Many business owners are tired after this year and are looking to sell their locations. It is a sellable asset.
Except...
Some will find out that they don't own a business, but a really expensive job. Others will find that they haven't been preparing for a sale and will not get as much as they would like.
Nat and Pete go over some ideas every business owner should take from the beginning to prepare their exit strategy on this episode.
Here's a Full Transcript of Our Podcast Episode on Planning a Franchise Exit Strategy and Getting Over the Fear of Starting a Business
Pete: Well, good morning Nat, how are you, man?
Nat: I'm doing great, loving this crispy weather.
Pete: Oh boy, speaking of being excited about something, I know you're excited about this crispy weather. But I am excited; I was just reading, I was with ford, I grew up in a ford family father, grandfather of ford dealers. I've spent a lot of time in the corporate executive at ford. And I know you've seen this, that ford is bringing back the Bronco, right?
Nat: Nice, yes, I love that. In high school, the Bronco.
Pete: Right, I mean, I have memories; I grew up in Broncos. Especially not the iconic 71's, but the ones in the 80s that were bigger and stuff like that. But very cool. So I'm excited about that; I might even put an order in, that's if I'm allowed to have another vehicle. But the idea is it's very cool, I think they've done an excellent job, and I think they're going to give jeep a good run for it.
But here's the cool thing, right? So you know I love performance, you like performance vehicles. So I was just reading Hennessey performance is going to take a Bronco, and they're going to take the horsepower up to some crazy number like 800 horsepower or 700 horsepower.
Nat: Holy cow.
Pete: Yes. So basically, they convert this thing over and add a bunch of I think it's turbochargers, and it's so cool. It's like zero to 60 in like four seconds or something, crazy like that.
Nat: Yes. We got to keep that away from the teenage boys, but you and I could probably drive it, right?
Pete: So I was pretty excited about that, so that's something to look forward to in 2021 for sure from some point. As we look forward to 2021, one of the things that I've been reading about is a lot of people are looking at trying to get out of business, all right. And we work with people that are looking to get into business and invest in a franchise, right?
But there are a lot of people that have just been through the last nine months that say, you know what? I'm kind of done. I think I'm going to sell my business, I don't know what I'm going to do, but I'm going to sell.
So I know you've got a lot of experience with building and selling businesses, so I thought we'd talk about that today. So again, welcome to the hire yourself podcast, Nat, Peter, two guys that have been in business for a long time; we love sharing our experience and having guests on. And so today we're going to talk about this idea of selling a business.
So, Nat, you've owned and sold multiple different businesses. I think you've even done some business brokering, right? So let's start with if you're going to sell your business, it's not something that you wake up and go, okay I'm going to sell my business today, right? It's a methodical approach, is that right?
Nat: Yes. I thought it was super interesting when I bought my first franchise in 2001, it was a senior care franchise. So as you go to corporate for training. And on day one of training, they're like actually the trainer, founder was like you need to begin with the end in mind.
So they're like you want to build your business so that you're be able to have a successful exit regardless. Because most people are going to exit at some point, right? And it really stuck with me that concept. And so franchise is really good at systems and processes and procedures and all that.
And I think that's a big part of the value proposition of a franchise. So the concept of beginning with the end in mind. And I think there's so much demand for existing businesses that I think if you just take a few steps and carefully work on your business and not in the business all the time, you're able to have a much more successful exit.
Pete: Yes. So it's one when you go into business knowing when you want to exit or have a good idea, right? What you want to build in your exit plan, so it's having an exit plan, right?
But some of the stuff that I've read is that as you look at selling your business, you want to make sure that you're preparing your financial statements so that it's optimized and your taxes are optimized that will be attractive for somebody. Have you used that strategy in the past or seen people use that strategy?
Nat: Yes. I did quite a bit of business brokering in like 2009, 10, and 11. And it was interesting because I worked with a lot of mom and pops, so non-franchises, and I also worked with a lot of franchises. And I thought it was so interesting just the different approaches to keeping your books.
A lot of times, mom and pops sometimes just had to kind of chuckle; they're like their corporate tax returns show little or no profit, which is fine. I understand you want to have a business for some tax benefits. But then, they're like, whoa, but really, I made all this money.
And then they're trying to sell the business for two, three, four times all this money, and I'm like we need to back up here, you can't like basically not pay taxes on money, not pay taxes on profits, because you took tax deductions. And then, on the other side, ask a buyer to pay two or three or four times some after ad backs.
