[00:00:01] Thank you forjoining us today for our Tuesday talks today. I have a really special guest.His name is Matt Gilbert. And if you joined this studio three weeks ago, heactually did a webinar. But I wanted to have him back today to discuss whatexactly he does day to day. And when I talk to a few months ago, I was justreally interested in why he did so. This way I can bring the knowledge he gaveme to all of our members. Once again, I am Christiane Graczyk. I'm your CFO.Oh, yeah. I love serving you members. And this is one of my local projectswhere I get to do Q&A on various people in our community and within ourmembership. So I'm going to plug if you want to be on this Tuesday talk, pleasesend me email. Otherwise we will get started and I'm going to ask some reallyhard questions. My first one is who are you and why are you so special in thebusiness transaction world?
[00:01:04] Yeah, well, it'snot me, it's the firm. So my name's Matt Gilbert, my partner Brett Pardieu! AndI founded Gap Advisors and we're sell side transaction specialist. We primarilyare in the lower middle market. We define that from about five million inrevenue, up to 70 or 80 million in revenue. So our clients fall in that space.
[00:01:33] Our clients aretypically privately held businesses where the owner is the founder. The ownerhas been there for a long time and and they are ready to transition.
[00:01:47] Sometimes thattransition is to family. Sometimes it involves us going out and running aprocess where we find the best fitting third party yet to be identifiedsuccessor for for that founder for those shareholders that are exiting. Andthat's primarily where we we spend most of our time is running Celsi processesand helping those business owners exit. Well, it's not hard to do, but we'retold time and again, that is the most complex thing that these business ownershave ever been through in their and their whole life.
[00:02:31] And I had a guytell me one time it was he's been divorced three times. It was harder than allthree of those divorces combined.
[00:02:39] I had another guysay a few years ago, he went through a really nasty IRS audit and the saleprocess was much more intricate and strenuous and tougher than that. And and sothrough those little anecdotal points, you you can surmise that most businessowners aren't going to be successful unless they surround themselves with agreat team of specialists that spend their time in this world from a taxstandpoint, from an advisory standpoint, certainly from a legal standpoint andthen marketing storytelling. I mean, there's all kinds of soft variables in theprocess. So that's the firm. That's what we do. We love it. We love our space.People often ask when we're going to move up market and start doing a hundredand two hundred million, three hundred million dollar deals. And the answer iswe just don't want to be in that space. We love the type of people that we workwith in the lower middle market, not necessarily specifically our customers,but also the CPAs and the lawyers and the supporting cast that would help thesebusiness owners be successful. We just really enjoy that crowd. And and and sowe've made a very conscious effort that we're going to stay right here in thisspace and do the best we can be here.
[00:04:11] Well, you talkedabout the guy who said this, the selling was harder, three divorces, an IRSaudit. What makes the selling process hard? Is it the psychology of it? Is thatall the details that come together?
[00:04:28] There's there's acouple of variables that pop up in consistently in our transactions. Onevariable is a business owner and thinks that they're mentally ready to move on.And as we go through the selling process, a lot of times they fall back in lovewith their company. A lot of times they they discover that they didn't reallyknow how to prepare to move on. And so, you know, there's there's two thingsthat happen when we sell a business is, one, we have to make sure that theindividuals who were in the shareholder group or the owner is is going to goall the way through the process and actually sign the paperwork in the end. Andso a lot of times we'll spot early on a business owner who thinks they'reready, but we can really tell that they're not. And so there's a lot ofpsychology involved there and helping them understand that life changes. Andyou can imagine and a lot of our business owners are supporting local sportsteams in the rodeo and they're they're going to Vegas for conventions and itbecomes their lifestyle. They're taking their customers fishing and all that,and then they sell all of that changes. And so the closer you get, it begins toset in. Oh, my gosh, my life is really going to dramatically change. And thatcan be scary if they're not prepared. So there's that aspect of it. And thencertainly the business has to be in shape for selling. So there's there's amyriad of issues to deal with. But, you know, one of the easy places to go iscan the buyer of this business convince a lender to loan money so that they cancomplete the transaction.
