Valuetainment - February 27, 2024


10 Worst Times to Sell Your Business as an Entrepreneur


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Length

16 minutes

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240.80527

Word count

4,031

Sentence count

314

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Toxicity

1

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Summary

Summaries generated with gmurro/bart-large-finetuned-filtered-spotify-podcast-summ .

In this episode, I talk about the worst times to sell your business and why you should never sell in a down year. If you get value out of this video, give it a thumbs up and subscribe to the channel.

Transcript

Transcript generated with Whisper (turbo).
Toxicity classifications generated with s-nlp/roberta_toxicity_classifier .
00:00:00.000 Thinking about selling your business, do you know what is the difference between selling
00:00:03.520 your business at a good time and a bad time? It could be the difference between five times
00:00:07.200 multiple, right? Meaning, you could have sold it at a bad time for $5 million because you have so
00:00:11.000 much pressures. Four years later, $28 million. Three years later, $101 million. You know how
00:00:17.020 I know this? Because I went through it when my business, I could have sold for $10 million
00:00:20.220 because the stress was so bad. And I said, five more years. Then it's $50 million. And then I get
00:00:25.660 an offer for $120. I said, three more years. Then the number was beautiful. When it closed and the
00:00:31.700 money hits the bank, it's life-changing. But today, I'm going to talk to you about 10 worst times to
00:00:37.800 sell your business. If you get value out of this video, give it a thumbs up and subscribe to the
00:00:42.800 channel. So let's get right into it. Today, I'm having a call with a guy that runs a transportation
00:00:45.780 company with his father. These guys used to do $60 million a year in 2022. He takes over. The
00:00:51.520 business is at $20 million a year right now. If you're in the logistics business, you know how
00:00:55.980 frustrating it is. A truck was worth $150,000. Today, they're selling you for $50K. And trucks
00:01:01.560 are parked, not going out because orders are not what they used to be in 2022. So this guy's sitting
00:01:06.060 there saying, well, maybe do I sell the business? Do I not sell the business? The stress is up to here.
00:01:09.680 Infighting, all these things that are going on. And we had a lot of different conversations. So number one
00:01:14.000 rule, when it comes down to selling your business, never sell your business in a down year. When your
00:01:20.760 business is not doing well, the first thing you want to think about is I got to get out of this,
00:01:25.320 right? Because you got three F's. Fight, flight, freeze, right? Some freeze, don't want to go to
00:01:31.460 work, are afraid to make the phone calls. They don't call the clients back because they're worried
00:01:34.940 they're going to cancel, right? You're freezing. It's not a leader and that's not you. You can't do
00:01:38.500 freeze. Some want to fight. I'm leaving the industry. I'm so stressed out. I'll never forget 2010,
00:01:44.400 2011. I'm laying in bed thinking to myself, all my savings has depleted to $13,000. I have so much
00:01:52.340 stress, anxiety, panic, and I don't know who to explain it to. You don't have like a therapist
00:01:56.560 you go to, right? It's not like you're talking to somebody. Everybody is following your dream,
00:02:00.680 the vision you sold. One day we're going to be dot, dot, dot. I'm saying, did you make the right
00:02:04.620 decision? How much can you get for the business right now? If somebody gave me $2.5 million,
00:02:08.240 watch this. A guy comes to me. We meet at Beverly Hills Hotel. He knows who he is. If he watches
00:02:14.640 this, he'll crack up. We're in the hotel. He says to me, if you partner with me, I'll get you $3
00:02:20.720 million of which you can take $1.5 million off the table. I go in the room and I'm sitting thinking
00:02:26.460 to myself, after having put 10, 11 years into this business, I'm going to sell this business and give
00:02:31.220 up 50% for a $1.5 million check. I walked away. I said, how big do you think my vision is? That offer
00:02:36.840 frustrated me and upset me. I came back and grew the business. Obviously, we sold for a lot more
00:02:41.480 than that. What's the point there? But at the down year, when things weren't going my way, I almost
00:02:46.500 made an emotional decision. You cannot be doing that. So fight, flight, freeze. You got to fight
00:02:52.880 and figure out a way to come out of it. That's what you got to be doing. Number two, next one,
00:02:57.000 you haven't done enough research to find out what you can do to increase the market value of your
00:03:00.380 business. I remember it is 2017. We have a board meeting. One of my board members, I say, hey, I want to
