Q&A Session with Matt Gilbert of Gap Business Advisors and Kristie Ondracek (CFO/COO) TXCPA Houston Foundation

Here at his foundation and this is our regularly scheduled Friday, no rescheduled Friday webinar, so we are really appreciative of Matt Gilbert for joining us today. And I'm going to give a little bit of a bio on Matt.

He is a founding partner of Gilbert & Pardue Transaction Advisors. He has thirty two years of experience. He did start when he was seven years old. He has experience as partner, president, CEO, and stakeholder of successful middle and lower middle market businesses. He has a wealth of experience in transactions where his ownership, livelihood and personal funds were at stake. So he's had skin in the game. He knows how to be on both sides of the table. He is going to answer some of our questions today about when your client is looking to sell their business, what you need to know, and tell us about a successful roadmap and make the partnership between your transaction adviser, the CPA and your client to be the best one ever. So we're going to welcome you. I'm excited to have you here today, because when we had our conversation a couple of months ago, I had a lot of questions. And I just think this is going to be a great hour of giving knowledge, and information to our attendees, especially with the business climate that seems to be changing every twenty four hours.

I never know what to expect when I look at the business news. So I invited you because you have all this experience. I enjoy talking to you and think you can give us a lot of guidance. Those who are online chat for your questions. This is to be as interactive as possible.  We welcome your questions a lot because otherwise it's just going to be a chat between the two of us, and I'm going to get a lot of transaction information or whatever knowledge I need it on. But please, please ask the questions. So is there anything on your background that you want to give the audience before we start with the first question?

No, not really. I appreciate you having me here. I guess a little bit about my background is I have been a founding partner of five different companies.

All five of them grew to be quite successful. The first four actually grew to hundreds of employees in multiple locations in each. In each case, we acquired businesses to grow our firm. And in the end, we ended up selling those companies. Two of them were sold to public companies. One was sold to a private equity firm and one to a strategic competitor. So I feel like I've been at every seat at the table when it comes to growing, buying and selling businesses. And now we're a transaction adviser. So I just like to bring that experience to the conversation.

And  that's what I think is so great is because you've held every seat, you know what the client's going through, because it is an emotional time when you are doing this transaction. So I'm going to go into the business environment first, because I feel that is big on our clients minds and small businesses. Mid-Market. The business environment has been really changing.

We look at 2019, 2018, I would consider those stable years, you know, that business is gone. In 2020 we have the pandemic, and we thought 2021. Yeah. It's going to be great and we are at February 26th 2021, and it feels like it's the longest year ever as far as small businesses and mid-market businesses are concerned.

What's the mindset and how are they approaching business?

What should they be doing?

You know, I speak to business owners practically every day and they seem to be following in two classes recently. It's the haves and the have nots. Right? Either their business is affected negatively by the shutdwns, by key employees being covered and being quarantined, you know, really disrupting everything they do from that standpoint or they're on the other side of the coin.

Maybe they own a home improvement business, or they own a nursery, or they own a swimming pool, construction company or something like that and they've never been this busy in their life. They have the opposite problem. They're choking on the amount of business coming their way, trying to figure out how to grow their firms without burning out and eating more than they can digest. So it really is strange. And then, you know, we jump into this year, like you mentioned, and we start the year off with the US presidential transition that had lenders and creditors and bankers all nervous about how things were going to go. So anybody that was in a situation where they were working on credit or trying to extend loans or borrow money, they saw delays there because lenders would rather sit on the sidelines and wait and see what happens then to be in an uncertain environment. So we get through that. Then we had the snow storm in Texas.  And we all had busted pipes and power outages and we lost a week there. I talked to a lot of business owners in the food service business, for instance, where they lost all their inventory. Right. Lots of businesses had issues receiving just in time orders and deliveries and UPS and FedEx and things like that.