[00:06:26] So the firstplace that you might ask yourself, is the business in shape to sales? Could itget through the lender's criteria so that the funds would be available for thetransaction? So really, those two components go hand in hand and there's apsychological component for the owner. And then there's the tangible stuff ofof of the business practices and the business processes and results andconcentrations and debt ratios and profitability and all that stuff that goesin with making sure, you know, the business can transact. And then why is it sohard? I will ask you, you know. If you were going to sit down and writesomebody a seven or eight figure check. Wouldn't you want to make sure thatevery single thing was in order, or at least you understood all of thecomponents of that? So the the the investigation, the diligence that the buyergoes through is the bigger the check, the higher the diligence is typically thecase. And then really small business transactions to at the SBA is involved.There's a significant amount of diligence to satisfy that group. And and so alot of businesses just don't keep records in the way that the lender or thediligence providers want to see them. And so there's just a lot of discoveryand explaining the CPAs and the lawyers ourselves. We all get involved. We rollour sleeves up and we we try to help with that part of it. So hopefully thatanswers your question.
[00:08:16] It does. I mean,and I think, you know, these business owners, it seems like when we talk tobusiness owners are not. Accountants, they didn't go to school to be businessowners, and once you start a business, you have to know business likeaccounting and taxes, and probably the only time they get all the recordstogether is they put it into that shoe box and take it to the tax accountants.Here you go. Do my taxes. Thank you. So then when it comes to selling, I'm surethere's you have some stories of how you've had to pull the owner's hand andget them ready for sale with all these. Financials are not really in greatshape.
[00:09:00] Yeah, we find.Well, let me take you back in time. So when we started the firm and we were outinitially trying to get our first couple of clients and get engagements, we wekept running in Brittny in our former life. We were business founders, owners.We built and sold. So we were in the shoes of our clients. And and so when westarted the firm, we would go out, we would look these businesses, we would askfor a copy of the financials, Koku, the tax returns. And and they were alwaysmessy to us know. And I just put that hat on, if I were going to buy thisbusiness, let me see, you know, what I would be interested in. And that's kindof where we started. And it didn't take us six months to pivot our businessmodel when we started the firm to create a group of internal accountingprofessionals. So at that time, we created a group. We had four former CFOs,two of them were CPAs. And the first thing we did with any client was get inand really dig into their bookkeeping practices. Know you have it's surprisingyou you'll run into a 20, 30 million dollar revenue business with 40 or 50employees.
[00:10:22] And they're notin a cash accounting and they're not in accrual accounting. And they've madesome hybrid up on, you know, PATCHIN, a couple of systems together. And andthen their tax accountant, they think is got their back. But that persondoesn't even really know what they're doing because all they're doing iscompiling what's given to them in April. And so we found literally one hundredpercent of the time since we started the business all the way to this morningthat when we started engagement with a new client. We want to start with thebooks and we have a step by step process. And the first step in our process isto do a fair market value study, come up with a valuation range that we candefend and that we can support if we go to market. And and that is a hugeaccounting assignment, probably six weeks worth of accounting grind for us tocome up with the valuation and then be able to defend it to the business ownerand their partners and senior management. And then that gives them the datathat that they can trust and rely on to the to decide whether or not theyreally want to go forward and sell the business at this time or not.
[00:11:50] A lot of times,most of the time, business owners have they think they know what theircompany's worth. But but they're way off. The smaller the business, the moreemotionally tied to it they are. They think the value is really high. We comein and do a valuation. We have to give them the news that in the fair market,your business is worth probably less than what you thought. Occasionally we'llhave this happens in a little bit larger companies, more than smaller ones.We'll have business owners underestimate the value of their company. And sothat valuation as a first step is really, really important to setting the stagefor what can be expected when we go out to the market and we go find buyers.And there's no sense in going through all the pain and all the processes and,you know, creating marketing materials and everything. If there's not analignment at the very beginning of the process and what the value of the businessis and whether or not the owner would sell for that. So day one is anaccounting assignment for us for about six weeks when we take on a new client.
[00:13:07] Well, and youfound out early in the firm's. History and you talked about when we talked beforeyou guys approached things differently, and that is, you know what? It's goingto push the start of how you treat your clients, helping them get ready. So canyou give me the story again about why you guys, your process is different thanthe traditional?
[00:13:37] Yeah, we're goingto start soon. Brad and I, he's 10 years older than I am. I'm in my 50s. Wayback when I was a teenager, we started a little business together and quicklyfound success. We sold that business to a public company.
