you from building a long-term strategy, building a vision.

Ed Mysogland: [00:34:21] Because of the expectations to the franchise itself. So they’re not able to — they are expected to have a certain level of profit. Right or?

Max Zanan: [00:34:33] Well, it’s either profit — it’s not in profit, but let’s say if you are a Chevy dealer, right, the factory will say, well, in the month of February, we expect you to sell this many cars. So it becomes a rat race.

Ed Mysogland: [00:34:51] So does it — when does it trigger, I don’t want to say a default, but when do you — I mean, how many missed 30-day cycles can you —

Max Zanan: [00:35:04] Many. Many

Ed Mysogland: [00:35:05] Okay. So I can say, look, you know, I’m sending my best guys to this university to get educated. But as a consequence to doing that, it’s a good long-term play, but short term, I’m going to take it on the chin because I’m sending these guys to get educated. That fair statement?

Max Zanan: [00:35:28] Yeah. But again, this is a dealership specific education. They’re not going to NADA University to learn sociology and psychology.

Ed Mysogland: [00:35:37] All right. So how do you handcuff those people that you’re investing in?

Max Zanan: [00:35:43] So I think there’s a saying, like when the CEO is speaking to the CFO. And the CFO says, you know, we’re spending all this money training people, what if they leave? And the CEO says, what if we go then they stay?

Ed Mysogland: [00:36:01] I get it. That makes sense. Have you seen any noble ways to keep people? I mean, I know originally you were talking a little bit about culture, and you can go back to it. But how do I keep my best people?

Max Zanan: [00:36:20] So the hardest people to find right now are technicians. So as the dealer principal, you have to be really creative and come up with ways to keep them.

Ed Mysogland: [00:36:34] And you were saying it’s not all economic.

Max Zanan: [00:36:37] It’s not. Exactly. So, for example, what I learned is that every technician is addicted to buying tools. That’s their livelihood. They buy tools. This is what they spend their money on. Because as cars become more and more complicated, you need more and more sophisticated tools to work on these cars.

Ed Mysogland: [00:37:00] Well, it’s funny you say that, because in — so I’ve got a fellow that is coming on the podcast that specializes in the sale of automobile repair businesses. And one of the things in that research was that the technicians bring their own tools. Is that the same in dealerships or no?

Max Zanan: [00:37:28] Yes. So there’s certain special tools that are extremely expensive and they’re owned by the dealership. But your day-to-day wrenches, et cetera, are owned by technicians. So basically when you hire a technician, he shows up with his toolbox and then he keeps spending money to put more tools in his toolbox. So one of the most innovative ways, I think, to retain a technician is to go and help them buy tools.

Ed Mysogland: [00:38:02] Nice. No, that’s a great, you know, here’s X number of dollars per month for you to keep your toolbox up to date and find —

Max Zanan: [00:38:13] Another way, which is very effective, is to really come up with a formula and say for each year of service, it doesn’t matter if you’re a technician or you work in accounting and you’re selling cars for each year of service, there’ll be a bonus of X amount of dollars. So listen, if Ed is at XYZ Toyota for 15 years, right. And the bonus is $1,000 per year, you collect $15,000 around Christmas, which I think is worth it for the dealer and definitely is worth it for you. Because even if you were to get another job, you would start at zero, right?

Ed Mysogland: [00:38:58] Right. A hundred percent. Yeah. That’s a great idea. Okay. So I’ve got a couple more questions if you got some time.

Max Zanan: [00:39:10] Sure.

Ed Mysogland: [00:39:11] So, my first question is, where is the puck going in this industry? I mean, it seems as though — you know, it’s a volatile time, but yet maybe not.

Max Zanan: [00:39:24] This is a really controversial topic because as you know, this business operates based on franchise laws and we are living in the environment where every manufacturer wants to be like Tesla. And Tesla operates outside of franchise laws.

Ed Mysogland: [00:39:54] Really? How so?

Max Zanan: [00:39:55] Tesla sells direct. Tesla was able to [inaudible]. So Tesla sells direct to consumer. And now basically what happens in every boardroom, whether it’s Ford, GM, you know, there are two factions in every boardroom. There are old dogs that understand that you cannot sell cars in the United States without dealers. And then there’s another fraction that says, but wait, look at Tesla. And then they keep pointing at Tesla’s valuations. And Tesla is valued more than every manufacturer combined on planet earth. That’s a stock valuation.

Ed Mysogland: [00:40:40] Sure, sure. I get it.

Max Zanan: [00:40:41] Right. So these factories, again, whether it’s Ford or GM, they’re trying to come up with creative ways of how to cut out a dealer and sell direct to consumer. And that’s the real danger that I see. So to answer your question, where the puck is going, hopefully these manufacturers will understand that our franchise model is more than 100 years old. It has been proven and battle tested. And it’s really, really good for the consumer.

Whereas the direct-to-consumer model is extremely complicated in the sense that the manufacturer doesn’t have expertise selling cars, they have expertise making cars. So, for example, if you want to sell direct to consumer, most consumers have trade ins. Right. Who’s going to put a dollar amount on the trade in? In the car dealership, we have a used car manager for that. But if you’re doing this as direct-to-consumer online, you know, it becomes problematic.

Ed Mysogland: [00:42:02] And this is also the collapse of Carvana. Is that how that fell apart or no?

Max Zanan: [00:42:10] Well, Carvana fell apart because the math doesn’t work. You know, math is math.

Ed Mysogland: [00:42:17] Right.

Max Zanan: [00:42:17] Right. So let’s say, you know, just to use round numbers, let’s say every used car that you sell, let’s say you make $1500 on the sale of the vehicle in a dealership. And then there’s other profit by selling warranties, you know, and stuff like that. But let’s say you didn’t sell anything in that office, you only sold the car and you made $1500 dollars. It’s a very respectable number, but that’s assuming that you have a local customer. They took the car and they drove home. Let’s say Carvana made the same $1500 dollars, but they had to ship the car to Alaska.

Ed Mysogland: [00:43:00] Oh, sure. That makes sense.

Max Zanan: [00:43:03] You know, your $1500 is gone.

Ed Mysogland: [00:43:06] Yeah, I get it. I guess then the car buying experience is always brutal and everybody wants to know why it takes four hours to buy a car. I mean is that designed to car buying fatigue and I mean —

Max Zanan: [00:43:34] You know, I’ll be honest with you, it only takes four hours because of the consumer.

Ed Mysogland: [00:43:41] Oh, really?

Max Zanan: [00:43:42] Right. Because they come in not knowing what they want. All the things that you read about them doing research, all that research is gone by the time they walk into the showroom. And they’re like, “Well, I’m looking for an SUV”. Two row, three row. They start choosing the model, go on in the test drive, you know, and then let’s say the wife says, I hate it.

Ed Mysogland: [00:44:12] I get it.

Max Zanan: [00:44:13] Okay. So we start the process all over again. So let’s say, for example, you walk into a Jeep dealership, right, and you want to buy an SUV. Jeep makes SUVs of every size, right? There’s a tiny one. There’s a Cherokee. There’s a Grand Cherokee. There’s a Grand Cherokee longer version. And then there’s a Grand Wagoneer, which is like a school bus. And now, the consumer has to make a decision. And that decision making process is extremely long.

Ed Mysogland: [00:44:46] Sure. But once they’ve established price, it seems as though, the meter starts all over again waiting for financing and waiting for the opportunity to go through that process.

Max Zanan: [00:44:58] You see, this is not so clear cut because, yes, if you walk into a dealership and we pick the car for you and we settled on the price, and you don’t have a trade in, and you have excellent credit, that financing process is instantaneous, right? You are easy to get approved on. But usually, most people have a trade in, right. So now it’s the reverse because when you have a trade in, you are selling the car to the dealer.

Ed Mysogland: [00:45:31] Sure. I get it.

Max Zanan: [00:45:32] So now you negotiate on the trade in. And then what if you have some blemishes on your credit? And maybe you were hoping to get that low APR, but you don’t qualify. So the dealer has to find a different bank. And that takes time. And then you go into that office to sign the paperwork and the finance manager has to go through his presentation and present to you every protection product that’s available for sale, because you will then turn around and sue the dealership if this product wasn’t presented.

Ed Mysogland: [00:46:10] I get it. Okay. So it really isn’t a vehicle to, you know — I mean, certainly there’s some upselling that goes on, but it’s not a tactic to wear you down so you buy more.

Max Zanan: [00:46:29] It is not. And I think every dealer would want to speed up the process.

