Valuetainment - February 27, 2024


10 Worst Times to Sell Your Business as an Entrepreneur


Episode Stats

Length

16 minutes

Words per Minute

240.80527

Word Count

4,031

Sentence Count

314


Summary


Transcript

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
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.