We're all shut down. So I think most of our business owners today, you know, it's I don't know, it's sixty degrees outside. It's we don't have our heaters on anymore. We have air conditioners on now and business owners just kind of  in a state of shock. So I find that we just have the two month tax extension because of the weather events here. And some business owners, we're a little worried about their 1099's and their W-2'ss and getting ready to file for taxes. They've been given a little breather from that standpoint. But it's almost like they're looking around saying, you know, what's the next thing going to hit me that I don't know, I've never even thought of. Right. Because so much of what has happened in the last 12, 14 months was not on anybody's radar. It was never a risk that was assessed or thought through or dealt with and moving to an online environment, people working from home and stuff like that. It's just got business owners a little bit in shell shock. I think especially the smaller they are, the the smaller teams that they have, the more reliance they have on key individuals. It's been really, really tough. And they're just tired. Really tired.

I think burnout is a big thing we had about two weeks ago about burnout and what employers, what we should be looking at for the burnout stages and such. I think that is a big thing when we're looking at the small businesses and. Since we have attendees who are CPAs, who have clients of theirs, small businesses, I would like to have your insight on what should be steepens be doing with these small businesses that maybe they're not looking to sell now because I want to keep it around the transaction of XDA at some point. But when we're in this uncertain period that we are waiting for the other shoe to drop and we are shell shocked. What's the importance of the CPA relationship with these small and midsize businesses from your perspective as a transaction adviser?

I'm really glad you you kind of led with that question. It's it's the reason why I agreed to do this and why I was excited to talk to to your community. Actually, I will answer that a little bit with a story about something that happened to me last week. I mean, with the business owner, they have about 20 million dollars in revenue and about 80 employees. So typical local family owned business. And the business owner proceeds to tell me how great their relationship is with their CPA and how the CPA is fully up to speed on all of their accounting decisions and depreciation and their major purchases and all this stuff.

And he kept saying, she and she and she. And so finally I asked who she was and I knew her. So I said, Oh, I know her. Do you mind if I if I call her and just tell her I'm working with you and maybe try to bring her on the team so we can all work together to help achieve what we're trying to do here together? I give her a call, you know, so I get my car, I'm leaving, I call her up and she's like, oh, gosh, I barely even know those people. They all all we do is compile their taxes, you know, once a year.

We talk to him a few times to ask answer a few questions. We turn them over their tax return and I don't see them for another eleven months. And and that story is so typical of small and midsize and family on private business owners telling me all the time that their most trusted, their most respected confidant in their business when they can't rely on their spouse and they can't talk to their management team and they can't talk to their their brother who works in the company, they they just convinced me that their CPA relationship. Is that that safe spot. And then just as consistently I talked to the CPA and they're like, oh, we hardly know him, no details about that business in our files, that kind of thing. And so the moral of that little story is. I don't think most CPAs realize. What the business owner places on that relationship and and how in their mind they're relying on the advice and and you may just get a random off the cuff question from one of your business owners whenever you're talking to them, especially around tax time. And so you don't give it a thoughtful answer. You just kind of throw back and answer. And then that guy works all year long based on what you said and you don't even remember it.

And and so if I can impress upon, you know, the accounting community anything it is, I think that that in most cases you don't realize how important that relationship is with your client to them. And and even though it may not be an accurate representation of the relationship, it helps them really sleep at night thinking that you've got their back.

So based on that, what is and because we are here for education and knowledge sharing, what are some questions that you would advise CPS to be asking their clients? To help prepare them for having a trusting relationship, because you're right, I always trusted my CPA, but she saw me once a year. You know, what Kanakas did is a little bit more special.

Yeah. You know, I do some continuing education, teaching to attorneys and accountants and others. And and it always kind of goes like this. Especially with your older clients, right, if you've got somebody in their upper 50s, certainly 60s or 70s, you need to walk into that relationship knowing that transition is on their mind. Right. They've been doing this a long time.