Ed Mysogland: [00:46:34] Sure.

Max Zanan: [00:46:37] If it takes me to sell a car and the process is four hours and I’m the salesperson, I cannot take another customer for the next four hours while I’m selling the car to you.

Ed Mysogland: [00:46:46] Sure. That’s what I would have thought. I get it. So at the conclusion of every podcast, I’ve always asked everyone I’ve interviewed, what is the single best piece of advice that you could give our listeners that would have the most impact on their dealership? What would that be?

Max Zanan: [00:47:08] Make sure that all of the departments in your car dealership are operating and working towards a common goal. And you have to define that common goal. And it has to be very, very specific because you can’t say our common goal is to sell cars. Right. It’s a little too vague because every dealer’s goal is to sell cars. Yet to me, the dealer, his goal was not to sell cars.

Ed Mysogland: [00:47:35] I see.

Max Zanan: [00:47:36] Right. So you have to say, well, my goal is to sell cars because, and what is the value proposition that you are bringing in your sales department? And then after, let’s say I bought a new car from you, what is the value proposition that you bring in in your service department? Because I could have had an amazing experience buying a car. And then I come for service and experience is terrible. I will never be back to buy another client, that dealership, unfortunately. Even though the sales experience was phenomenal. That’s how interconnected these silos are.

Ed Mysogland: [00:48:19] I get it. So it’s funny you say that because I, for my youngest daughter, she has a little Hyundai Santa Fe. And I took it in for a recall. And it came out and here was four pages long of all the recommended things that we do. And I mean it was like five grand of stuff. And it was like, yeah, I felt I was getting squeezed and what do you do? And so my point to you is you’re right, it left a real bad taste in my mouth that I’m not really certain — I’m all for you making money, I’m just not all for you making money only off of me. It just — there was a lot to what they gave me. And when I vetted it out, I was getting jammed. I mean, that’s the long and the short of it.

And so yeah, but back to your original comment when we first got started, you know, the reputation of the industry is a tough one to overcome. And again, it’s things like that that cause it. So I’m with you. But to your point, the good dealerships will always sell. Those that have the value proposition that have the synergy between the silos, I’m a hundred percent with you that those are the ones that you’re looking for, and those are the ones that will get the premium, you know?

Max Zanan: [00:50:08] Yeah, exactly. And the other piece of advice that I can give, it’s a tough pill to swallow. I encourage every dealership owner to mystery shop his own business. And you can really have a heart attack doing it.

Ed Mysogland: [00:50:32] Yeah, that makes sense. So what’s the best way that listeners can find you, other than all you have to do is put Max in Google and you got the first few pages? So what’s the best way we can do that?

Max Zanan: [00:50:50] I mean, listen, as I told you before, you know, I am a one man show. And the best way to get in touch with me is just call me. I actually answer the phone. There’s no answering service. There’s no secretary. I know how to use a phone. So I actually, like, hold back.

Ed Mysogland: [00:51:10] Got it. So you kick it old school. That’s –.

Max Zanan: [00:51:13] Yeah. Yeah.

Ed Mysogland: [00:51:14] Well, I will have everything we talked about as well as a link to your website and everywhere that you can find Max. Including, if you’re all right, I’ll have your phone number in the show notes. So, Max, you a hundred percent lived up to the hype I was hoping you would. It was awesome. I so enjoyed our time together.

Max Zanan: [00:51:42] Thank you. Thank you.

Ed Mysogland: [00:51:43] So thanks so much for being on.

Outro: [00:51:46] Thank you for joining us today on How To Sell Your Business podcast. If you want more episodes packed with strategies to help sell your business for the maximum value, visit howtosellabusinesspodcast.com for tips and best practices to make your exit life changing. Better yet, subscribe now so you never miss future episodes. This program is copyrighted by Myso Inc. All rights reserved.

 

 

How to Improve Earnings to Maximize Business Value, with Bill McDermott, The Profitability Coach

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maximize business value
How to Sell a Business
How to Improve Earnings to Maximize Business Value, with Bill McDermott, The Profitability Coach
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Earnings

How to Improve Earnings to Maximize Business Value, with Bill McDermott, The Profitability Coach (How To Sell a Business Podcast, Episode 4)

Improving earnings to maximize business value was the focus of this episode with guest Bill McDermott, The Profitability Coach. He and host Ed Mysogland discussed key things business owners can do to improve earnings, strategies to improve profitability, the need for delegation, financial management, planning your exit strategy, and much more.

How To Sell a Business Podcast is produced and broadcast by the North Fulton Studio of Business RadioX® in Atlanta.

The Profitability Coach

Every business owner has a big dream for their company and wants to make it happen. The problem is many business owners don’t know how to manage the finances of their business leaving them frustrated and confused.

The Profitability Coach comes alongside the business owner and analyzes the financial health of the business and develops a plan to take them from financial confusion to clarity. Then he executes the plan focusing on areas of financial growth. Together they travel the road of financial success to profitability and healthy cash flow.

Company website | Instagram | LinkedIn

Bill McDermott, The Profitability Coach

Bill McDermott, The Profitability Coach

Bill McDermott graduated from Wake Forest University and launched a banking career that spanned 32 years. He was laid off from his position as Chief Commercial Lender in the Great Recession of 2009. With a treasure trove of banking knowledge and analytical skills, Bill launched the Profitability Coach with the purpose of making business owners better financial managers.

Over the past 13 years, Bill has helped over 200 clients by delivering results-oriented insights, taking them from financial confusion to clarity.

Bill is also the host of ProfitSense with Bill McDermott. ProfitSense dives into the stories behind some of Atlanta’s successful businesses and business owners and the professionals that advise them. This show helps local business leaders get the word out about the important work they’re doing to serve their market, their community, and their profession. You can subscribe to the show on all the major podcast apps, and the show archive can be found here.

LinkedIn

Ed Mysogland, Host of How To Sell a Business Podcast

Ed Mysogland, Host of “How To Sell a Business”

The How To Sell a Business Podcast combines 30 years of exit planning, valuation, and exit execution working with business owners. Ed Mysogland has a mission and vision to help business owners understand the value of their business and what makes it salable. Most of the small business owner’s net worth is locked in the company; to unlock it, a business owner has to sell it. Unfortunately, the odds are against business owners that they won’t be able to sell their companies because they don’t know what creates a saleable asset.

Ed interviews battle-tested experts who help business owners prepare, build, preserve, and one-day transfer value with the sale of the business for maximum value.

How To Sell a Business Podcast is produced virtually from the North Fulton studio of Business RadioX® in Alpharetta.  The show can be found on all the major podcast apps and a full archive can be found here.

Ed is the Managing Partner of Indiana Business Advisors. He guides the development of the organization, its knowledge strategy, and the IBA initiative, which is to continue to be Indiana’s premier business brokerage by bringing investment-banker-caliber of transactional advisory services to small and mid-sized businesses. Over the last 29 years, Ed has been appraising and providing pre-sale consulting services for small and medium-size privately-held businesses as part of the brokerage process. He has worked with entrepreneurs of every pedigree and offers a unique insight into consulting with them toward a successful outcome.

Connect with Ed: LinkedIn | Twitter | Facebook

 

TRANSCRIPT

Intro: [00:00:00] Business owners likely will have only one shot to sell a business. Most don’t understand what drives value and how buyers look at a business. Until now. Welcome to the How to Sell a Business Podcast, where every week we talk to the subject matter experts, advisors, and those around the deal table about how to sell at maximum value. Every business will go to sell one day. It’s only a matter of when. We’re glad you’re here. The podcast starts now.

Ed Mysogland: [00:00:35] Welcome to another episode of How to Sell Your Business Podcast. I had the opportunity to visit with Bill McDermott, who’s known as The Profitability Coach. And, you know, I’m really skeptical on those consultants and people like that. And it came from a referral from Business RadioX, John Ray. And the first thing he said was what a quality guy he is, and this is such an understatement.

Ed Mysogland: [00:01:11] And so, I’m thrilled to death about the time that you’re getting ready to spend here on the podcast because Bill really helped provide some clarity on, number one, how to identify an advisor. If you’re going to hire somebody, what’s the difference between signal and noise? When should you expect a return on your investment? And so, as we went through the podcast, you know, not only was he well versed in so many different attributes of the selling process of what creates value to actually the whole exit process.

Ed Mysogland: [00:01:56] So, I think you’re going to find that Bill, as The Profitability Coach, really helped provide some really helpful nuggets on how you can make some immediate changes to your business to increase the transferable value. So, I hope you enjoy my conversation with Bill McDermott of The Profitability Coach.