[00:13:54] So that was ourfirst taste. We went on individually and together to found and grow and sellseveral other businesses to public companies, to private companies, tostrategics and to to his private equity firms to build those businesses bigger.We acquired some of our smaller competitors and some of our vendors and thingslike that. So we've been in the chair of of the founder cellar. We've been inthe chair of buying businesses. And and through that experience over twentynine years, I found out that I was involved in forty one transactions thatdidn't close either, either I wasn't the high bidder or we got down the roadand saw something we didn't like and we walked away or or whatever. But therewere forty one transactions that that I was involved in that didn't close whenI was running a business as an operator and doing a little assessment of that,you know, we kind of discovered that there were four different models that thebusiness brokerage and transaction advisory community was was operating in. Andand Brett and I kind of, you know, once we had those models in front of us andwe'd analyze those transactions a little bit, we realized that for guys like uswho are running at 20, 30, 50 million dollar company, really five to seventyfive hour range, that those four business models didn't serve a client like usvery well. So we turned and we started looking at national statistics. Andnational statistics will tell you that somewhere between 12 and 17 percent ofbusinesses that get listed to be sold to a third party actually transact.
[00:15:50] So that'ssomewhere in the neighborhood of eighty five percent failure rate. And so, youknow, we were starting to to take these feelings that we have and research themand turn them into data. And and what we decided is there's and there's kind ofa void in the marketplace for a firm like ours. There are a few firms out therethat do things similar. But but we were very intentional when we built thecompany to say, OK, we're going to create a different set of processes. We'regoing to go to the place in the M&A community that has the most success waywhere we're never going to play and we're going to look at their bestpractices. We're going to see if we can bring some of those down here to thiscommunity. We're going to look at some of the self-serving practices of thefour business models that existed. We're going to throw those out. We're notgoing to allow those to be part of our DNA as a company. And so the first yearwe were in business, we kept pivoting as we learn these things. And by the timewe gotten through the first nine months or so, we had a process that we runthat was a hybrid of a bunch of other stuff that had never really been puttogether the way we put it together. And then we went out, we were all proudand we said, well, we we want to charge differently than others charge.
[00:17:16] It doesn't feelright the way we had been charged in the past. It doesn't it just doesn't feellike a business transaction broker and their clients are aligned in how theyget paid. And we really wanted to align ourselves with our clients so that weachieve a goal together. So we figured that out. And then we went out in themarket and we and it was me. I was all proud. We had this new mousetrap. Wewere ready to go and nobody wanted to go first or lawyer one, let them gofirst. If they wanted to go first, their CPA would tell them, you know, this isan unproven process, don't be their guinea pig. Right. And so we we had alittle slow start. But in the first couple of real transactions that we wereinvolved in, we had big accounting firms and big CPA firms on the other side ofthe table and they took notice very quickly and. I won't say the names becausebecause that might not be cool on the show, but but both the big accountingfirm and the big CPA firm, out of the first two transactions, we did begin torefer clients to us. We got close to their people. They respected our processesand they kind of understood it. And from that, it just kind of snowballed intowe've been busy ever since and our our practice has been growing ever since.One of the key things that we do is that's different than than all of our peersis we surround a business owner with several people.
[00:18:50] We think that ittakes a village to get them to where they want to go. So we do surround themwith an accounting professional that helps translate between whatever's goingon in the business and the outside accounting person that's doing the taxadvisory. So we have a middle person there and that person is very involvedwith Excel spreadsheets and working daily on their behalf to to to help thepeople who are probably listening to this call when they get the call and say,hey, run a couple of models and tell me about my tax tax liability from thisover. We have a legal person, we have data analysts, we have certainly marketresearchers and marketing people. And then we put that team together internallywith what we call a deal team leader. That's normally my business partner,Brett, but we have a couple, and that's somebody who's been through thisprocess time and time again and really knows the road that we're trying totravel and how to coordinate all these resources. So we're very different.Those are kind of our humble beginnings and and we're very proud of the factthat that we're different. If you fast forward from them to today, even throughthe Koban period, we have a greater than 90 percent success rate. When we takea client on to be a sale candidate, we we generally find the finish line forso.
[00:20:17] Well, and I thinkhaving that unique background for you and your business partner of being in theshoes as a seller, having experiences that you had makes a huge difference. Andthe one thing that you said is that you get referrals, you won't get referralsif you want that, especially from the CPA firms and big accounting firms whoare doing this. I mean, they're trusting you. And so it's the building ofrelationships. And I think that has that's what I was like, oh, my goodness, Imet this guy on because it emphasizes how important relationships are. It'ssomething I keep. Saying, I believe the examples prove it. We talk about youhave a 90 percent plus success rate. For those who are thinking. Well, 90percent oh, that could be me. What about the 10 percent rule about those whocan't get to the finish line? Is there a common element of why they aren'tfinishing the this process?