Do the kids want it? Are the kids capable of taking over? Can I trust my livelihood to the kids? I often get a call from from CPAs who say my client's been building this business. They've been working with their children in the business for six or eight years. And finally, the children got enough nerve to go tell the parents that they really don't want to take over the company. So then that the whole wedding comes crashing down and the business owner doesn't know what to do now because they've been working toward this. And that's a and that's an issue with communication in the family. Right. They don't do that well. And and and so the business owner has assumed that the next generation is going to want to do this in the next generation, is afraid to tell mom or dad that they that it's not their passion. They'd rather be doing something else. And so when they find out the whole thing kind of implodes, the business owner is walking around wide eyed and invariably they turn to their accounting professional or it seems like their banker. That's where I get those two phone calls. And so, you know what I what I'd like to say is when you're interacting with your client. Put yourself in their shoes, you know, if they're of that age group, that's that's a concern not only in their mind, but the business owner, for instance, they're hanging out with or playing golf with or eating lunch with. That's what they talk about, right? They talk about succession. They talk about, you know, that they've had a nice 20 year run, but they don't know what how to get out of the company, how to divest it.

And and part of that is is borne out in some statistics. So there's a national statistic that says somewhere between 13 and 17 percent of businesses that attempt to be sold to a third party actually transact. So for easy math, that's an eighty five percent failure rate to transition when it's not a succession. Right. And that it's not something that the industry advertises.

It's not something that people talk about. But there's an intuition there with business owners and people around the business that know that, hey, most of the stories I hear about M&A and selling companies and transactions aren't good ones, right? It's we got up two weeks before closing and the deal fell through or the buyer walked away or whatever. And so it's all about preparation. And when when a business owner that I meet with. Tells me who he trusts to prepare with, it's you guys that's that's who they trust and and honestly, most of the time it's it's the accounting or the banking or the legal professional that that calls us and brings us in. And so we come in kind of as the expert, but we don't have that relationship. Right. And so, you know, a lot of times I'll ask a business owner a question and he'll turn and answer the question to the accounting professional that he trusts with me sitting right there. Right. To make sure that they're on the same page. But he's really talking to me. And so, you know, as you have these interactions with your clients and discussions with your clients and you can go completely the other way up their super young and they're in their 20s and 30s. But put yourself in their shoes, right? Their place in life.

You know, if they're young, they've got little kids running around.

There's probably pressure on them for all this work from home environment and the dogs barking in kids are running in because the house is now a daycare, you know, and if you put yourself in those shoes and empathize with your with your customer a little bit, I think you'll see that that relationship will blossom because they think it's there already.

So the CPA really needs to start like initiating these conversations and, you know, when you're doing the tax planning, because I know there's tax planning and during you're in, you know, maybe ask those simple questions of where do you see yourself in five years? You know, a development question that we ask ourselves.

You know, starting that conversation with the bit from the CPA, asking the business owner that, you know, absolutely, I know if if your relationship is primarily a tax relationship with your business owner, one of the things you need to know is the three years prior to the sale of a business, you probably don't want to minimize their personal taxes as your primary goal in those preparations. Right. There's some other things that you need to do to get ready to maximize that sale event that are that are actually divergent from minimizing the individual owners or shareholders personal tax burden.

So understanding kind of where they want to go with the business over the medium term, if you will, three to five years would probably be really wise. If you hear something like, you know, I hear all the time my spouse is is ill. And so I think I've only got a couple of years left here.

Ok, well, if that's true, then, you know, we probably don't want to approach your taxes from a minimizing personal tax approach anymore. We would probably want to approach this tax scenario towards looking out two years and maximizing the gain on the sale. And and so that causes you to get in the conversation. And and what I'll say, a lot of my business owner friends tell me I kind of asked around for the last week or so getting ready for this call is is they tell me that. And in a lot of cases, their relationship with the accounting professional is very transactional and so they don't.

That they wished that there was a little more personal relationship there, so, you know, if you know their dog's name or their kids names or where they go on vacation or just take a few extra minutes to build a relationship, I think you'll find that'll be really beneficial with those clients.

And that seems to be the theme, building relationships, the banker relationship, the lawyer, the attorney relationship, the CPA, and do you find those who have strong relationships with their banker and CPA and lawyer that those are? Potentially more successful transactions.

They're more successful businesses, which makes them more successful like that, right. Surrounding yourself with a team who kind of understands your goals and objectives and has a different perspective. And also the means to to help you kind of get there is is what a smart business owner does and a lot of cases. And so, you know, we see that. That that the better businesses have.