Ed Mysogland: [00:02:22] I’m your host, Ed Mysogland. I teach business owners how to build value, and identify and remove risks in their business so that one day they can sell at maximum value how they want, to whom they want, and at maximum value.

Ed Mysogland: [00:02:36] On today’s show, I’m so excited to welcome Bill McDermott, who is known as The Profitability Coach. And for anybody that are small business owners, they know how important profitability and earnings are to the success of their business. And so, I am so fortunate to have this guy. I was connected by another mutual friend, John Ray from Business RadioX, and he connected us. And, boy, what a great opportunity this is. And I’m looking so forward to learning a lot about earnings.

Ed Mysogland: [00:03:17] And so, Bill, welcome. At the beginning I shared a little bit about your bio before we started recording, so can you just kind of give just a little bit of the lay of the land how you got to be The Profitability Coach?

Bill McDermott: [00:03:34] Sure. Sure. Absolutely. Well, Ed, first, let me say thank you for having me. The excitement is mutual on both sides. I was excited when you invited me to come on the show. And so, yeah, my background is I was a Wake Forest University grad. I spent 32 years in the banking industry. And then, all of a sudden 2009 hit, the Great Recession hit, and so I was laid off from my banking career. I was scared to death. But I also realized looking back, it was the best thing that had happened to me.

Bill McDermott: [00:04:17] During my banking time, I really discovered that business owners really struggled with the financial management aspect of their business. I had built up a treasure trove of banking and financial knowledge in my career as a banker, and so I launched The Profitability Coach, really helping business owners drive earnings through becoming better financial managers.

Bill McDermott: [00:04:45] You know, every business owner has a big dream for their company and wants to make it happen. What happens sometimes, though, is they don’t really know if the decisions they’re making are helping or hurting. They may not know exactly how to manage the finances of their business. And so, we have a process where we identify the hurdles that are getting in the way and to deliver to them a company that has profitability that, honestly, they never thought was possible. And so, excited to talk about that with you today. You’re absolutely right, it is all about earnings, and I would love to dive into that with you.

Ed Mysogland: [00:05:27] Well then, that’s where we’ll get started. Most of my career has been centered around working with owners and business value. I mean, ultimately when we start the process of selling a company, that’s what everybody wants to know. And everybody gets so hung up on multiples that they hear. They’re at the club and they hear the multiples. They’re watching the news and they hear price to earnings ratios and different things like that.

Ed Mysogland: [00:06:03] And I guess the longer I’ve been in the business, and I’d been in it 30 years now, it is all about earnings. And I guess that’s where I’d like to start. It seems so fundamental that value is based on profitability, but it doesn’t seem to resonate with business owners. Or, you know, they’re so caught up in working the business and if I’m able to pay myself, if I’m able to do the things I want to do, and have the freedom I want, no big deal. Up until the part where they think they want to sell. So, why is that component so glossed over?

Bill McDermott: [00:06:48] You know, I think you hit on it – by the way, absolutely great question and great topic – you mentioned it a little bit yourself. You know, I hold the view that business owners are so busy working in the business. They don’t really take time out to work on the business. They don’t have that time where they’re really looking at strategy. And so, honestly, I think every business owner should take time to stop working in the business and work on it.

Bill McDermott: [00:07:22] To your point on earnings, I share with my clients that generally speaking, a one percent increase in your top line is equivalent to a ten percent increase in your bottom line. You know, revenue is vanity, but profit is sanity. And so, in order to be sane, we really need to be focusing on driving earnings, but also by driving revenue.

Bill McDermott: [00:07:51] We could go down the path of, you know, generally speaking, clients I talked to, their prices are too low. They have more value to their product or to their service than they think they do. Or, second, they maybe haven’t figured out a way to actually increase volume. But both are equally important and both can equally drive revenue, therefore drive earnings.

Ed Mysogland: [00:08:13] Yeah. But, boy, I’ll tell you, it’s hard to make that leap of faith. Like, I’m going to increase prices and, oh, my gosh, if I do this what’s the likelihood I’m going to lose customers? So, I totally see that that’s low lying fruit that you can do. But, I mean, if I’m a business owner, how do you coach me into just go ahead and throw caution to the wind and let’s increase price by 15 percent. How do you do that?

Bill McDermott: [00:08:49] Yeah. Well, excellent question. So, the way I approach that with my clients is, let’s pretend I go to Walmart. When I go to Walmart, I’m prepared and I go there because I’m going to get the lowest price. But I’m generally not going to be able to find any kind of help in the service aisle, so I have to know exactly where it is. And then, when I get to the checkout, I have to wait a long time in line because the lines are so long. And by the way, because the parking lot is so full, I even have a hard time finding a parking spot. But, by golly, they’ve got the cheapest prices.

Bill McDermott: [00:09:31] On the other hand, if I go to Ace Hardware, the guy meets me at the door, “What are you looking for?” “Well, I need some fertilizer for my garden.” “Okay. It’s on Aisle 3. And by the way, these are the three types that we have. This one has a fertilizer and a weed killer in it.” And by the way, most of my clients like that one, I get a whole lot of service, a whole lot of value. And so, therefore, I go to Ace Hardware because I want the help, I want the expertise, and I pay for that in the price.

Bill McDermott: [00:10:05] So, we, as business owners, have two choices. We can either be a Walmart or we can be an Ace Hardware. And the value that we create for our clients, either in time savings or money savings, is worth the increase in price. So, a lot of business owners, I think, position themselves as providing a commodity and not really diving into the value that they’re creating for their clients. And they’re afraid to price accordingly.

Bill McDermott: [00:10:39] And I think a lot of that is a mindset issue. And we all have self-limiting beliefs that maybe our business, our product or service just isn’t worth the price. And everybody else is telling us we’re silly because it really is. And so, I think it really boils down to more of a mindset issue. Not raising prices is a scarcity mindset. And the reality is, there’s an abundance of clients out there that appreciate you and value the product or service that you offer.

Ed Mysogland: [00:11:10] Yeah, I get that. And I’m an Ace Hardware guy. I love Ace Hardware. And one of the things I recognize is that I’m willing to pay a premium for that. But I guess the follow up to that is, I’m already paying a premium because Lowe’s and Home Depot and Menards, you know, they’ve got lower prices, but, like you said, I’m paying for the service. So, if I’m that Ace Hardware, I’m already doing service, how do I stress test what that threshold is before I start losing customers? You know what I mean?

Bill McDermott: [00:11:55] Yeah, absolutely. So, I adopt the idea that I’m going to ask my clients, Am I continuing to deliver the value that they expected when they first hired me? And, also, as I’m putting my services or putting my products out there, if no one is telling me I’m too high, I’m going to automatically assume I’m too low.

Ed Mysogland: [00:12:26] That’s a good point. That’s really good.

Bill McDermott: [00:12:27] So, where is that area? Back when I was in banking – it was great – this client told me, “Bill, my loyalty to you ends with a quarter of a point on my interest rate.”

Ed Mysogland: [00:12:44] It totally makes sense.

Bill McDermott: [00:12:46] Yeah. And so, I knew that I could get another quarter, but I wasn’t going to get a half. And, by golly, I’d better be right on with that loan fee as well.

Ed Mysogland: [00:12:56] Yeah. I’m with you on the scarcity versus abundant mindset. I think the race to the bottom is always a losing proposition. And I know it’s the default position for a lot of owners that they feel that they have to compete. But, boy, but like you were saying on mindset, that is a real big ask for some of the change.

Bill McDermott: [00:13:20] Yeah, it is. And so, to your point earlier, if we kind of reverse engineer the conversation, those business owners that aren’t driving earnings through revenue want the multiple to be higher to make up for the profit that they could be getting by charging more, but they’re not. The reality is, it doesn’t matter what multiple I use, if I have a dollar’s worth of net profit that equates in a five times multiple, $5 of business value. And so, if I’m not driving the earnings, I want the multiple to be high. But that’s the wrong focus, to your earlier point, the focus on earnings.

Ed Mysogland: [00:14:09] Yeah. So, when you focus on earnings and you increase it to a 20 percent increase and you put a five multiple on that, versus put the same increase on the multiple, I mean, it’s two entirely different results. So, the earnings taking advantage of the number of turns on the multiple is always superior.