00:03:06.820 go sit down with JP Morgan Chase and all these other guys because I want to know my company's
00:03:10.400 worth. A guy says, your company's worth nothing with the small EBITDA that you have. We're at this
00:03:14.760 restaurant called Ocean Air. There's seven people there. Those seven know exactly which meeting I'm
00:03:18.360 talking about. It gets very heated. I asked this guy to leave the board. I said, how dare you sit
00:03:23.020 in this room here if you don't believe in it? I make the call. I call the guy that gave the money.
00:03:28.060 I told him, this guy's got to leave. Didn't invite him back to the meetings that we were doing.
00:03:31.420 But I said, I want to go to New York and sit down with private equity and investment bankers. We go.
00:03:35.340 I sit down with companies that were selling businesses for $25 to $50 million. I went to
00:03:39.780 companies that were selling companies for $50 to $200 million. And I sat with two investment
00:03:43.540 bankers that would sell businesses from $200 million to a couple billion dollars. These guys
00:03:47.000 were the big guys. So obviously, these guys kind of talked to me like this because we were not big
00:03:50.680 yet. These guys were kind of like, you're going to get there eventually. And these guys were fully
00:03:54.240 like, oh my God, we want your business because we can sell it right now for $38 million or $50
00:03:58.380 million. And I don't want these guys. I want these guys. So I said, so tell me,
00:04:01.820 what is the market right now paying for? Who are the biggest buyers right now? Is it strategic
00:04:07.220 buyers? Every one of these guys, I did so much research and I'm taking those, taking those,
00:04:12.060 taking those, taking those, taking those. They said, for a company your size, they're given
00:04:14.920 five to seven times EBITDA. I said, five to seven times EBITDA? Yes. I'm not doing that. Well,
00:04:19.080 you know, just that's what it is for the market right now. Whatever you do, it's five to seven.
00:04:22.320 I said, who was sold recently for 15 to 20 times? The only people selling for 15 to 20 times EBITDA
00:04:27.220 are the tech enabled companies. Can you give me some examples? What did they buy? What was
00:04:31.880 the special about their software? The person that bought it, what did they with their software?
00:04:35.240 They use the software for this. Really? Yes. Let's come back. We take the $10 million that
00:04:38.940 we had raised. We took $3 million of it. We invested into our software, Bamboo. That software,
00:04:43.860 eventually we put $5, $10 million into it and it took our company from being five times EBITDA
00:04:48.300 to 15 plus times EBITDA. Why? Because we went and did research to find out what we could do
00:04:56.140 to increase the valuation of the company and the multiples. That takes you going to industry
00:05:02.360 conferences and interviewing with investment bankers to see what tips and what feedback can
00:05:07.180 give you of the last 20 sales that are being done, who the buyers are, what they're paying for,
00:05:11.740 why the valuation, and then from there say, I think we can do this to increase the valuation
00:05:15.460 of our business. So don't sell until you do your research. Number three, interest rate matter,
00:05:20.180 but this also has to do with market. For example, if you sell your company at high interest rates,
00:05:24.860 what the climate is, money is expensive. You're not going to get the highest valuation for your
00:05:30.040 business. Like today, a commercial real estate property that was $100 million is selling for
00:05:33.980 $35 million. Why? Rates are so high. It's like, man, I'm not even wanting to do this. I'll deploy and
00:05:39.000 I'll get rid of it, right? So when rates are low, we sold at a time where there's a part of it that's
00:05:45.340 lucky. It was the last month of cheap money that was available. So when money is cheap, a lot of
00:05:50.900 these aggregators or bigger companies are able to get a billion, half a billion, a couple billion
00:05:57.360 dollars of money to go and pick up different companies. Let's just say if they're picking
00:06:00.900 them up strategic or a regular investor that's coming in to buy PE, whatever it may be, right?
00:06:05.500 So if you sell at a low interest rate, you'll typically get a better valuation than if you
00:06:10.500 sell at a high interest rate. So you have to watch the market. You have to see what the market is
00:06:14.300 doing like right now. If you look at 2023 IPO year, it was one of the worst years in IPO. Not a good year
00:06:18.900 for IPO, but probably 24th, fourth quarter, maybe 2025 IPO is going to come back up. So there is
00:06:25.280 also element of when you go public, when you sell, when you go through those things. It could be the
00:06:30.860 difference between you selling for 50 million and a hundred million, or depending on what size