A lot of times, franchising company, unit-level franchises are much more organized because they're paying royalties on the top line dollars, and the franchisor, the parent company, gives you a standardized chart of accounts. So it's much cleaner. After a couple of years, I'm like, I'm not even going to mess around with these mom and pops anymore because they really don't know what they're doing.
Pete: Very good. So it's a franchise lever; you've got the leverage there of the chart of accounts and their processes and stuff like that, okay. So you're positioning a little bit.
Now I think it's also part of it is that as you're looking to sell the business, you have to understand the drivers of why somebody will buy your business. So what are key things of, if somebody's looking to buy a business? What are they looking for?
Nat: I think they're looking to accelerate their time to get their doors open and to make money. So a lot of times, they're actually looking to buy cash flow. A lot of the people I've worked with in the past, they're more than happy to write a check and pay a little bit of a premium in order to get the cash flow.
So they're looking basically to be able to take an income from day one by getting some leverage or writing a bigger check to get started. I think every business owner always kind of struggles with how do I get customers or how do I get employees.
So when you buy an existing business, you kind of know those answers, right? Because they have a book of business, hopefully, there's some key employees coming with.
Pete: So one of the drivers is cash flow, right? I'm buying cash flow. So I'm off to a fast start, right? And then I think also, is it not that they're buying opportunity, right? If I'm willing to pay a multiple three, I'm looking not only what it's done, but as I'm talking to the owner, I want to kind of know where do you see this business going.
Nat: Exactly.
Pete: Is there an opportunity for it to grow?
Nat: Yes, 100%. And we've seen that pretty consistently with some of the franchises that we've worked with over the years. A lot of times, the franchise agreement's about ten years, a lot of guys buy a franchise when they're like 54, 55 years old.
Sell it when they're 64, 65, get a new owner, and they're a young buck or whatever that's got a little bit more energy, and they can pretty dramatically increase sales by just bringing new energy to it. A lot of times, the franchisors evolved over the ten years, but the owner is kind of still doing the way he started out ten years ago.
So a lot of times, there's lots of growth opportunities, new technology, new product lines. Maybe the company was b2c to start out, and maybe now it's also b2b, but the original owner wasn't doing that. So usually, there's lots of low-hanging fruit on how to increase revenue.
Pete: Yes. When I looked at existing business, a lot of times, owners would kind of share with me where they thought the opportunity would be going forward, right? That they weren't playing in that space.
Nat: They were just comfortable, right? They're comfortable doing what they've been doing for last ten years.
Pete: Yes. And when we look at existing businesses, right? I know a lot of people they're investing in a business because they already have set up the systems, they've set up the business model for lack of better terms, and they've got people, which is a key thing in today's world. So talk to me a little bit about that is people look to invest in a business.
Nat: Where I've seen people have a more successful exit is if it's kind of, you can think of it like, is somebody buying a job or are they buying a business? And that's kind of what it really comes down to, whether you're getting a one and a half time multiple, or two and a half or three or four multiple.
If somebody's coming in, they're writing a big check, and they're going to have to work 80 hours a week, doing XYZ painting or doing everything, they're basically buying themselves a glorified job, right? So if you're thinking about exiting your business, it's strategic to set up, you need to grow your top line dollars, and then b you need to kind of set up some management in place.
And also the sales side of things, like a lot of times what kind of makes it hard for people is if the owner basically owns all the relationships locally, and so then the new buyer is kind of like well, the seller has the relationships and when the seller goes how do I know if the those accounts are going to stay with me basically, right?
So you kind of have to answer that question. A lot of times, you can do that with like a salesperson that's going to stay with the business. So treating it more like a business, not a glorified job, basically.
Pete: Yes, okay, got it. And when we talk about businesses and selling your business. One of the things that I read was is that you want to make sure that the image of the business is good, right? In today's world, it's certainly the digital footprint.
But also when somebody walks into your office, right? It doesn't look like it's there from 1980, right? So talk a little bit about how people clean up their businesses as they prepare to sell it.
Nat: Well, I think the best strategy kind of like I was said at the beginning it was from day one, always have it ready to sell. But if somebody kind of is just not thinking about it, and then they're like, I'm going to sell. Yes, you want to make your everything matters. It's like curb appeal, kind of like when you're selling your house, you want the curb appeal of your business to be high.
So if you have a maid cleaning business and you have ten cars, you want those cars to be in tip-top shape. You want the parking lot to be freshly sealed, coated, and lines on it. You want it to be really good. And the office should be good. You want people to be able to see themselves coming to work there and being proud to own that business.