Ed Mysogland: [00:14:38] Okay. So, there’s four areas of profitability improvement that we typically see. So, it’s reducing costs, increasing inventory turnover, increasing productivity, and increasing efficiency. Those are big, big components of a business. But what do you think is the biggest area I should focus? If I’m a business owner, I should focus on this? And I suppose it’s company specific. But generally speaking, in your experience, where do I focus my attention?

Bill McDermott: [00:15:16] Yeah. So, I’m going to go back and maybe share a story, but this saying did not originate with me. Revenue is vanity. Profit is sanity. The cash flow is reality. So, I was working with a company that was a management consulting firm, international firm. They were doing incredibly well, but they got into trouble during the Great Recession because nobody was doing much, if any, management consulting when the downturn came.

Bill McDermott: [00:15:59] So, this company had to do a pivot. Basically did, and went from losing a-half-million dollars a year to making a-half-million. It was $1,000,000 swing in a year. It was absolutely fabulous. But this business owner said, “Bill, I made a-half-million dollars in profit this year. Where’s the cash?” And basically I said to him, I said, “Randy, look, you see that big honker accounts receivable number that’s sitting on your balance sheet? There’s your profit. If you go out and collect it, then you’ll have the cash.”

Bill McDermott: [00:16:37] So, certainly focus on profit. But I also think focusing on cashflow, I mean, profit doesn’t pay payroll, cash does. And so, I generally try to focus on profit. But if you aren’t doing, to your earlier point, turning the inventory, collecting the receivables, you’re missing out on cash that could be sitting in your bank account instead of sitting in your client’s or your vendor’s bank account.

Ed Mysogland: [00:17:10] Yeah. And a lot of business owners fail to understand that when a buyer goes to buy their business, there’s two checks that they write. The first one is for the business, the second one is for the working capital. And I don’t think that they recognize or I think they have a hard time recognizing that the more that’s tied up in working capital – to your point, that’s not in cash – it’s going to cost me to fund the working capital more than it should, because I’m not collecting receivables in a timely fashion or whatever the issue is, whether it’s debt, inventory, or whatever. That impairs a company’s ability to sell.

Ed Mysogland: [00:18:05] And I think you probably have coached a lot of people on, you know, if you hone in on your working capital, you’re reducing your risk, which is increasing your value, right?

Bill McDermott: [00:18:16] Yeah. To your point, recently we successfully completed a management buyout where this professional services firm sold the company for $13 million, and it was a combination of seller financing and bank debt financing. But when the negotiation on the purchase agreement came, the seller wanted, basically, to take as much cash out of the business as they possibly could. And so, the the broker stepped in and said, “Time out. We need to have adequate working capital. We got payroll, we got purchases, all of this.”

Bill McDermott: [00:19:01] And so, the owners were thinking about their pocket. They should be thinking about their pocket. But, also, since they had seller financing involved by stripping out all the working capital, they put their debt at risk to a certain degree. So, yeah, working capital is incredibly important.

Ed Mysogland: [00:19:21] And one of the best things that you’ve said today is just that, the seller financing and the working capital that they put the seller financing note at risk by how they were treating the working capital. And if I’m a business owner, that’s a big takeaway right there, that you don’t understand or you need to understand that they’re all intertwined together. Everything is intertwined. And each component of a business has risks and benefits. And by not acknowledging one, you’re putting another at risk. That was awesome. Go ahead. I’m sorry.

Bill McDermott: [00:20:20] I was just going to say, so in my banking career, as I was talking to business owners, I coined the term called bank speak. And what I found was happening is I was throwing out terms, working capital being one, cashflow being another, inventory turnover being another, I caught myself using terms that my clients didn’t understand.

Bill McDermott: [00:20:49] And so, I think you and I take for granted everybody knows what working capital means, Ed, but what I found is many business owners, because nobody taught them accounting in school and there’s no on-the-job training when you’re a business owner, I have to be careful to define terms that I’m using because a lot of times I use terms people don’t understand.

Ed Mysogland: [00:21:12] No, that’s a great point. And that was one of my questions is, with all of this information out there, with everything that’s all over the internet, just the vast amount of content, why do you think that business owners aren’t more versed in basic accounting?

Bill McDermott: [00:21:34] Yeah. I think everybody starts out, if you’re starting a business from scratch, it’s because you’re a great technician at whatever it is that you do. So, for example, coming out of a banking career of 30 years, I saw a lot of business owners that ran businesses, but I had never run a business myself. I was never one that had to go out and basically do everything that needed to be done for me to have a paycheck. And so, I think they’re great technicians.

Bill McDermott: [00:22:22] A CPA is a good accountant. An architect. You know, somebody like me who’s a business consultant now, thank goodness I had a lot of accounting and finance in my background. But they’re good technicians, they just haven’t learned how to become business people. And so, if you haven’t taken accounting and finance classes in school or gone to some seminar or maybe a community college to take some courses, you don’t really feel like you’re well-versed in how to manage or how to run a business. You’re a good technician. You’re just not a business person.

Ed Mysogland: [00:23:03] Yeah. And I agree with you. And one of the challenges that we bump into is just that, you’re a great technician, but you’re not a great business owner. And as a buyer of your business, I really need you to be a great business owner because that’s who I’m replacing. I’m not the technician. You know what I mean?

Bill McDermott: [00:23:25] Yeah.

Ed Mysogland: [00:23:29] One of your claims to fame is your coaching, that you’re able to coach people through complex matters. And I guess I’m curious to know how you get over the pushback of time. And as a guy with not a lot of it, I’m sitting here going, “All right. If he asked me to fix a component of my business, how do I make more time to do what you’re asking?” And you can have all the empirical evidence that it’s going to fix everything in the business or fix this part of the business. Do I have to wait until the pain is great enough? Or do you have some secret sauce to help me overcome that?

Bill McDermott: [00:24:20] Yeah. No secret sauce. But I think maybe just some common sense. Again, I think business owners tend to want to be all things to all people. They might also be very high control. It’s not going to get done well unless I do it. And so, the business owner becomes, for lack of a better term, Ed, the choke point in their own business. They’re their own worst enemy.

Bill McDermott: [00:24:57] And so, statistically, do you know how many companies break through the $1 million revenue barrier and the $10 million revenue barrier?

Ed Mysogland: [00:25:09] No. How many?

Bill McDermott: [00:25:10] Ten percent through the $1 million barrier, only three percent through the $10 million barrier of all businesses that ever start. What’s the number one reason? Delegation.

Bill McDermott: [00:25:24] And so, what I tell that business owner is, “Look, your time is valuable.” You know, I calculated an effective hourly rate for a business owner by taking the profit in their business, plus their salary. And it came out to about $150 an hour. And so, I said, “Look, any activity in your business that can be done less than $150 an hour, you need to hire somebody to do it because it will allow you to increase your hourly rate to 200, then to 250.”

Bill McDermott: [00:26:02] And so, the ability to take on those things that they’re not taking on is basically just giving those tasks to other people and allowing them to focus on more revenue generating activities versus administrative activities.

Ed Mysogland: [00:26:18] Yeah. I hear you. And I can hear the business owner going, “Yeah. Where am I going to find this person? Everybody that’s working for me is complaining that they’re overworked and underpaid. If I add another person, where am I going to find them?” And how do I – I shouldn’t say how do I. Then, it’s throw your hands up, screw it, I’ll do it myself. And that’s the default position because of the difficulty of what you’re asking.

Ed Mysogland: [00:26:58] I totally agree with you. I think the next generation of business owners, it’s about delegation and automation. I totally believe that that’s the path that we’re going toward. And those that either go from first generation to second generation or a successful third party sale, I totally believe that those buyers or that next generation, those people that have a command to delegate, whether that’s to third parties like Upwork or some of these organizations, the Gig Economy, or you can find help, personally, I think that is the long term of the successful business. I think.

Bill McDermott: [00:27:54] Yeah. So, a quick story on that. I worked with a client. Their books were an absolute mess. They were a multimillion dollar company. And they had an accountant who is moonlighting doing their books. And the financials weren’t done on time. There were errors. And the owners were spending their time going in and correcting errors. And I said, “Look, go out and find somebody who’s QuickBooks certified. They can be a CPA. They can just be an accountant. But somebody who is really, really good.”

Bill McDermott: [00:28:31] And so, I referred them to a service that I use, because you find people based on relationships. And so, they brought this accountant in. This person has straightened out their books in the span of two months. We just had the second month end close. Bank accounts reconciled. Financial statements were timely and inaccurate. And this client now has clarity in his financials where, before that, they had confusion.

