February 28, 2025 • 30 mins
When the time feels right to sell your business, how do you even get started? On this episode we're talking about what business owners need to know when selling their business to avoid making the mistake of a lifetime and what factors they should consider in today’s dynamic marketplace. The guest on the show is Andy Goldberg. He's an attorney with decades of experience in the field of business and the author of a new book, THE BIG DEAL: A Practical Guide to Selling Your Business With Confidence and Clarity.
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Episode Transcript
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Speaker 1 (00:06):
Welcome to Virginia Focus. I'm Rebecca Hughes of the Virginia
News Network. When the time feels right to sell your business,
how do you even get started? On this episode, we're
talking about what business owners need to know when selling
their business to avoid making the mistake of a lifetime
and what factors they should consider in today's dynamic marketplace.
The guest on the show is Andy Goldberg. He's an
(00:28):
attorney with decades of experience in the field of business
and the author of a new book, The Big Deal,
A Practical Guide to Selling your Business with Confidence and Clarity.
Welcome to the show, mister Goldberg. I am very anxious
to learn more about your book and about your experience.
Speaker 2 (00:43):
Pleasure to be here, Rebecca. It's great to be with you.
Speaker 1 (00:46):
So let's start by talking about your experience, just to
set the tone for everyone who may not know who
you are and what expertise you have in this field.
Speaker 2 (00:56):
So I've been practicing law and accounting for over thirty years.
I'm a CPA as well as a lawyer who focuses
his practice exclusively on representing owners of businesses who are
in the process of selling their business and moving on
to the next stage of their life.
Speaker 1 (01:14):
Okay, that sounds like a lot of fun. So you've
had clients from all industries.
Speaker 2 (01:20):
I assume all industries, whether it's medical, manufacturing, wholesale and distribution, retail,
it runs the gamut advertising and marketing. All industries are
represented in my practice. Okay, all sizes of businesses as well.
Speaker 1 (01:36):
So if I have a business and I know I'm
interesting in selling it, what is the most important aspect
that I need to look at to start and get prepared?
Speaker 2 (01:46):
Right? And that's a great question. We always start with that,
and I think, in my opinion, the most important place
to start is making a determination if you're emotionally ready
to sell and step away from your business. People are
to often jump right into the process, but they don't
really reflect on who they are and how this is
(02:06):
going to affect them after the deal closes. And this
can include several factors, Rebecca, and primarily because for most
business owners, they have spent a lifetime and it may
even be a second generation family business, and they've spent
a lifetime building it up, working serving the community, paying employees,
(02:29):
and now they're stepping away and departing from it. So
there's a big void for many of these business owners
in their life and in what they do on a
daily basis, and that's something that they struggle with and
they need to evaluate or they jump in right away.
Speaker 1 (02:42):
Okay, So I mean I've heard people refer to their
business as their baby. Is it that strong of a connection.
Speaker 2 (02:52):
Yes. Absolutely. When I sit down with my clients and
they're signing the papers to sell the business, you can
see a lot of the anxiety and stress just about
going through that process, in giving up something they've cared for, nurtured.
That's been the topic of family conversations that they've had
to run to the office when there's an emergency. It
(03:15):
is that much of a connection. And Rebecca, it's even
bigger because a lot of these are so invested in
their employees as well, and now all of a sudden,
they're handing off their employees to a new owner. So
we have clients that have employees who have been second generation,
first second, and actually I have a couple of clients
who there are third generation family members who are working
(03:37):
for the company and now all of a sudden, the
company is being sold. And you would not believe the
emotional impact that this has on business owners because they
feel such a debt of gratitude and responsibility to these employees.
So this is very It is very much like giving
up your baby in many respects.
Speaker 1 (04:00):
Well, I haven't dealt with that myself, but I can
only imagine that that really would be that stressful. How
do you know as a business owner when is the
right time to even consider selling your business.
Speaker 2 (04:14):
It's really difficult, and as I say in the book,
it's kind of like the Goldilocks syndrome, not too soon,
not too late. But I think what people have an
innate sense. Many times it's when it becomes harder to
just get out of bed and go to work in
the morning, or when they don't feel they're contributing as
(04:35):
much to the welfare of the business or of their
of their employees. A lot of times it's when they
start to see their kids grow up and then they
have kids. So now the business owner has grandkids and
they want to spend more time with them. That's a
huge motivator. It's about where they want to spend their time.
So family dynamics can be very influential. Horse Rebecca, there
(05:01):
are always the economic issues. Is my business at the
top of its value. Is there no way I'm going
to get any more money, so that is not at
the right time. Or unfortunately, if the business is not
doing well, do I need to sell it before it
declines even further and I can't get anything out of it.