This is an old term, but, you know, the accountant, the banker, the wealth manager and the lawyer on speed dial, and when big decisions come up, you know, they're they're they're. Inquire, inquiring with those folks about how is this domino effect going to, you know, if we add a really small business, if we buy a new forklift. What's that going to do to our cash flow? What's it going to do? How do we depreciate it? You know, those kind of things for the lawyer, it's do we buy it in this entity or that entity, those kind of things for a liability standpoint. And we see when a business owner has that really close relationship with those professionals, they really have a business that's more prepared to exit. Well, there's some transparency there also because they're used to opening up to somebody on the outside.

And so it's easier for them to open up to us and open up to an auditor, open up to a buyer. One of the things that that most of the business owners that that we deal with struggle with is they're all alone in their thoughts.

You know, if you if you own a company and you've got 30 employees and you can't walk around the office say, I'm thinking about selling this place because they're all going to be worried about their job. Right. They may jump ship and go work somewhere else. They may tell your customers that you're thinking about selling or tell your vendors that that'll be used against you. So the business owner, you know, has to keep that to themselves. And they don't really have they can't go home, tell their spouse, make your spouse nervous, can't tell their employees, make their employee nervous. Right. So where do they turn?

And and this is a very natural place where they should turn, where you guys could jump in and say, OK. You know, let's talk about what that means for you personally, what that means for this business. And then after we talk about what it means, if you're still thinking about going down that road, let's begin to model some different scenarios and see if you're really going to achieve your goal there. Right. Because so many times business owners, they miss a few variables and the scenarios that they're modeling in their head and the goal is unattainable. Right. And so helping ground that, I think, is something that the accounting professionals really do well when they when they're able to get involved.

So in this business climate, we are in uncertain terms, uncertain environment with we don't know when it's going to end, we don't know when the business environment is going to settle out. And so the relationship may not be there as strong as it needs to be. Is there things that CPAs can do now to help their clients in case. The exit strategy needs to be done in six to 12 months because it seems like we're a little behind the eight ball on it, but is there something that can be done to make it?

Yeah, you know, it's for a lot of businesses, it's not too late to exit in twenty, twenty one. I would say that most of us believe that the taxes are going to go up and and so having conversations with your business owner about continuing the type of lifestyle that you're accustomed to and understanding what your future consumption needs are going to be so that we can model what you have to clear when you exit. And then certainly for for this calendar year, we know what that math looks like, but it's it's it's up in the air over the next few years as to how the tax code might change. You know, there's donor advised funds and there's a lot of business owners want to give to charity and in all these things. So, you know, that's probably a welcome conversation that a business owner client would would have. If you I know if my CPA, who does and he's a friend of mine, called me and said, hey, you know, I'm thinking about you. Let's talk about the next couple of years. I'd love to have that conversation with him, Brian, if you're out there. So but, you know, it just doesn't happen very often. You guys are busy. This is a time of year where where things are wild.

But it's that personal touch. It's that empathy. It's that caring. It's that I'm thinking about your best interests that that really helps that that relationship. And so I would say, yeah, if a business owner is thinking about or they're of the age where you suspect they should be thinking about exiting in the next four or five years, it would be best to do it in twenty, twenty one where it's probably going to be the smallest tax bill if, you know, if they said, oh, you know, I'm going to wait a couple of years and grow my business by 10 percent in the tax code changes by eight percent, they really didn't need anything for working a couple more years. It's just added risk. It's added stress. It's at a time in their life for health insurance premiums and things like that are going up. So they may actually lose value by hanging on a couple more years. And so we do a bunch of surveys and studies and audits and stuff like that for for companies all the time over here in our business. And what we find is. I don't want to say in most cases, but probably in half the cases, exiting now will net you more than than within a couple of years and exiting.

And that's good information, because the first polling question is, do you have clients? In April, percent was just here for the knowledge, the 80 percent here just for the knowledge. You have friends, you have small businesses, have them maybe initiate conversation with the CPA to because I feel it's a two way street. You know, when I talk to some small businesses that I know, it's one of those conversations I do ask because of our conversation back in December. I'm like, so how's the business going? What's happening? And they know that. I'm a CPA, so I think I know things that I know and I know people, we do have a question how soon should I approach my clients and starting to discuss an exit transaction that we you know, it's a great question.