[00:21:27] Yeah, and in ourcase, I'm going to back up on your question just a little bit. And we have kindof stage gates that a business or the owner have to clear before we'll takethem on as a Celsi client.
[00:21:43] And and there'sfive of them and. They are designed to stop the process if it's not going to besuccessful and let's identify why it won't be successful. Let's talk to thebusiness owner in the business about the issue. And maybe we have to put thebrakes on and we have to take a six month or 12 month or an 18 month hiatus onthe sale process. And we need to go work on whatever that obstacle is. It canbe a legal issue. It can be customer concentration issue. It could be inCovance case, we had four sales that were very near the end of and closing inMarch of last year. And covid came along. Everybody's revenue went to zero fora few weeks. The whole world got scared. Our buyers ran for the hills, theirlenders ran for the hills. And so that was nobody's fault. But we had to dealwith it. We had to pick up the pieces. We had to ascertain where we're at,create a plan to move forward, help those businesses get back on on their feet.And then once we achieve kind of equilibrium with where we were in twentynineteen, then discover whether or not we want to restart the sale process. Andwe've done that with all four of those that happened in that march,specifically a couple of them. We're still saying you're not you're not readyto transact your business hasn't made it back to those pre nineteen levels. Sothe number that you want to exit. Right. Isn't achievable when business is downbecause of covid. So we've kind of got those guys on the shelf and we'rehelping them understand the metrics that they need to to achieve to get back inthe race.
[00:23:44] One of ourclients was reviewing an offer from Schlumberger and passed away. So weird thingshappen in life and in business. And his name was Wine and wine was one of myfavorites. But he didn't he wasn't here to accept the offer. And a few yearslater, his company ended up selling to a family office that has really beengood for them and taken it to the next level. But those five stage gates existto run. The process is hard. It's time consuming, probably takes on averageseven to nine months to do well. And you've got to run the business duringthose seven to nine months. The accounting folks and us and the legal people,we're running the process and there's a lot of interaction. And so if it's notgoing to be successful, we want to stop and and discover why. So very oftenwe'll put a business owner who who can't make it through those gates we'll putin with a coach or some sort of business acceleration outfit to to help themshore up whatever that weakness is. And then we'll monitor them on a quarterlybasis, meet with them, talk to them about where they're at, where they're at.We've got some free tools to help them gauge their progress. And when they'vegot the momentum coming back to be where they need to be to exit, then we'llallow them to re-enter the process. What happens with most of our peers is it'sa numbers game. And so, you know, where we would rather have eight or tenclients a year, where we knock it out of the park and we do a great job.
[00:25:41] We close allthose deals. Our community of business advisors, the way things are done inNorth America is just give me everything I can get, let listed on the Internet.I'll wait for the phone to ring. Hopefully we'll sell something right. And thatthat's how those other four business models go in in just and we just we feellike. You know, if you took 20 years to build your company, we can take six oreight months and really focus on determining who the perfect fitting buyer isand then we'll go out and find them for you. And so we run what we call aconfidential process where it's invitation only. So we're not advertising outon the Internet. We're not putting a for sale sign out front of the business.Your employees aren't going to know. Your vendors aren't going to know. Yourcustomers aren't going to know that you're actually for sale. Because we've gota team of people over in our firm who are running an invitation only process.We'll have them sign confidentiality agreements, nondisclosure agreements, notcircumvent agreements, all this kind of stuff before they even know what thecompany's name is that we're talking about. And so, you know, that is a rarething and the lower middle market. But we found that that it sets us apart andreally helps us when we look somebody in the eye and say, we can get you to thefinish line, we're going to get them there.
[00:27:18] But just us all talkingtoday and before the one thing that keeps coming across, and I hope the peoplewatching this either whatever they get is how much you care and how much youare there to serve these owners that you care that they are they have thisbusiness of 20 years and you understand that it's hard to give that up andyou're working through that with them. You know, you're giving them the toolsif they're not ready. And I guess when I say not ready, it's not just the theirfinancials aren't in that aspect is mentally ready. Because when you talkedabout the coach, you know, I know through my own coaching, it's psychology,it's the mindset. And so hearing you say that, it just really confirms thatbuilding relationships and serving your clients will get you further ahead. AndI think you guys are experiencing that and you're a perfect model for that, sothank you for doing that for the small businesses you have there.