00:06:34.560 business, it could be a hundred million or $300 million because interest rates and a market favors
00:06:38.900 you. Point four, you haven't hired a consulting firm to see what feedback they can give you before
00:06:43.100 going into the market. So you go hire a consulting firm and you sit down with them. You say, look,
00:06:46.520 here's what I'm thinking about doing. This is my business. Here's what I got going on. Can you,
00:06:50.500 from the outside, look at my business and see what areas of weakness I got to be able to increase my
00:06:54.040 market value. So I'm ready to go out there and sell. So somebody will sit down, they'll look at
00:06:57.840 your org chart. They'll look at your management team. They'll look at your numbers. They'll look
00:07:01.940 at your technology that you have. They'll look at the markets you're in. They'll look at your story
00:07:05.560 being told. They'll look at all of that stuff. Then they'll help you put a pitch deck together.
00:07:09.280 And the pitch deck has to be a proper kind of pitch deck put together before you go onto the market.
00:07:13.120 Those things where somebody sits there and says, well, I'm not, why would I spend a hundred thousand
00:07:16.960 dollars or $200,000 to go with this consulting firm and do this engagement? Why would I spend that kind
00:07:21.940 of money? Because if you spend a couple hundred thousand dollars with a consulting firm and you
00:07:27.040 end up getting a bigger valuation for your business because you were able to get cleaned up within three,
00:07:31.360 six, nine months, what is that worth to you? If you sell the business for 48 million instead of 32
00:07:35.760 million, you're worried about $200,000. They made you 60 million additional dollars. So for you,
00:07:39.960 if you're somebody that's thinking about selling your company, you want to learn more before you go
00:07:43.060 into the marketplace, we run a company called Beddavid Consulting. You can go to our website,
00:07:47.020 beddavidconsulting.com. Watch the two minute video at the top, how we differentiate ourselves
00:07:51.440 from the marketplace. Then go watch the five by five approach that we take. You can fill out the
00:07:56.160 information, watch the 22 minute video. If there's a way we can help you out, one of our reps will get
00:08:00.700 ahold of you. You'll have a conversation and we'll see what we can do together. But if it's not us,
00:08:04.860 hire somebody on the consulting side. There's many great ones out there. Hire somebody,
00:08:09.980 sit down with them, see if there's a way that can help you increase your market value before you go
00:08:14.540 out and sell your business. Number five, disorganized financial records. Why? Because typically businesses
00:08:20.300 use a relative or a cousin or somebody's brother, sister. It's like, well, I went to school with this
00:08:25.260 person and that guy's my accountant and they're independent accountants not working at a big
00:08:29.680 accounting firm. I remember when I had to fire my accountant, nice guy, funny guy, overwhelmed. And
00:08:35.240 every time I needed something next month, next month, next month, I can't afford to do that. So
00:08:38.520 I went and hired a top 10. We worked with them. They made everything clear. So when I was going
00:08:44.220 to raise money, the people I was talking to like, wait a minute, you've been doing accounting like
00:08:48.260 this? Yes. Wow. You guys are this put together? Yes. Interesting. Great. Can we see your numbers?
00:08:54.600 No problem. Contact our, boom. And then they would talk and the accountant said, we spend three times
00:08:59.960 probably more money on our accounting fees, maybe five times more money. But when it came down to
00:09:04.040 raising money, the investors were blown away with the fact that we were prepared. So take an audit and
00:09:10.000 inventory about who manages your finances, your accountants. If it's not the ones that are ready
00:09:14.680 for the next level, especially when you want to go sell, upgrade the accounting firm you're currently
00:09:19.100 working with. Next one, running a business is hard. So number six, a lot of people want to sell their
00:09:23.260 business, but they're burned out. This is the worst time to sell your business. Burned out means what?
00:09:27.420 You're working so hard. Things are not going your way. You hired seven people. They all quit. You
00:09:31.540 can't land a C-suite executive that stays with you. It's just so many different frustrating things
00:09:35.840 that's going on. You're using a recruiting firm that they're not giving you the best people.
00:09:39.800 It's just so many different things. So eventually you're coming home. You got, yeah, you're like so
00:09:43.280 stressed out. You're like, I'm done. I don't want to deal with this anymore. Probably one of the worst
00:09:48.580 times to sell when you're burned out because you're not ever going to be permanently burned out. Instead,