What we do with companies who are nowhere near an exit is, is we like to pair them up with a coach or a mentor or somebody, because the the the cleanest business with the most transparent processes and safety records and all their ducks in a row transact at the high end of the value range. And you can never get there fast enough in the last couple of years. So if you build a culture that's always at the high end of the value range because of your company culture, then then what we see a lot is you get unsolicited offers from people who recognize you have an exceptional business and you're kind of always ready to to to act on that force. The other side of the coin is true to the older business owner gets, the more complacent they get, the more they golf or fish or whatever and kind of take their eye off the ball and they begin to coast. And when you begin to coast, you know, you get a little fat in payroll and you get old inventory in the warehouse and things like that. And and so when we see a business that looks like that, you know, we can't run in and transact right away. There's a lot of work to do to get this thing shined up and ready in order to command a multiple at the high end of the value. And so, you know, I people ask me quite often or sometimes they'll tell me I'm 10 years away from hexing. I'll think about that in seven years.

You ought to think about it now and just build a culture that's there. It's always ready. That's on point, that's accountable. It's lean, that measures everything. Got a little dashboard. They're more fun to own those businesses. I can tell you that you sleep better at night. And and so I would you know, if I were in your shoes, this is the accounting professional, I'd be having that conversation with everybody all the time. Here's another thing you guys probably don't know because you're not in the world currently. If if you have a really small business under five million in transaction value, when you sell and you get an SBA loan, the SBA loan will make the first six months of prepayments for the borrower as a gift. They don't tack them on to the end like they do sometimes when they when they allow a variance. But it's the first six months of Pawni payments when they buy a business is literally so that gives a cash flow runway. Your client gets to keep a little more working capital instead of leaving it in the business during the transaction. And then the buyer comes in with some confidence that, OK, I got six months before I have to start repaying my note to get my legs under me and get this business, start asserting my own plan. And we've seen that be a real catalyst and in smaller businesses. So there's a bunch of programs out there because of bad weather and, you know, all all kinds of stuff where there's some assistance in these transactions.

And, of course, all the the investment community, private equity firms, family offices, there's nowhere else for them to get any yield. And so it's it really is a seller's market right now. We've never seen so much money on the sidelines that they can't buy bonds and they can't invest in CDs and typical very stable conservative places to park their money. And so we've seen a lot of activity. And people who don't traditionally seek to buy our business come in and buy one because they need a place to put their money to work and get some yield. And that's driving significant transaction value in the seller's favor and allowing the seller to kind of get their way and some softer terms where in years past, when it was a buyer's market, that that would never happen.

So that is interesting because, I mean, I guess having. Great cash flow is helping the small businesses and midsize businesses that may have not been ready to sell. So I guess as our attendees are going back to who they know and talking to other CPAs and, you know, bragging up this hour. What is a what does a successful roadmap to exit strategy look like?

He talked about the culture, he talked about relationships. So if we were to have a road map and I know you have it, but what is it?

What's the secret? What's the secret sauce to this? Yeah.

So it's it's really understanding in that space for that type of business what the buyers want. Right. And if you go very general, we we boil that down into eight things that the tangible things the buyers want and then those eight all have subcategories in the list could be one hundred miles long. But, you know, buyers really don't want risk. They do want transparency, they want to know what they're getting. So the books are your world and the smaller the company, the. Poor job, they do it, keeping their books and understanding how to do things. So one of the things that we like to do is come in and convert cash accounting to accrual accounting for M&A purposes. You can be talking to them about that. Nothing wrong with quick bucks. I hear brokers all the time saying I hate Equifax or whatever. We really think that the cookbook's is fine because most of the buying community understands that that product and they know how to get through the tables and in the reports. But it's it's transparency. It's understanding, you know. I had a client recently who has changed accounting firms three times in the last five years and. Each accounting firm wanted to do something different than the previous one and there and we always look at the last five years, financial is just kind of an opening thing and you see that the treatment isn't the same. That changed the categories every year. And now you can't match apples to apples. You know, I have one very large client, actually, who's the owner's sister, who was a kindergarten teacher, didn't like teaching anymore.