Ed Mysogland: [00:29:05] Yeah. And, again, that’s back to knowing where to look for the talent. And like I said, I think most business owners are faced with the pain of making the change as opposed to the change itself. You know what I mean?

Bill McDermott: [00:29:25] Well, it’s the principle of inertia, right? A body at rest tends to stay at rest. A body in motion tends to stay in motion. You know, my business owner client was stuck accepting that moonlighting accounting person getting subpar financials. And basically just made a decision, “Okay. I’m drawing a line in the sand. I’m going to upgrade my requirements and get somebody in here to do a better job.”

Ed Mysogland: [00:29:56] And, again, to your point earlier on having good records and being able to have clarity of your cash position or your financial position, that’s an important thing. Reading your email and trying to figure out what to do next, somebody probably can do that a little bit more effective than you.

Bill McDermott: [00:30:23] Yeah. The other thing I’ll say on that topic, I’m a big believer that your balance sheet is more important than your income statement. Your income statement certainly measures your profitability, but there are three other things that you care about. You care about your liquidity, how much cash you have that’s on your balance sheet. You care about how you’re collecting your receivables and turning your inventory, that’s on your balance sheet. And you care about your leverage, how much debt you have relative to the net worth of your business. And so, three out of the four things that you track are on your balance sheet. Most business owners don’t look at that first. They look at their income statement first.

Ed Mysogland: [00:31:05] Yeah. We face that, too, when helping these business owners. There is a disconnect between the two. It’s what’s my net income. When we do value work, one of the things that we do is, this is what you’re going to put in your pocket. And that’s part of liquidating your balance sheet. And, oftentimes, that’s more than the tangible and intangible value of the company. You know, once you start liquidating current assets and retiring debt, that’s a whole nother event. Go ahead. I started to interrupt you.

Bill McDermott: [00:31:56] I was just going to say, the other thing that comes to mind, you’re mentioning, also most business owners when they’re selling their business, focus on the gross amount they’re selling. But they may not be factoring in taxes, if it’s an asset sale, as well as debt.

Ed Mysogland: [00:32:17] The highest price is not always –

Bill McDermott: [00:32:20] It’s the net.

Ed Mysogland: [00:32:21] Yeah. And we bump into that a lot, that it’s not the highest price that’s the best price. That allocation of purchase price is really, really important.

Bill McDermott: [00:32:32] It really is.

Ed Mysogland: [00:32:32] So, everything we read, it seems as though we’re heading into a recession. That there’s some level of downturn. So, granted, it was your greatest blessing that you got displaced and here you are. But how did you make that pivot? Because I think there’s going to be a lot of people that are in similar situations or are finding themselves in similar situations right now. So, how did you make that effective change into entrepreneurship? In your case, you started the business versus buying the business. So, how did you get comfortable with the risk that you were taking, I guess?

Bill McDermott: [00:33:26] Yeah. So, necessity is the mother of invention. My wife had two daughters in college. We had a mortgage to pay. And she was the preschool director at our church preschool. And that was not going to be enough to do it.

Bill McDermott: [00:33:45] So, I was financially motivated. I read a really great book. It was called The E-Myth by a guy named Michael Gerber. Michael Gerber says, establish a prototype of the business that you want to build, which in effect is, really, if you are going to franchise your business, this is what you would show a potential franchisor. So, I’m a person of faith. Part of my prayer time after I was laid off is I would say to the man upstairs, “Okay. You closed the door. Would you open a window? And by the way, would you put a little neon around it so I can see it.”

Bill McDermott: [00:34:34] But I found that business owners really struggled with financial management. I was passionate about helping them become better financial managers. Next, I found that I’m a pretty good teacher. And so, teaching these business owners how to be better financial managers was something that I was good at, and then figuring out how to monetize that.

Bill McDermott: [00:35:06] So, this is a page out of Jim Collins’s book, Good to Great. If someone’s thinking about becoming an entrepreneur themselves, what are you passionate about? What are you best in the world at? And what drives your economic engine? And where those three circles intersect is your greatness.

Bill McDermott: [00:35:28] And so, for me, passionate about making business owners better financial managers, teaching them how to run more profitable businesses with healthy cashflow, and then monetizing that as a business coach. And that’s kind of how I did it.

Ed Mysogland: [00:35:46] Yeah. Well, you know what? That whole leap of faith thing – also, I’m a red letter guy myself – I totally believe that, you know, there’s some divine intervention that goes into entrepreneurs where you’re building the kingdom. I totally believe no matter where you’re at on the spiritual spectrum, whether it’s the universe or God or whatever you want to call it, there is some level of wind behind your back to make these doors open.

Ed Mysogland: [00:36:26] I’m guilty of this, too, as far as hiring consultants. I am horrible at it. And one of the things is, you know, when should I expect a return on my investment? It’s not writing the check. It’s when am I going to get repayment for it? You know what I mean?

Bill McDermott: [00:36:49] Yeah. Great question. So, I think, in my experience, I’ve worked with quite a few professional services firms. I can think of one psychology firm, three locations, very well-established practice. This firm hired me for two years. And, essentially, what we did is we did an analysis of the business. We looked at the areas where we could really accelerate financial growth.

Bill McDermott: [00:37:33] And then, after a two year period of time, first, we focused on collections. A lot of their receivables were from insurance companies. Insurance companies are notoriously slow pay. So, we basically had them pick up their pace on collections, which put another $50,000 of cash in the bank. Then, I’m a big believer in the power of one percent. Looking at ways where we can increase revenue one percent consecutively over periods of time.

Bill McDermott: [00:38:10] So, the cumulative effect for this firm, over a two year period, we increased revenue 45 percent total, so roughly a little over 20 percent per year for ten years. The profit that was generated paid 100 percent of my consulting fees and gave the owner another 100 percent return on their spend. So, it took two years in this case.

Bill McDermott: [00:38:45] You know, I know for me, I hired a marketing firm to come in and help me with my brand messaging. I did that two years ago. This year, I’m having my best year ever in the 14 years that I’ve been in business. So, I would say, when you buy a stock, you’re interested in buying quality stocks that aren’t big gainers, because big gainers also can be big losers. But if you can earn 10 percent year over year, your money compounds every seven years, roughly. And so, I’d say slow and steady wins the race. You know, if you can get a decent return in the first year or two, I think you’ve hit a homerun.

Ed Mysogland: [00:39:36] Well, one of the things that we bump into is that everybody’s an expert now. How do you get between what’s signal and what’s noise? Like I said, and I was telling you before we started, you know, my wife’s a therapist and there is all kinds of noise in her industry of solving problems. When in fact, there’s a lot of complex trauma and different things that they have to deal with that requires specialization. So, my point is that anybody can write a blog article about profitability and this, that, and the other. But how do I find people like you that are going to give me that 10 percent return year over year over year?

Bill McDermott: [00:40:26] Yeah. I subscribe to the philosophy of people do business with people that they know and they trust. And so, I always put relationships first, Ed. I just think we were all put on this earth to figure out a way to live together and to help each other. And so, I find that relationships follow a progression. You know, first, I get to know somebody and they get to know me. Then, we like each other. Then, we try each other. Then, we trust each other. And then, we refer each other.

Bill McDermott: [00:41:03] And so, going through that relationship progression, I think it’s totally based on relationships. You sort the noise from the people that you really want to do business with based on the quality of the relationship that that’s developed.

Ed Mysogland: [00:41:20] Yeah, 100 percent. I mean, I was just looking at our deal flow and we spend so much money on external marketing. But I’ll bet 80 percent of our revenue comes from referrals, people doing business that we’ve done a good job for that have referred us. And so, I’m with you. This is how you sniff out – I don’t want to say a fraud because I don’t mean a fraud. This is how to sniff out who’s best in class versus those that probably should be on junior varsity. Anything come to mind?

Bill McDermott: [00:42:01] Yeah. So, I’m sure you’ve probably had this experience. There are a lot of people on LinkedIn that basically put relationships last. You’re their best friend. They don’t even know you. You don’t even know them. But, by golly, they have a solution to a problem that you didn’t even know you had. And we all get those emails and just messages on LinkedIn.

Bill McDermott: [00:42:35] And so, I think to kind of sniff those out, who approaches me trying to sell me something rather than getting to know me, you don’t have the right to sell me unless you know me and I know you. And so, that would be one easy way.

Bill McDermott: [00:42:57] The other thing I usually do is, when I’m going through and looking at my LinkedIn feed, if there are people that are really making some really solid comments or suggestions in a LinkedIn exchange, I kind of determine, “Hey, I’d like to know more about that person just based on some of the insights they’re sharing.”