[00:28:31] Yeah, it's crazy.But, you know, most of our clients have their spouse or their kids or theircousins or, you know, some family unit working with them. Right. And and and alot of those people aren't in a position in the company to even have knowledgethat the owner's thinking about selling. But then, you know, that's weighing onthat owner. OK, well, if I sell this company and they don't want to employ mykids now I've got that issue or my cousin or my wife's brother, and we have todeal with that on a regular basis. And, you know, that's it's one thing ifthat's a professional person and they can hold their own, they've got a resume,they can get through an interview, they'll get an employment agreement with thenew owner because they're valuable to the business. It's another thing whenthey're not right. And so then the owners got this burden of, well, I know thisperson's not carrying their weight. They work here because I'm the owner andand, you know, so there's a lot of stuff that that has nothing to do withblocking and tackling, of running the company that we have to help them cross andfigure out a solution to. If I if I can't figure out a solution to what happensto my client's brother in law.
[00:30:00] We don't get tosell his business right? He doesn't agree to achieve what he wants to do and somany of these owners. They don't know where to turn right, and so they hang ona little too long. They get a little tired, maybe somebody gets ill, but thebusiness kind of peaks and then it starts doing this. Selling the business onthe decline is not the best way to maximize your accent, you know. And so we'velearned that most of our referrals come from the accounting community becausemost business owners will confide in their CPA or their accounting professionalbefore they'll confide in anybody else, that they're tired and they want tosell or somebody ill and they want to sell or they just ready to to dosomething different and they don't know where to turn right. And it's notbecause they don't know where to turn from all the business aspects, but it'slike they need a counselor. Right. Well, let's think about you can't go offevery single day in retirement. That's not going to work. And and a lot ofpeople who say, well, you know, my spouse and I can't be together three hundredsixty five days a year. That's why this company is I'm seventy two and I stillgo to work every day.
[00:31:25] And so, you know,it's getting over those those soft issues that aren't on a spreadsheetsomewhere that really help a business owner kind of frame this thing whereit'll work for them. You know, the numbers are the numbers and and and if youdon't like the number, well then we can manipulate some variables down herethat will change the number. And then we go look at those variables and we say,OK, how do we implement this into the business so that 12 months from now wehave the change numbers. So you could sell for what you want. That's that's alot of people can do that. But the intangible and the Scott space is not here.But you can see his name, the intangible Scott's great. It that is is kind of empathizingwith the owner, figuring out what those things are that are that are obstaclesto to cashing out and helping them devise solutions. And then the last thingis, it's not what you sell for. It's what you keep. Right. And we've got a newadministration this weekend. There was a big announcement that taxes aredefinitely going up. We've all been speculating that. But now there was anannouncement and what I heard is something along the lines of the biggest hikessince nineteen ninety three.
[00:32:49] So, you know, ifa business owner wants to keep a bunch of mine that they sell for, they shouldprobably do it before the stairstep hikes come into play. And so for a lot offolks, there's now a sense of urgency. Right. And that may be the catalyst thatthat allows them to start having these conversations. But you will learn thatthey normally confide with their accounting person first. And it's normally nota business issue, but it's a lifestyle issue or it's a lot of times it's astatus issue. Know they're known around town as the guy who owns that company.They're driving and they see the trucks with their name on it all over theplace. And they have a hard time seeing the world without that in it. But nowthere's this taxation issue. So there's three or four fronts that are part ofthe numbers that accounting folks, I think, should be in tune to with theirclients at this stage in the game. You have somebody in their 40s or 50s, it'sdifferent, but by the time they hit 60 and up and they're still at the helm ofthe business, this is on their mind, all of them.
[00:34:11] Well, you talkedabout that when we did the webinar a couple of weeks ago, what steps need to beasking their clients in? So I think that's really important. And that littleniche that you have or the special marketing piece I would say that you guyshave is that you're going after the intangibles. You're finding out the why,you're finding out the road blocks of why they're hesitating to sell in Asiabecause they're at retirement age. Everyone's expecting them to even theemployees, even if the employees don't say they're expecting that. They'reexpecting the announcement any day now. But there's something holding, goingback in the confi into their CPA and is like, oh, you want to sell? Oh, well,you know, and we talked about that before. You know, it's really a five yearprocess from what we talked about before, is that you got to prepare your taxesand you've got to be prepared for this. And now that we're going into the taxhike and people, you know, they always want to lower their taxes. And sothey're afraid of this. And my next question is, do you think people will behurrying to sell having that urgency? And is that really the healthy mindsetthey should have?