And so now she's the bookkeeper for the company and she has no idea how to do this, but. And so their accounting is a mess. And that, honestly, frankly, is pretty typical. So transparency and the trustworthiness of their documents, not only in accounting, but in safety and inventory and, you know, contracts. We sold the business last year and we almost lost the deal because the contracts were in such a mess. They couldn't even find some of them. You know, those are assets of the company and they all have to transfer. And so just having all those things kind of in order and then concentration. Right. People always think of customer concentration as an issue and a sale. But what if all your sales are concentrated in one primadonna sales employee? There's a concentration issue there that's a risk that the buyer perceives. What if that that employee is seventy one years old? There's so there's an agent out risk where that person would might retire if the if the current owner sells the business, there's a concentration a lot of time with vendors and material suppliers where there's not a backup resource in case they go down or they have a fire or whatever. We've seen all these scenarios. And so, you know, and just thinking about all the variables that it takes to have a business become a great business and be in great position to sell, it really can be summed up in that it ought to be highly accountable in every aspect.

And there ought to be a transparency where you can look and trust data to be able to to figure out what's going on. And and most of our clients, you know, under 50 million easily in revenue down to, you know, five hundred thousand in revenue. They came up his trades people are salespeople or whatever they did, they didn't come up as CEOs, right.

They're just making this up as they go and they're good at it. So they're successful, but they're but their systems are really lacking the processes and procedures or either what I call tribal, which is not written down or not repeatable. They don't cross train employees. You know, there's just a lot that goes into achieving peak value. So the CPA and the accounting professionals, the person who's usually the closest voice that they trust that they can have those conversations with, a lot of times it's like, where do I start? I've got a lot of these issues. And and there are professionals out there. We have some on staff, but you don't have to use us that can come in and do an assessment and kind of help you prioritize things and just begin to, over the course of a very methodical period, get the business in order. And if they never sell it, it's it's a it's a more fun business to work in and some more fun business to own. And it's generally more profitable. So you shouldn't think of it as something you have to do just to prepare for a sale.

Well, I was just going to ask this as a CPA, you're going to be seeing their customers. You won't be seeing the vendors. You know, I come from industry where we have the top 10 customers, top 10 vendors. So maybe that's something like for a small business and midsize business, if a CPA starts asking where is your revenue concentration? Because if they do have to go get a business loan, it's a risk if you only have two major customers, you know, and that as a CPA, I feel that, you know, it's part of our. We have that knowledge to share with their business owners and hopefully the ones who are doing the taxes can even see that in questioning. And of course, if you're doing a review or compilation, you should be seeing or especially if you're doing the audit, because that is one of the things. So I am a small business. I you know, I got five more years. I know that's part of my strategic plan. After five years, I'm going to my island and I never want to see the United States again. I have pretty good, strong internal controls, my culture is pretty good. What do I need? Keep in consideration for the buyers? What is there a difference for the buyers if they're just wanting to spend money or someone who has a passion for what I'm doing?

Yes, well, first of all, fire first versus a financial buyer. Yeah, first of all, there's five buyer types, right? If the business is really small, maybe three, but I'll tell you the five. So. So there's an internal buyer, right? That's that's your children or your cousin or somebody who's in your family that's going to be in succession. There's an internal buyer that might be management team. And a lot of times we see management team go get financial backing and take over in succession from a business owner. The smaller the business, the more often that happens. And then there's a strategic buyer. A strategic buyer is somebody who's in your space. Could be a competitor. Could be. If you're in Houston and they're in Atlanta, you guys are doing the exact same thing in that Atlanta company wants to be in a different geography. They could be a vendor that not quite doing exactly what you do, but they really understand your business. They're in your space. We call that a strategic financial buyer is a private equity firm hedge fund, a pension plan, a family office, somebody who wants to put money to work by owning a business, but they don't want to come in and be the operator. Right. And so if you guys hear the term recap in association with the sale of a business, what a recap recapitalization is. A business owner sells the majority of the shares. Maybe they sell 70 percent of the shares to a financial buyer and they stay on as a minority shareholder and they run the business for for that. And that's a recap. And those are financial buyers.