00:09:53.440 use that moment to say, what do I need to do to improve as a leader? What courses do I need to
00:09:58.400 take? Do I need to go take an executive course to become a better operator, better CEO? Maybe I'm
00:10:02.220 not good as a salesperson. Maybe I need to study conflict resolution because I don't know how to
00:10:05.660 communicate with them, but be straight up with yourself. If you have a person that's a coach of
00:10:09.600 yours, they'll probably be able to give you feedback and say, consider working in this following area.
00:10:13.420 But when you're having one of those years when you're burned out, immediately hire yourself a coach,
00:10:17.300 recreate yourself, improve yourself because odds are everything rises and falls on you. Number seven,
00:10:24.520 after losing a partner. So let's just say you guys had a 50-50 deal. You're running the company.
00:10:28.800 Things are going great. He walks away. She walks away. You're by yourself. You're like, oh my God,
00:10:33.800 that guy was our finance guy. He was our tech guy. He was the CTO. He was a salesperson. What am I
00:10:39.480 going to do now? I better go out there and sell. And you kind of are panicking because the pressure is
00:10:43.960 now all on you, right? The pillow officially got harder. It used to be softer because you could
00:10:48.540 lean on somebody. What do you do now? Many people have gone through what you've gone through. It
00:10:52.640 happens in business. People may have different life-changing events that's taking place that
00:10:57.100 causes them to want to step away. This could be an opportunity for you to grow as a leader and sit
00:11:01.400 there and say, I need to go find, recruit better people. And on that part, you need to maybe get
00:11:05.860 better at attracting people, retaining them, recruiting them, engaging with them. There's a lot of
00:11:10.740 different things. I've even made a video on this that I'll put the link here if you do
00:11:13.840 want to find out a way on how to get better in the specific recruiting, hiring, and retaining
00:11:17.580 aspect that causes a lot of stress. This would be a good video for you. But before selling your
00:11:22.560 business because you lost a partner, take a step back to reorganize everything. And then six months
00:11:27.080 later, things are going to be okay for you. Number eight, AI is disrupting your industry and you're
00:11:31.440 panicking. What do I do? I'm not needed. What if this? What if that? Well, that typically happens
00:11:37.520 with AI when the operator, the founder, the CEO is not proactive to go to conferences to see what
00:11:43.760 others are doing. In our industry, there's a lot of FinTech conferences to go to. Whatever industry
00:11:48.280 you're a part of, there's probably a lot of conferences to go to that talks about tech.
00:11:52.040 How is tech disrupting your industry? How is AI disrupting your industry? How are some people
00:11:56.580 using AI to leverage and accelerate growth? What are they doing? But if you're not doing the proper
00:12:00.900 research and finding out what's going on, you're going to be left behind. There was four guys that I
00:12:05.740 dealt with who were super, super knowledgeable about the insurance industry. Every 90 days, I would call
00:12:12.880 these four guys. You know what I would ask him? Hey, let's call him Johnny. Hey, Johnny, so what's
00:12:17.400 going on? How are you doing? Everything good? Yeah, so what's the latest with the insurance industry?
00:12:20.340 Anything I need to know about? Yeah, you do. There's this new company that came out with the
00:12:23.580 software. What is it about? Pow, pow, pow. Wow. Okay. That one company, yeah, what about it? They're about
00:12:27.480 to go away with those two products. Really? What caused them? Because of such and such. Anybody else is
00:12:32.100 going to follow their lead? We're concerned that these other two companies made. Whoa, one of them is the one
00:12:36.000 I write. Great. Let me go do a little bit more research. What's going on with those guys? So you need to be
00:12:40.860 involved with some of those influencers so you can kind of get some insight on what's going on in your
00:12:44.980 industry. Nine could be you're going through a personal crisis. This could be a divorce. This
00:12:48.980 could be marriage is not working out, and that's very hard. I'm not going to sit here and tell you
00:12:52.440 it's easy. I've seen it. It's not easy. I always said marriage is the hardest thing you'll ever do,
00:12:56.420 especially if you're an operator and doing that. You got kids. You got all things going on. When you're
00:12:59.860 going through that process, if it's something that's tied to the nuptial and all that stuff in divorce,
00:13:04.940 I mean, you got to follow the laws, whatever they may be. If it's not, sometimes things are very hard
00:13:10.080 in your personal life. You know, you see athletes, sometimes they go through a lot of different