Ed Mysogland: [00:43:23] Yeah, I agree. I mean, providing some meaningful comments versus just broadcast stuff. I get it. So, I know we’re pushing on time, so if you have a couple more minutes, I got a couple questions.

Bill McDermott: [00:43:41] Yeah. Absolutely.

Ed Mysogland: [00:43:41] All right. So, I know you do some exit planning work. And so, I wanted to focus a little bit about, you know, are you seeing business owners that are coming prepared to sell or are they playing catch up and you’re trying to fix things before they go to market?

Bill McDermott: [00:44:03] Definitely the latter. As I said earlier, that business owner is so busy working in the business, they’re not working on the business. All of a sudden, a business owner maybe that has run a business for 20 years, he or she finds themselves, “Gosh. I’m 60, 61, 62. I’m not going to be doing this a whole lot longer. And, by golly, I have done nothing to build the value of my business.” So, the default is the business owners that I run into have done little to no planning.

Bill McDermott: [00:44:47] And the other concept that you and I probably both deal with is that business owner that has not created transferable value in their business and how they do that is a way that you can truly try value but very little to no planning.

Ed Mysogland: [00:45:12] And that’s what’s heartbreaking is because either – I don’t want to say tragedy, but circumstances, life circumstances come bumping into them and now they’re forced into a decision on how to make this illiquid asset liquid. And, boy, that is a heartbreaking situation. Like I said, it’s not necessarily that you can’t transfer the business, but the problem is it’s not going to transfer for what you want. And so, that creates a lot of the challenges that at least we see.

Ed Mysogland: [00:45:51] I wanted to ask you, you know, what makes exit planning effective? I mean, granted, if you have a lot of runway, that’s an easy layup. There’s all kinds of things you could do. But the people that are hearing this going, “Man, I really want to sell my company. I haven’t done anything.” So, as the profitability coach, is there anything that you can suggest that would lead me to a better than average exit?

Bill McDermott: [00:46:34] Yeah. So, I’m going to try to answer that question and try to tell a story at the same time. So, we’ve all sold houses. And when we sell a house, we get it ready for sale. Usually, a fresh coat of paint, maybe some new carpet. What sells houses from what I’ve been told are bathrooms and kitchens, and so you want to be sure that you’ve got everything updated. Generally, you’re not going to try to sell your house yourself or you shouldn’t, because what you think it’s worth and what that appraiser for that mortgage lender thinks it’s worth or the buyer, you always want to have someone between you.

Bill McDermott: [00:47:26] So, selling a business, sprucing things up is really creating a management team that can successfully run the business and transfer the value to that team. I found having that management team, being sure they’re compensated in a way that they’re not going to walk out the day the business gets sold, so you need to have some kind of arrangement where there’s what I call a stay pay.

Bill McDermott: [00:47:58] Frankly, financial statements need to be reliable. Preferably audited, but at least reviewed by an independent CPA, so that you have financials that have been verified by an independent third party. Just like when you get your house appraised, it’s by an independent third party.

Bill McDermott: [00:48:21] I think it’s ideal to have a business growth plan that you can hand that potential buyer to show how the business can be grown. And I think it’s also important to have documented processes so that that business owner knows how you make money, how you have a repeatable sales process, a repeatable operations or delivery process, and then an accounting and finance process.

Bill McDermott: [00:48:55] So, mostly, I’m looking for management with stay pay, reliable financial statements, and documented processes. I’m sure there are some other equally important things. But I’m certain those are the main ones.

Ed Mysogland: [00:49:10] Yeah. And I’m going to ask you even a harder question. Out of those, which ones most important? Right. I know. You’re welcome.

Bill McDermott: [00:49:23] Businesses are run by people. Real estate is location, location, location. I’m going to say companies are management, management, management. So, I’m saying having the management team is important.

Ed Mysogland: [00:49:41] Okay. I got it. You know, in your analogy of selling a house, you know, its bathrooms and kitchens. And there’s empirical data that says, you know, if you fix up your kitchen and your bathroom, your house will sell or you’ll get X number of dollars back. Unfortunately, to my knowledge, I don’t think there’s anything like that in business, that if you replace your antiquated lades, you’re going to get your money back. I don’t think that’s going to happen.

Bill McDermott: [00:50:20] I’m in agreement. You know, when a buyer buys a business, they’re looking towards buying that business and the income stream that comes with it. But they’re entitled to a return on their investment. And at the end of the day, they have a return that they want to earn based on the amount of the business that they’re paying.

Bill McDermott: [00:50:44] And pure and simple, when we invest in stocks, we’re looking for a rate of return. When we’re investing in a closely held business, we’re looking for the same thing. And, potentially, we’re looking for an even higher return because we want to get compensated for the risk of buying that business as well.

Ed Mysogland: [00:51:06] Yeah. We say the same thing. Not only are you looking for a return on your investment, you’re looking at return of your investment. So, it’s two components. All right.

Ed Mysogland: [00:51:19] So, I finish every one of my interviews with the same question. So, if there is one piece of advice, just one – you know, they spent a-half-hour with you and me – what would that piece of advice be that would have the most immediate impact on their business? You’ve got one good nugget?

Bill McDermott: [00:51:41] I love that question. So, I think what I would say is, where are the one percent improvements that you can make in your sales process, in your cost of goods or cost of services process, if you’re a service business, your delivery process and then your billing and payment process? We’ve already talked about a one percent increase in your top line in sales. What’s the cumulative effect of those one percents? What if I can buy my materials or labor better and reduce my costs that way? What if I can reduce overhead one percent? What if I can collect my receivables one day faster or turn my inventory one day faster?

Bill McDermott: [00:52:42] The cumulative effect of all of those would be huge. And the way that you’re doing that is you’re shortening either the cycle times, you’re eliminating your mistakes, or you’re improving your business model in each of those three aspects of your business. Doing that, I think you’re well on your way to really having a game changer of a company.

Ed Mysogland: [00:53:09] I agree. So, where can people find you? And do you do work throughout the country?

Bill McDermott: [00:53:17] I do. I do.

Ed Mysogland: [00:53:19] Oh, good. All right. Okay.

Bill McDermott: [00:53:20] I have clients in Seattle, Texas, all over the Midwest, up and down the East Coast. So, where there’s technology, I can play.

Ed Mysogland: [00:53:32] You’re based in Georgia, right?

Bill McDermott: [00:53:35] I’m based in Atlanta, Georgia, yes. My website is www.theprofitabilitycoach.net. You can also find me on LinkedIn, my profile is Bill J. McDermott. I am on Instagram as The Profitability Coach. And you can also find my phone number and email contacts either on my LinkedIn profile or on my website as well. But my email, for anyone that’s listening, is bill@theprofitabilitycoach.net.

Ed Mysogland: [00:54:13] Well, we will have all your contact information in the show notes. So, if you didn’t catch it, I can assure you we will have it readily available for you. So, Bill, you know what? This absolutely was everything I’d hoped for. So, I’m so grateful for all the time. I know you and me, we start talking about time and the value of it. And I so appreciate you going over with me a little bit. And I’m certain everyone will have gained a lot from this, from our time together. So, thanks again.

Bill McDermott: [00:54:54] You made it easy for me. You asked some great questions. It was a pleasure to be on the show. Thank you for inviting me.

Ed Mysogland: [00:55:02] All right. Well, I’m going to cut us off. And once again, I appreciate you being with us.

Bill McDermott: [00:55:08] Very good. Thanks again.

Outro: [00:55:12] Thank you for joining us today on the How to Sell Your Business Podcast. If you want more episodes packed with strategies to help sell your business for the maximum value, visit howtosellabusinesspodcast.com for tips and best practices to make your exit life changing. Better yet, subscribe now so you never miss future episodes. This program is copyrighted by Myso, Inc. All rights reserved.

 

Jeff Hawkins, Carr, Riggs & Ingram

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Jeff Hawkins
North Fulton Business Radio
Jeff Hawkins, Carr, Riggs & Ingram
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Jeff Hawkins

(North Fulton Business Radio, Episode 458)

Jeff Hawkins, Transaction Advisory Partner with Carr, Riggs & Ingram, joined host John Ray to discuss the environment for selling middle market businesses and the mergers & acquisitions environment generally. . Jeff covered the pandemic’s effect on M&A activity in the last two years, including the wave of sales at year end 2021. He discussed the due diligence process a seller will encounter, a Quality of Earnings Report, the role of audited financials, and much more.