[00:35:30] You know, there'sa couple of ways to look at that. One is. We're not really out of covid yet,and so the M&A community hasn't. Fully figured out how to deal with thisperiod in business performance, and we're still getting a pass from the buyingcommunity and the lending community on what's happening during covid for ourbusiness sale. So we're still selling stuff at the top of the value range andat some point that that's going to get looked at differently. So right now,what's happened over the last 12 months through this covid thing, we can stillare successfully getting buyers and lenders to. Not count that period, and inmost cases, it's it's either dramatically up or dramatically down, it isdramatically up. We argue that they need to count it. It's the new reality. Itis dramatically down. They don't need to count it. Things will come back. Andso, you know, there's there's that component. Where I think a sense of urgencyis healthy because. The way we're positioning this period of time and and theimpact that it has on the business. Is such that we're still getting thehighest valuations we've we've ever seen. Taxes coming and change in whatsomebody gets to keep at the end of the day when they sell an asset is is is atrain that's you know, you're not going to win that war. And so you want to getacross the tracks before the train comes. And so I do think that's healthy. Ihad a business owner back around Christmas.
[00:37:25] We've beentalking a lot. And he finally decided over the holidays that he wanted to workthree or four more years and sell at that point because he knew his businesswould be more valuable. And my comment was, well, in the last three or fouryears, your growth rate has been about 12 percent a year. So if we apply thatgoing forward. Your business can be about this value in three or four years,and then if we apply probabl tax rates at that time, you're going to losemoney, you know, and because of the chunk that the government's going to pullout of the sale, nothing that you did, nothing they had an impact on. So ifyou're going to work three or four more years, you need to have a twenty twopercent growth rate in order to come out ahead when we factor in the new taxenvironment that we believe will be in effect at that time. So there's a lot ofmodeling that we do for business owners. And most business owners don't evenrealize that that a profession like ours is out here where we can sit down andlisten to what you're trying to achieve and say, OK, either we can or can'tbuild a road map to achieve that. And if we can, you know, it's a it's a six,eight, nine month staircase of layering on top of layering. We can't skip astep. And and then we can turn around at several points in the process and wecan model a couple of what ifs for you.
[00:38:59] And and thatbrings a lot of confidence. It brings a lot just you can see it wash overthere, their demeanor that, OK, now all this stuff I worry about when I lay myhead on the pillow at night or taking a shower and I'm all alone or I'm drivingin, I'm about myself. Nobody's looking at me, does. That's where my mind isworried. You can see all those things just kind of fall on the place when weput the models together. But it takes a lot of effort on our part. We'll havefourteen or fifteen hundred hours, as many hours as a as a company into gettingto the point where we can take that business owner to this process. But, youknow, at the end of the day, I tell every business on the day I meet them andthe day we close, this is one hundred percent in your control. We're here tohelp you achieve your goal. Right? So if you're not comfortable or you're notthe feel right, don't sign your name right there. Let's keep working until weget it. Get it to where you're comfortable. And a lot of times there'ssomething that's not achievable. And through a process, a business owner willunderstand, OK, I've got seven offers for my company and none of them aregiving me what I asked for. You tell me one, too. Well, now the market'stelling me it wasn't achievable. I've got to adjust my thinking. But all thosethings come with the softer side of the business, which is we can't ever takeour eye off of our goal, which is understanding our client's goal and buildinga pathway to achieve it.
[00:40:33] So I don't havethat question, but yeah, I did, because I think it brings me to anotherquestion, which is good, because that's what we can improve, because I'mthinking you're talking about the client's goals. And you know me, I'm justbeing simple of all the clients goal is to sell the business at the highestamount. But you brought up a few things so far, including you do want to get ahigh price. But it's also the employees, it's also with the owner, that's theowner's name. He's taking away the branding of what he or she is. And I'm justthinking, when you're looking at the goals of the cell with the owners. Do yougo through all that with them? Like, you know, what is your goal financially,your employees and yourself? How do you see yourself after this?
[00:41:32] Yeah, we have to.It's the first before we even ever ask them for a dime. It's those are theearly conversations and what it really is to you know, I'm doing this withsomebody right now. He's sixty four years old.
[00:41:47] And in everybusiness owner tells me this. I don't want a reduction in quality of life.After I sell my business, and that's why I'm hanging on, and so then it becomesa math equation, right? Well, what is your quality of life? And this particularguy's case between Distribution's company credit card and his salary? It'sabout four hundred thousand dollars a year. That's his quality of life. And andso what he's telling me is I'm sixty four years old. I want to live till I diewithout a reduction in quality of life. OK, simple. When are you going to die?We go out to the actuary tables.