00:13:14.060 things that they go through. How do you handle those? How do you manage those? You'll learn a
00:13:18.540 lot about yourself when you go through those seasons. Unfortunately, it's not easy. And you're
00:13:22.340 sitting there worrying about, well, what are people going to think about me? How am I going to handle
00:13:26.520 my kids? My parents are calling me, my friends. I used to really be friends close with these guys,
00:13:30.980 but they're taking her side or they're taking his side. This kind of sucks. What do I, all these things 0.99
00:13:35.440 are part of it, but it lasts three to six months. You know why? Because everybody's dealing with their
00:13:40.120 own set of drama that you don't know about. Everyone's dealing with something. Everybody is.
00:13:44.520 They just don't tell you about it. Everybody is going through something right now, but they're very
00:13:51.220 good actors and we don't show it. You're playing poker right now. You know it. So is the rest of the
00:13:56.840 world. A part of your job when you're going through that, take a deep breath, reflect, have the right
00:14:03.480 people around you, the right advisors, the right mentors to kind of help you throughout that
00:14:07.520 process. I'm sure you got your right friends and people, loved ones that will help you go through
00:14:11.860 it as well. But meanwhile, you chose to start a company. Nobody told you to do it. You didn't have
00:14:16.060 to start a company. Why don't you just go be a barista at Starbucks? Why don't you go work at a
00:14:20.720 regular place? Who told you to work this? Go work at a movie theater and check tickets. You don't have
00:14:24.540 to start a business. That was your choice. Now you got to get the job done to finish it up and you're not
00:14:29.100 there yet. So when that happens and it's a personal crisis, you still got to take the lead. Not telling you to
00:14:33.420 be a robot. There's going to be moments you have to step away and go enjoy, you know, go have your
00:14:36.580 moment to reflect. But at the end of the day, if you're a leader, you got to go through that season
00:14:40.420 as well. Last but not least, you only have one buyer. Never sell when you only have one buyer.
00:14:45.260 I've been through that before. When you have one buyer, here's what you do. I personally can tell
00:14:49.780 you I did that. You'd call the buyer like, hey, so we're getting a lot of other offers. Yeah, we're
00:14:53.640 probably not going to respond for another month or maybe two months. But yeah, if you do, great.
00:14:59.020 Congratulations to you. You know, if you see something that's a better offer, all the best
00:15:03.680 to you. And you're like, no, no, no. You know, we're willing to. They know that you don't have
00:15:09.040 another offer. So they can go lower and lower and lower. Makes sense. So what do you do in a
00:15:13.740 situation like that? Maybe you have to regroup and take your company off the market and say,
00:15:18.260 I'm not selling. That's what we did. But yeah, we're not selling. Second time around when we went
00:15:22.880 through it, nearly 17 offers. You know what happens when you got 17 offers and your investment
00:15:28.380 banker calls and says, hey, this is all I'll tell you. You got 24 hours. If you don't make
00:15:33.420 an offer, we're putting you out of the deal. No, no, no, no, no. I'll get you an offer tonight.
00:15:37.700 Okay, cool. But I'm telling you tomorrow you're out. No, I'll get you the deal. No problem.
00:15:43.820 And when will you close that? So you see now you have leverage, right? So if you only have one
00:15:48.180 offer on the table and you sell, they own you, they control you. If they fall for the trap that
00:15:53.020 they think you have multiple options, well, then good for you. But for the most part, buyers know
00:15:57.600 when you're bluffing, especially when you're dealing with a big amount of money that you're
00:16:01.680 about to sell that's life-changing for you when you've never made this kind of money before.
00:16:05.280 You're going to act in a different way and they're going to know it. If you got value out of this video,
00:16:08.600 give it a thumbs up and subscribe to the channel. And if you're watching and saying, man,
00:16:11.640 I got a question for Pat. I specifically want to ask you a question. No problem. Download the app,
00:16:16.440 Manect. You get to pay to ask any questions from experts, consultants on the app, Manect.
00:16:22.420 If you want to ask me a question, I can text you back or respond back in an audio,
00:16:26.520 or I can respond back in a video. Or you can Manect with Tom. If you know Tom,
00:16:30.620 you've seen him on the podcast with me, BizDoc. He's been involved in doing nearly 20-something
00:16:34.900 deals, selling or raising money for close to $2 billion. If you want to ask Tom any questions
00:16:40.040 in this area as well, he's an expert in this area. Having said that, take care, everybody. Bye-bye,
00:16:44.080 bye-bye.