North Fulton Business Radio is broadcast from the North Fulton studio of Business RadioX® inside Renasant Bank in Alpharetta.

Carr, Riggs & Ingram (CRI) is a Top 25 nationally ranked accounting and advisory firm driven by relationships to cultivate growth.

From traditional accounting services to leading-edge business support, technology resources, and assurance offerings, CRI’s breadth and depth of expertise take you from compliance to competitive advantage.

Today, after 25 years of consistent growth since our formation, Carr, Riggs & Ingram is among the Top 25 firms nationally with no plans of slowing anytime soon. Despite this growth and the technological and automation disruption of the accounting industry, they still pride themselves on delivering actionable insights and solutions based on their founding principles of tailored client service, respect for all, and unyielding integrity.

Company Website |LinkedIn | Facebook

Jeff Hawkins, Transaction Advisory Partner, Carr, Riggs & Ingram

Jeff provides attest services for middle to lower-middle market, privately held companies. He also leads the Transaction Advisory Services team (TAS) in CRI’s Atlanta office for quality of earnings, target working capital, and other due diligence projects. He works closely with dealerships and provides consumer and business services.

Jeff’s clients enjoy working with him because of his experience working with businesses in varying industries and his willingness to stay involved in every engagement.

LinkedIn

Questions and Topics in this Interview:

  • The current state of the M&A world
  • Why was 2021 so busy
  • Impacts of labor constraints on professionals in M&A
  • Current trends in M&A

North Fulton Business Radio is hosted by John Ray and broadcast and produced from the North Fulton studio of Business RadioX® inside Renasant Bank in Alpharetta. You can find the full archive of shows by following this link. The show is available on all the major podcast apps, including Apple Podcasts, Spotify, Google, Amazon, iHeart Radio, Stitcher, TuneIn, and others.

RenasantBank

 

Renasant Bank has humble roots, starting in 1904 as a $100,000 bank in a Lee County, Mississippi, bakery. Since then, Renasant has grown to become one of the Southeast’s strongest financial institutions with over $13 billion in assets and more than 190 banking, lending, wealth management and financial services offices in Mississippi, Alabama, Tennessee, Georgia and Florida. All of Renasant’s success stems from each of their banker’s commitment to investing in their communities as a way of better understanding the people they serve. At Renasant Bank, they understand you because they work and live alongside you every day.

 

Special thanks to A&S Culinary Concepts for their support of this edition of North Fulton Business Radio. A&S Culinary Concepts, based in Johns Creek, is an award-winning culinary studio, celebrated for corporate catering, corporate team building, Big Green Egg Boot Camps, and private group events. They also provide oven-ready, cooked from scratch meals to go they call “Let Us Cook for You.” To see their menus and events, go to their website or call 678-336-9196.

Eric Togneri, Neri Capital Partners and Rob Margeton, Ryco Advisors

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Ryco Advisors
North Fulton Studio
Eric Togneri, Neri Capital Partners and Rob Margeton, Ryco Advisors
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Ryco Advisors

Eric Togneri, Neri Capital Partners, and Rob Margeton, Ryco Advisors (The Exit Exchange, Episode 14)

Eric Togneri, Managing Partner with Neri Capital Partners, and Rob Margeton, Co-Founder of Ryco Advisors, joined the show to discuss critical elements and considerations in selling a business. They discussed the increasing attempts of equity groups to consolidate industries, the role of business valuations, current issues such as price increases in labor and product, the conversations to assist sellers to improve valuations, encouraging business owners to reduce their role, and much more.

This episode of The Exit Exchange was co-hosted by Bob Tankesley and Maria Forbes and is produced virtually from the North Fulton studio of Business RadioX® in Alpharetta.

Neri Capital Partners

Neri Capital Partners was founded in 2006 with headquarters in Atlanta, Georgia. Our firm is an investment bank for family-owned and privately-held small and midsize businesses with a strong history and clear path to growth. Neri Capital provides merger, acquisition, and related advisory services.

Neri Capital Partners’ entrepreneurial and transactional experience and expertise has positioned the firm as uniquely qualified to offer advisory services for business owners to successfully Determine, Build and then Realize the value they have created. Regardless of where our clients are in their business life cycle, Neri Capital services are designed to add value to liquidity.

Company website  | LinkedIn

Eric Togneri, Managing Director, Neri Capital Partners

Eric Togneri, Managing Director, Neri Capital Partners

Eric Togneri is a Lower-Middle Market Investment Banking professional providing Investment Origination and M&A Advisory.  He is also a Consumer Goods Team Leader for Sales, Shopper Marketing, Trade Promotion, Trade Finance, and Business Analytics.

Eric is currently serving as Managing Director of Neri Capital Partners focused on providing Business Owners the path to Determining, Building, and Realizing the Value of Companies; Also, providing Deal Origination expertise for Private Investors to achieve Quality Deal Flow.

Prior to Neri Capital, Eric was an accomplished Consumer Products Department Head and National Team Leader with Fortune 100 consumer organizations such as L’Oréal, Pfizer, and Sanofi; Also, a Sr. Consultant at Neri Consumer and a Principal in the Category Management Association.

LinkedIn

Ryco Advisors

Ryco Advisors is an Atlanta-based, independent advisory firm focused on the sale of small and lower-middle-market owner-operated companies.

The professionals at Ryco not only have extensive financial and transactional experience, but they’ve also been business owners just like you.

They have run their own operating businesses and understand firsthand what it’s like to make the decision to sell and which steps to take to achieve a profitable sale. They leverage their perspective as business owners, coupled with years of experience working with major Wall Street firms and consulting companies, to achieve superior results for our clients.

They have advised numerous clients – both large and small – on sale and transfer transactions, and treat every business they sell as if it were their own.

Company website | LinkedIn

Rob Margeton, Co-Founder, Ryco Advisors

Rob Margeton, Co-Founder, Ryco Advisors

Robert (Rob) Margeton has over 15 years of experience working in the financial services industry and running his own business. Prior to co-founding Ryco Advisors, Mr. Margeton served as a Managing Director at Capstone Advisory Group, a New York middle-market restructuring, and financial advisory consulting firm. During his tenure there, he advised clients on over 50 transactions across a diverse set of industries. Mr. Margeton also has extensive experience running and managing his own business.

Together with Lindsay Margeton, he acquired the flagship Fleet Clean location in 2013 and oversaw a successful sales process in 2018. During their tenure at Fleet Clean, the company’s revenues and EBITDA grew by over 75% and 95%, respectively. They managed over 30 employees and serviced more than 150 clients throughout Metro Atlanta, including many Fortune 500 companies. Ryco Advisors assists owner-operating businesses in the lower middle market space on sell-side engagements. Businesses typically have revenues between $5 million and $50 million.

LinkedIn

The Exit Planning Exchange Atlanta

The Exit Planning Exchange Atlanta (XPX) is a diverse group of professionals with a common goal: working collaboratively to assist business owners with a sale or business transition. XPX Atlanta is an association of advisors who provide professionalism, principles, and education to the heart of the middle market. Our members work with business owners through all stages of the private company life cycle: business value growth, business value transfer, and owner life and legacy. Our Vision: To fundamentally changing the trajectory of exit planning services in the Southeast United States. XPX Atlanta delivers a collaborative-based networking exchange with broad representation of exit planning competencies. Learn more about XPX Atlanta and why you should consider joining our community: https://exitplanningexchange.com/atlanta.

The Exit Exchange is produced by John Ray in the North Fulton studio of Business RadioX® in Alpharetta. The show archive can be found at xpxatlantaradio.com.

John Ray and Business RadioX are Platinum Sponsors of XPX Atlanta.

Anna Brumby, Walden Businesses

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Anna Brumby
North Fulton Business Radio
Anna Brumby, Walden Businesses
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Anna Brumby

(North Fulton Business Radio, Episode 453)

Anna Brumby, a principal at Walden Businesses, joined host John Ray to cover various aspects of her work as a business broker and intermediary. She had advice on what to look for in a business broker, how to prepare your business for sale, stepping back from day-to-day leadership, getting a valuation, and much more.

North Fulton Business Radio is broadcast from the North Fulton studio of Business RadioX® inside Renasant Bank in Alpharetta.

Walden is a results-oriented business intermediary.

The firm’s focus is on introducing the client’s business to prospects that are serious, qualified, and capable of completing the business transaction.

An owner’s identity and business information are not compromised. Discretion and attention to detail are the cornerstones of Walden’s success.