That's probably your your most active group right now, because they've got so much money they can't find yield to put anywhere. And then there's a foreign buyer willing to talk about that with a small business. But in Houston, a lot of foreign buyers are active. And and so, you know, you should be ready to to have conversations around that. And then a new one that's popped up in the last four or five years is what we call a searcher. And so business schools and rice is a big one here in town. They they take twenty eight thirty two year old people out of business who are in middle management. They go through an MBA program designed to help get them ready to own and operate their own business. And when they come out of that MBA program, they partner with the financial resource and they go buy a business. And that person steps in as the president or the CEO to run the company. And the searcher buyer group now has tens of thousands of people in it from all walks of life. Some of them are very well funded and very well accredited and would be great buyers. Others would be a nightmare. And so you've got to be really careful. But but those are the different buyer groups. And so when you're thinking about, you know, how to position the business to appeal to any of those folks, the appeal really boils down to the same thing in the background in a smaller middle market business. And that is this. In the interest rate environment that we're in, even if they have the cash, they're going to borrow a portion of the funds.

It's just too easy. Borrowing is a tool. And so that the lender, whether it's an institution or an individual or something in between the lender, is going to be the one that you have to satisfy with the deal terms. And so preparing your client and yourself to to have this kind of third party in the background that you have to, you know, satisfy without ever talking to, in most cases, without ever meeting, without ever understanding what their motives are. They're looking for safety in their investment. They're looking for collateral. They're looking for something that has a wide margin in case their operator experiences a few stumbles along the way in the beginning or has an error in the beginning that they don't lose their investment. And and so really understanding the food chain in the buying process, you know, if it's a small company and you've got an individual who's buying your business, that individual's got a lender, they've got an insurer. There's there's probably bonds in place. And those are for profit organizations that have rules and parameters around how they operate. And so too many sellers and their teams get really excited about the buyer and they forget who's behind the buyer that they have to get through in order to close. And that kills the deal and a lot of cases. So I think it's really understanding that that there's a whole chain reaction that happens. And everybody has to be satisfied that from a risk standpoint and from a yield and return standpoint, otherwise you're not going to get to closing.

I think that's important information because the CPA is going to be helping them through all this because that's the numbers person. You know, you're right, these small business owners and middle aged middle market businesses, they're like, well, you know, I have my specialty, but numbers, isn't it? So understanding all that and that's where I want this seminar to be is. If you hear someone saying that they're thinking of selling, you know, let this be like a little conversation starter that you heard this information and that's going to be back on Tuesday to really talk about his market and all of his stuff, but. I think what we've discovered today is the relationship with your CPA, your banker, your lawyer, you're welcome. Pfizer is really critical when you're looking at, I would even say succession plan because you said with the inside bider being two of the five. And an exit strategy and then start. Starting sooner than later. With the culture, making sure you have all your I's dotted, T's crossed, so that when you get to that final part of the deal, the exit, that you can close the deal and you don't get a hiccup at the end because something fell through the cracks, cracks of the wall sidewalk. Sorry for the dog in the background. There's something in the backyard.

What else what other information do you think for the closing out of our seminar today that is critical for our attendees to know you're selling a business in and most of the cases that we would all be involved in, you know, one hundred million in revenue and less businesses all the way down to the sandwich shop on the corner, that so many people tend to jump right in and focus on the business. And that event is all about the individual right. So the owner is selling a business for a set of reasons. So there's a catalyst there that that makes them or is causing them to go through this at this time. It's always uncomfortable. It's almost always the first time they've done it. They're not sure footed in what they want to do. And so, you know, one of the things that that we really focused on in our practice is. Hearing that you want to sell your business is nice that that rings our bell, we want to talk to you, but then when we come in and talk. The first couple of hours sometimes of conversation is about their lifestyle and what they're trying to achieve and how what's next and how much resources do they need rolling forward to do that? And the business is just a mechanism to achieve all that. So you really have to understand the person, the motives, what they're trying to achieve personally in order to know what to do to the business, how to position it in those kind of things.