[00:42:27] We ran all of hisnumbers that those tables say he's going to live to be ninety one. Right. So 70for 80 for this guy's got to have twenty six years of four hundred grand. Andby the way, inflation, right? So we're going to have to adjust along the way.It's just a math problem and we can model that. And so then I can back intothat and I can and I'm making this up on the fly. So but, you know, OK, well,you have to clear thirteen point two million dollars in your sale after taxesand fees in order to put that money to work at a four percent annual interestand then withdraw at a four hundred thousand dollar a year. We can do all ofthat math and help somebody understand that either. And then you turn aroundand go, OK, is the company worth thirteen point two million dollars after allthese fees and taxes at closing, which means, you know, it's probably going tosell for 16 or 18 or something. And and then if if if it looks close.
[00:43:33] Then we say, OK,well, let's let's do an engagement where we study this and really define it formost business owners don't know that that discipline, that profession exists.And and and lawyers and CPAs for M&A guys go. We all do that. You know, I thoughtthat only happened in a billion dollar transactions. Now we do it because thoseare the things that that are important to our clients. Right.
[00:44:02] And that's whatmakes you different. It's what it really is, what makes you different. I hope thosewho are listening to this, you catch that. And if you hear a small businessowner saying that, you know, make sure you remember that, you know, I'm not youknow, it's not just because we're friends and all, but I just I really feelthat that is missing the intangibles, the caring, because it's coming throughhere to me is that.
[00:44:32] That is yourclient's well-being is what drives you to be successful.
[00:44:39] Absolutely. It'sthat in his health care, which is going to be really hard to model and predict.So. So we we. Keep up with all the latest statistics and trends and we putthose things into the models, but those are the two variables, you know, howlong you're going to live and how healthy you're going to be during that life.
[00:44:59] And and honestly,until a business owner can get their head around that. They're they're justlike a mule, they're not moving forward and thinking about selling theircompany, and so what happens is they don't know where to turn, they internalizeit. It kind of eats at them for years. And as that's happening, you know,they're losing less and less interest in the business and the business stopsgrowing or key people I've seen this many times keep people will we'll say, youknow, I don't know when you're going to fall over dead or retire.
[00:45:35] So that.
[00:45:39] Makes me nervousas an employee, I'm going to go somewhere where the ownership doesn't make menervous and they're key people start leaving the company, right. And so veryoften we'll have a company who did phenomenal two, three or four years ago. Andthey've been on kind of this slide and we start looking into it. And a few goodpeople have left and they haven't backfilled. And now they're asking me to sellsomething on the slide with or without good employees, you know, managingthings and the owners are going to be gone. That's just not very viable. And soto catch it earlier, you know, you really. Doing your your client a service, itdoesn't take a lot of time and money. To do evaluation, it takes six weeks.
[00:46:28] You've got to paya little bit for it, but to get a fair market valuation from somebody like us.Men, I know I'm biased, but I think people should be doing that every three,four or five years to see where they're at and gauge where they're at. Look attheir options. Very often we always almost we surprise the owners with what wecome up with in those valuations to the good and the bad. But quite often herein the last few years, the surprise has been to the upside because the marketis just. At the top and people are paying more than they've ever paid multipleearnings wise for businesses, lenders are allowing higher multiple of earningsto be borrowed against than they ever have before. And so it's been a seller'senvironment for the last few years and we believe it will be here for the nextlittle while. Government regulation, tax code, things like that are going tochip away at this and turn it back to a buyer's market. Right now, if yourclient is a business owner, the market's in their favor. So it doesn't take alot of effort, doesn't take a lot of money to go out and just analyze what youroptions are. And we do that a lot for folks. And and sometimes they'll comeback three or four years later and they'll say, hey, now I'm ready. But it allstarted with that kind of valuation exercise.
[00:47:58] I guess itdepends on where you are in your business. Like, I would think that you wouldwant someone to come in and do a review, a business valuation you just becausethat can help you with your strategic plan. You know, of where where do youwant to go, when do you want to get there? I think you need to have a baselineand then you have to have evaluations on whether you're getting there or not.So I think that's great advice for space to be given to their clients withbusinesses and say, you know, the return on this course will be further downthe road when you sell your business.
[00:48:36] Because, youknow, we talked about the webinar. You also look at the culture, you look attheir code of conduct, you look at their tone at the top because that goes intothe business sell for the ICA as intangibles and the emotion of a businesslike.