Pete: Yes. And I think it's not any different than selling your house, right? How you clean up your house, you take all the clutter out. You paint, you do whatever you need to do to make it better.
Nat: And then you're like, well, this is really good, I don't know maybe I'll stay here for a little while.
Pete: Absolutely. And there are companies that help you clean up the digital side of your business, right? So there are companies that can.
Nat: You're talking about like online reviews and all that kind of stuff?
Pete: Yes. That kind of stuff, there's companies that can help you just clean up, make a little bit nicer.
Nat: Yes. And I think it's good best practice to always be trying to get updated reviews. So it's not like your last review was in 2016, right? So I think if you could get one or two reviews each month, and then that way you show like a consistent track record.
I was talking to a guy the other day was thinking about moving his business, and he was kind of like, yes, got some bad reviews on Google or Yelp or whatever it was. And I was like, kind of like that's a problem. Like somebody's not going to buy your business and feel proud to own it when you have some one-star reviews, right? Yes, you have to clean that up for sure.
Pete: All right. So let's talk about resale's, selling your business, right? Do you see advantages if you're, so let's talk a little difference I'm selling my mom and pop business versus selling a franchise, right? Are there advantages as you look to sell a franchise over a mom and pop?
Nat: Well, I think with a franchise, when you buy a business, there's always kind of like how long is training or how long will the owner be around to train. So the owner will typically be around for one, two weeks, maybe a month.
But with a franchise, you also have the extra layer kind of safety net if you will of basically forever like the franchisor is there forever to help you with any training or questions you might have. Also, you typically, however many owners are in the system, whether that's 30 owners, 100 owners, or 5,000 owners, they're a good resource for you too.
And then also you get to benefit from all the updated technology, and a lot of times they handle quite a bit of the digital marketing too, the website and things like that you don't have to worry about so much. And even in some markets, you might even share co-op some employee's things like that. I think guys that prefer to buy a mom and pop are ones that are just pretty adamant.
They don't want the support; they want to have full control. And I think when I talk to people, pretty quickly, I kind of figure out if they're like they want nothing to do with a franchise, or they're like oh, that really helps me have more peace to know that I have all the support and infrastructure in place. It's kind of like the safety of numbers, right? You're like in a group of people.
Pete: So if I got this right if I'm selling my franchise, the owner, as they present the business to somebody that wants to buy it, right? There's a real advantage because you can say, hey, listen, I'm going to give you a transition, right? As the seller.
But also, the franchise is going to take you through training, they have all their systems, the process, and procedures and support all that kind of stuff, and then you have this whole network of other franchisees. So not only do you get me for a little bit, but you have this backside of the franchise helping you going forward for a long time to improve your chances of success, I suspect.
Nat: Yes.
Pete: Yes, absolutely.
Nat: So I think we talked about a little earlier too; I do think that like the on the financial side of things like typically a franchise will have a cleaner set of books, too, because the unit is paying royalties on their gross revenue. But with a mom and pop, there's just a little bit more gray area in there too.
Pete: Yes, absolutely. What would be the one piece of advice you'd give to somebody that's thinking about selling their business?
Nat: Is your business more of a glorified job, or is it an actual business? So I think if you're looking to sell for the maximum amount, I think it needs to be more of a business. And ironically, there's multitude, I would say ten times more buyers for actually more expensive businesses, so people, like there's a line of mile one for guys that will write a bigger check for a healthier business that has management in place.
So that would be my number one advice, like grow your top-line revenue, figure out how to get management in place, so it's not just a job. Like, make it an actual business. A couple of books that have been super helpful to me over the years. Of course, there's that emet and emets revisited; it was really good.
And then also traction is a really good book, and it talks about, like sometimes where people hit a ceiling is kind of figuring out the people side of things in their business. And so there's a book called traction, and it's really good about trying to get the right people in the right seats on the bus, basically, right?
And just as importantly, if there's the wrong people, like getting rid of them. So I think just kind of cleaning house a little bit, get it organized, get everybody doing what they're meant to do, and have a good team in place. That's going to make it super attractive to a buyer, right?
Pete: Yes, absolutely, perfect. Well, Nat, thanks for sharing all your expertise on selling businesses and stuff like that, you're a pro. So all right, I appreciate it; I think I'm good, and what's the famous thing you say at the end of every podcast?
Nat: Rock and roll, Pete.
Pete: All right, have a great week, buddy.
Nat: All right, bye.