And then so many people turn to the business in our space and they don't know where to start. Right. And so I would say you always want to start by accentuating the good stuff. Right. There's something good about that business. They've been around 10, 12, 15, 20 years. You're doing something right. They've got decent employees. They've got a product, whatever, figure out the brand and begin to accentuate those things. And then, you know, because that's what's going to bring the value and then turn around and say, OK, how do we improve that value? Now you can look for things that's low hanging fruit that you can fix or improve to make it more valuable. So there's a process there. And that's that's pretty simplistic way of talking about it. But, you know, if you just think about let's start with the person and what your goal is and then the business is a mechanism to achieve that goal, then I think I see a lot of times the deal team will focus so hard on the business that I'll start running off in a direction that doesn't really match up with the owner's goal for selling anyway. And so you always kind of have to keep that in mind that we're here to help support you to achieve your goal.

So we really need to understand that before we roll up our sleeves, I think at the CPA, understand the goals and the strategic plan that puts them so far ahead from what I heard today, you know, and so it's asking those basic questions of just getting to know your clients. And I get that during tax season. And when you are working with your clients, it's busy. It's a busy time and you just don't get the paperwork and get over. But those five minutes may make such a big difference on both your as a CPA, your business, but also your client's business, because they're going to say something. You're going to. Well, did you think about this or also that your goals not this because, you know, you're going off the numbers and you're thinking, oh, your goal is to do this. And then like, no, this is really my goal. And so it's good to have an idea of the goals.

Yeah, it really is. And my party comment is this. Every business owner has an opinion of. What they want to sell their company for and a lot of times a professional has an opinion because they've been staring at the numbers and and the truth is, the only opinion that matters is the buyer's opinion. Right. And so we like to say that those are nice to have. It's nice to kind of have a starting point. But we don't really want to talk about selling the company until we've done a fair market valuation and we understand what a defendable opinion of value is. And then does that opinion of value match up with what the buyer needs in their life or the seller needs in their life in order to let go of this asset? And you'll find sometimes that they're as far apart as the east is from the west. And so the whole conversation about selling the business shouldn't even go go forward. But if, you know, if the fair market value with comps and defensibility. And and the sellers need to move on or pretty close or they match up, then you should continue the conversation about selling the company. So a lot of times if you figure out what the fair market value is and maybe it's six million dollars and the owner says, I would never sell this thing for less than 10, you don't need to be talking about selling the business at all. You need to be talking about either improving the business to make it worth 10 or you need to be talking about rearranging the opinion. Buyers don't care about a seller's blood, sweat and tears over the last 20 years. They're buying a future stream of cash flow. They're buying access to customers, to buying contracts. They're buying IP or patents or something. But they really don't care how many sleepless nights, the buyer weekends that the seller put in to build the business to this point. And and the smaller the business, the more the seller, you know, believes that there's value there. And so getting to that point really fast, will will do your client a great service.

Well, I think you hit on it, you know, the blood, sweat and tears is the emotional part and they really are more good. Well, are there the intangible and they don't get valued. Unfortunately, we can't put a value on it. It comes down to the contracts. It comes down to the tangible assets of business itself.

Having said that, I will say that last year and this year for sure, maybe even two years ago. So we're going on our third year of the highest valuations we've ever seen, the most largest component of the purchase price being applied to goodwill. Lenders and buyers are allowing that so and that's why I said when we started, it's a seller's market. But but the way to go about that is is through a very methodical, intentional process to introduce those things and why there is value, not just because of the emotional reasons the buyer is not going to care.

Because they're going to have their own sleepless nights once they get the business. So they're going to create their own good. Well well, Matt, I want to thank you so much for all this knowledge. I think we shared a lot of great things for you. Did I just ask the questions? I is about asking questions. I think it was very helpful.

So I think that 10 days we will be sending out the survey and CPA certificate this afternoon. It will be coming from Reagan Porter, just so you can sort your emails by the name and I will see you guys in March. So look at our website for who is coming up in March. And have a great weekend, everyone. Thank you very much. Thank you. Christy, by.

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