[00:48:56] And people areleaving, that's a red flag. When I was in industry and talking to others, like,did any key people leave, that was one of the questions I would get asked andlike, well, yes, I'm leaving. Thank you very much. That you're not a keyperson.
[00:49:14] But, you know,it's one of those things you've got little as a business owner and as if youare a CPA or you're not, you know, talk to your business owners, let them knowthis is so important.
[00:49:30] Yeah, you saidtwo things. I want to I want to make sure I clarify. One is the return on theinvestment is almost instant, because what we're going to do in that valuationis we're going to say these things. You're really doing great at. The market'sgoing to see and give you a plus a. Minus a. These things over here is wherethe market's going to give you lower grades, and so these are the things thatyou should take away from this exercise and go work on.
[00:50:01] You can movethese up even a point or two, then you're bringing your valuation up. So thereturn on that investment is literally in most cases, it happens within aquarter or two also because it's not very expensive. And that's the secondpoint is if you're going to be advising that your client gets a valuation forthis purpose, well, that's a different type of valuation than you're going todo for IRS defense. It's different than what you're going to do in a divorce.It's different than what you're going to do in wealth planning. And so don't.Make the mistake of saying all valuations are equal and going out and grab onefor wealth planning or tax planning and thinking that it's going to apply wellfor M&A, the valuation that we do out of all those, the one we do is thecheapest. So that should help. But, you know, it's one that's very forwardlooking. It's a buyer doesn't buy the past. The buyers buy in the future andthey're buying a future cash flow stream is what they're looking for. So, youknow, it takes into account comps. It takes into account that I've got abusiness right now that that we're doing a valuation on for their five topemployees are over the age of sixty seven. That's great for the currentbusiness owner because he doesn't have to manage those people at all, right?They are self managed, doing a great job, but a buyer walks in and says, arethese people going to transition with me or are they going to retire? And ifthey do transition with me, how long are they going to work there at the upperend of that range that becomes a liability in your valuation.
[00:51:54] So I'm not sayinganything about old people. I'll be one of those pretty soon. But, you know,it's they're just facts of life. And and so, you know, all that stuff happens.One of the things that we've discovered on a few occasions for a business ownerin evaluation is that their top customer or their second or third top customeris on the verge of filing bankruptcy.
[00:52:25] And quit givingthem credit, quit, and they had no idea because they've been doing businesswith them for twenty five years and, you know, and in one case that I'mthinking of the guy that was extended a couple hundred thousand dollars to acustomer who was in the news saying they're on the verge of bankruptcy. Bringthat credit down, get those receivables tighter and you're going to getpregnant. And by the way, the buyer is going to find that and they're going tosay, well, you know, we got to look at the business without this customer justin case. Now, what's it worth? So, you know, all that kind of stuff. And whatwe do just kind of naturally comes out. We bring that to the conversation sothere's a lot of value there. But you don't get the wrong valuation.
[00:53:15] Yeah. So I'm justgoing to plug our we have a forensic evaluation services committee and they'reactually doing webinars on the various evaluations, the divorce valuation, theif your partner's leaving the business valuation or if you are selling. We havea committee that that's all that's a day job type thing. So look for thoseseminars coming up. So we are almost to the end of our time so that I want tothank you so much for coming on.
[00:53:49] I hope peoplefound value in this because what you're doing for the small and midsizebusinesses is so important, because I feel like it is a numbers game for a lotof those who are looking to sell. And when you find someone who is the rightfit and cares, it, I believe, just makes everything better. And so hopefullyCPAs will seek you out and develop a relationship with you, because I feel thatthat's the first step between you and the accountants. And CPA world isestablishing that relationship, which I know you've done with several andthey're probably members of his or not. Please be one and. Yeah, exactly. Yougot it. But I just thank you for coming on here telling us about your uniquestrategies, because I think that's just taking you to stardom and that's justwhat I like to share with our community.
[00:54:49] Yeah. Thank youfor for having me and having the firm. We got word of mouth. This is how wesurvive and where it goes both ways. We refer a lot of quality of earnings outand people who have accounting issues and whatnot, we love to to be a goodreferral partner. So I can't thank you enough for having us on. We barelyscratched the surface of all of this in these conversations. So if anybodywants to talk deeper, Scott and I and others at my firm where we're available,you're welcome to post my email address and phone number.
[00:55:29] And I will yep. Iwill be putting that underneath our live video today so people can contact you.And Scott, I appreciate it. And I hope everyone has a wonderful Tuesday orwhatever day of watching this on you.
[00:55:47] Thanks. Takecare, buddy.