The firm’s reputation for completing transactions with high-quality companies is a market advantage. Many of Walden’s clients are pre-qualified and referred by accountants and attorneys who are aware of Walden’s impeccable credentials.

Walden’s professionals are dedicated to assisting clients in achieving their goals.

Walden offers the following services to its clients:

  • Sell-Side Representation
  • Buy-Side Representation
  • Consulting Services
  • Valuation Services

If you are reviewing your company’s strategic alternatives and seeking professional advice, or wish to learn more about our process for optimizing your financial goals, please contact us or give one of our principals a call at 678-277-9951.

Company Website |LinkedIn

Anna Brumby, Principal, Walden Businesses

Anna Brumby brings over 20 years’ experience to Walden Businesses as an influential business leader working with Fortune 500 companies and small businesses on multiple continents. Anna is an experienced professional with an extensive background in sales strategy development, contract negotiations, marketing strategies, financial analysis, and communication development.

Anna spent years working with the largest credit processing company on global expansion strategies including acquisition targeting and evaluation for the mergers and acquisition team. Additionally, she led a high-growth sales team working to expand the corporate footprint across the US and into new international markets. For the last decade, Anna has worked with small business owners on acquisition strategies and growth plans to increase their revenues and expand business operations.

Certified as a Mergers and Acquisition Professional (CM&AP) through the Kennesaw State University, Coles College of Business – Executive Education Program, Anna has focused her efforts on exit strategy planning for her clients to ensure they receive the maximum value for their businesses when preparing to sell. Anna is recognized as a trusted business strategist and has been a frequent public speaker at international conferences, universities, and professional business organizations. As an ongoing advocate for small business owners, Anna has been a frequent guest on Fox Business News, 11-Alive, and WSB Atlanta.

She holds a dual BS degree in both Political Science and Accounting from Presbyterian College and an MBA in Marketing from the University of Georgia, Terry College of Business.

LinkedIn

Questions and Topics in this Interview:

  • When do you start preparing your business for sale and the top three steps to take
  • How do you build the value of your company so it’s ready to sell?
  • Do you understand the sales process and the best way to prepare?
  • What professional support services will I need to help me during the sales process?
  • How do I prepare for after the business has sold?

 

North Fulton Business Radio is hosted by John Ray and broadcast and produced from the North Fulton studio of Business RadioX® inside Renasant Bank in Alpharetta. You can find the full archive of shows by following this link. The show is available on all the major podcast apps, including Apple Podcasts, Spotify, Google, Amazon, iHeart Radio, Stitcher, TuneIn, and others.

RenasantBank

 

Renasant Bank has humble roots, starting in 1904 as a $100,000 bank in a Lee County, Mississippi, bakery. Since then, Renasant has grown to become one of the Southeast’s strongest financial institutions with over $13 billion in assets and more than 190 banking, lending, wealth management and financial services offices in Mississippi, Alabama, Tennessee, Georgia and Florida. All of Renasant’s success stems from each of their banker’s commitment to investing in their communities as a way of better understanding the people they serve. At Renasant Bank, they understand you because they work and live alongside you every day.

 

Special thanks to A&S Culinary Concepts for their support of this edition of North Fulton Business Radio. A&S Culinary Concepts, based in Johns Creek, is an award-winning culinary studio, celebrated for corporate catering, corporate team building, Big Green Egg Boot Camps, and private group events. They also provide oven-ready, cooked from scratch meals to go they call “Let Us Cook for You.” To see their menus and events, go to their website or call 678-336-9196.

Selling Your Business, with Cliff Bishop, Brady Ware Capital

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Brady Ware Capital
Inspiring Women PodCast with Betty Collins
Selling Your Business, with Cliff Bishop, Brady Ware Capital
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Brady Ware Capital

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.

TRANSCRIPT

[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

Realtor Andre Wigfall and Yasmine Jandali with Starwood Business Group

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Gwinnett Business Radio
Gwinnett Business Radio
Realtor Andre Wigfall and Yasmine Jandali with Starwood Business Group
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Andre Wigfall and Yasmine Jandali

Andre Wigfall/Andre Wigfall Realty (Keller Williams)

Andre Wigfall Realty helps families sell or find their dream home within their “real world capacity”. Helping others is Andre’s passion. His slogan is: “Your Dream. Our Purpose.”

 


Yasmine Jandali/Starwood Business Group & Atlanta Business Brokers

Since 2005, Starwood Business Group has helped hundreds of business owners successfully sell their companies. Voted the “Best Business Brokers of Atlanta” for 2021, SBG can help you navigate the sales process professionally and confidentially. SBG founder and Managing Broker is Yasmine Jandali, one of less than 500 brokers in the world to earn the prestigious Certified Business Intermediary (CBI) designation. Reach out today for your free, no-obligation business consultation.

Gwinnett Business Radio is presented by

Young Bebus, VR Business Brokers

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Young Bebus
Minneapolis St. Paul Business Radio
Young Bebus, VR Business Brokers
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VR Business Brokers

Young Bebus, VR Business Brokers (Minneapolis-St. Paul Business Radio, Episode 9)

Finding she loved the mergers and acquisition side of business, Young Bebus leapt from healthcare operations into owning her own business brokerage. In a conversation with host John Ray, Young discussed the market for businesses today, why the hard part of selling a business goes deeper than just receiving the letter of intent, what buyers need to think about in purchasing a business. and much more. Minneapolis-St. Paul Business Radio is produced virtually by the Minneapolis St. Paul studio of Business RadioX®.

VR Business Brokers

VR has been the industry leader for over 35 years. It has set the highest quality standards in the industry, provides the most extensive training program for its’ intermediaries, maintains the largest national database of sold businesses to assist in business valuations, and has been rated the number one Business Brokerage in the world.

VR was founded in 1979 to fill the void for quality service that existed between the Real Estate Industry and Investment Banking Representation to buyers and sellers of main street, upper main street and middle-market businesses that had remained under-serviced.

VR has always been light years ahead of its industry, and continues to pave the path that others continue to follow. VR’s continual drive to improve and achieve has led to the creation of several divisions designed to meet the rapidly changing needs of its’ business clients around the world. The past few years has seen the highly successful deployment of VR.

VR’s components of its’ success are the strength, professionalism and commitment of VR’s Network of Intermediaries working diligently with every client, not as business brokers merely trying to make a sale, but rather as advocates providing a comprehensive consultative approach to each and every business transaction. You will find that VR provides you with exactly the same level of service and professional resources that a large institutional client receives from the finest investment bank.

VR continues to be the leading force within the industry as it moves into the future, always developing new and innovative practices of buying and selling businesses, protecting client interests, and refining the level of services every small and mid-size business owner should expect to receive.

Young Bebus, Managing Broker, VR Business Brokers

Young Bebus, Managing Broker, VR Business Brokers

Young Bebus, Principal Broker, BCA (Business Certified Appraiser), CM&AP (Certified M&A Professional) Young Bebus brings combined over 20 years of experience in M&A, valuation, real estate, management, operations, marketing, consulting while holding various positions as director, regional director, and healthcare operations COO in Corporate America and as a small business owner.

She holds her MBA from Carlson School of Management, Business Certified Appraiser designation from ISBA (International Society of Business Appraisers), and CM&AP (Certified Mergers and Acquisitions Professional) designation from Coles College of Business, (EDLI) Executive Leadership Certification from Erickson School of Business, Minnesota Real Estate Broker, and is a Member of IBBA (International Business Brokers’ Association), M&A Source, ISBA (International Society of Business Appraisers), Chamber of Commerce.

Young is named as one of 2020 Top Women in Finance Honorees by Finance & Commerce and teaching Business Start-up course for SCORE South Metro, MN.

Young’s areas of expertise include business appraisal, M&A, exit plan and growth strategy, health care services and products, senior long-term and assisted living facilities, information technology, and contractor services.

LinkedIn

Questions and Topics in this Interview

  • The trend in business sales and M&A space
  • You were in healthcare operations. What got you into this line of work?
  • Why do owners seek out the business brokers, M&A advisors FAQs by business owners
  • How is VR different and what can the company offer?
  • How does VR handle business sales and the process?

Minneapolis-St. Paul Business Radio is hosted by John Ray and produced virtually from the Minneapolis St. Paul studio of Business RadioX® .  You can find the full archive of shows by following this link. The show is available on all the major podcast apps, including Apple Podcasts, Spotify, Google, Amazon, iHeart Radio, Stitcher, TuneIn, and others.

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