So those are the economic conditions of the business are
(05:24):
very strong. We've also seen industry conditions. So there may
be some industries that are being taken over by AI
or tech and they're not going to be as valuable
in the future. So there are just plain old industry
conditions that will affect when you want to sell. And frankly,
(05:44):
for many people, they just want to relieve themselves of
the emotional burden and the economic risks that they take
on a day to day basis and it's time to
move on. So those are some of the factors that
we see as employees, as business owners decide or try
to determine when they want to sell their business.
Speaker 1 (06:05):
Okay, I forgot to ask you. As well as emotional considerations,
are there financial things you need to think about before
you decide to put your business up for sale.
Speaker 2 (06:17):
Well, certainly on the financial side, we always want to
make sure that the business owner has had conversations with
her or his financial advisor, and this includes understanding how
much you may walk away from the sale with. Sometimes
business owners don't realize that they sell a company, but
(06:38):
they had loans, they have bank loans they have to
pay off, they have taxes they have to pay, and
we go in depth in the book on taxes. There
are probably six or seven different layers of taxes that
might come into play. So they need to have a
full understanding of how much is left over, have conversations
with their financial advisor, and determine whether that is really
enough to continue living the same life lifestyle that they've
(07:01):
lived in the past, or live even a nice, nicer
lifestyle if they want to have a second home, and
they need to determine whether that sale will allow them
to enjoy those luxuries going forward.
Speaker 1 (07:16):
Okay, and you talked about the advisors. What does a
person look for in an advisor? How many should you
have and how do you find them?
Speaker 2 (07:27):
So I think there are really a couple different advisors
that are traditionally involved in the sale of a business.
The first is really your long standing accountant. He is
going to he is involved because the buyer is going
to look to you and your accountant to make sure
all the financial statements are up to day inaccurate. The
(07:48):
next advisor will be a tax advisor. This might be
the same person as your accountant, but it might be
someone different who has a particular specialty in making sure
and understanding all the tax implications from the sale of
the business, so that's a very important element. The next
person that will likely be involved in the business sale
(08:11):
is a mergers and acquisition advisor or sometimes referred to
as a business broker. They will help you and they
will be a lynchpin in the process because they will
help you understand the process, get your business ready for sale,
make sure all the business processes and concepts and organization
(08:33):
are properly documented so a buyer can see really what
they are buying. The merger and acquisition advisor also plays
an important role because they're going to help you determine
what the value of your business is and how much
the market will likely pay for it. And then finally
they're going to help you find a buyer for business,
so their role is really key. And then the final
(08:56):
advisor where I come in is the lawyer going to
make sure that the entire transaction is documented. It protects you.
And by protecting, I mean you get all the dollars
that you anticipated receiving from the transaction, and that there
are no ways that the buyer can try and come
(09:16):
back and make a request to we call it clawbacks
some of the purchase price because you may have misguided
them about the state of your business or not given
them the full truth about the condition of the business.
So we want to make sure that we develop a
purchase agreement that protects you from all those risks and
make sure that you get to retain all the proceeds
(09:38):
you receive at the closing table when you sign the
transfer documents and the transaction documents.
Speaker 1 (09:44):
Okay, And that probably all plays into the time it
takes that you were talking about before on the complexities.
And you may think you can turn around and sell
your business in sixty days or whatever like a house,
and it might take you a few years to get
that business ready. Is that what you're saying.
Speaker 2 (10:03):
It can take a few years depending on the condition.
We've seen that if a business, even if a business
is adequately prepared and has a strong organization in place,
strong management, strong employee base, once they decide to sell
It can still take nine to twelve months to sell,
(10:24):
and that's really in order to maximize the price, because
we want to go out and we're not interested in
just finding the first person who will make an offer.
There are many times where there are four or five
or six people who want to buy your business, so
we actually try and help have them negotiate against one
another to try and drive up the price or make
(10:45):
sure the owner gets the best deal. So that definitely
takes some time. It will take time to gather the
information that a buyer will want to see as part
of the due diligence process, which we can talk more
about later, but anywhere from nine to twelve months, and
I think we're back to the most important thing about
the time it's taking out is just the demographics are changing.
(11:06):
A lot of younger persons are interested in tech companies,
or they're interested in being Instagram influencers or YouTube video stars.
They don't necessarily want to get into the business of
managing people, having a sales and marketing department, managing operations,
understanding finances and having to apply for a bank loan.
(11:28):
They're just not interested in that. So that really reduces
the number of potential buyers. And we're seeing the baby
boomers who are now selling their business. It's going to
take them longer and longer to sell because of this
very fact.
Speaker 1 (11:43):
Wow, although those businesses are still very much needed and
very valuable. That's really interesting. Let's move on to are
there specific methods we can use for finding out the
value of our business when we're getting ready to, you know,
put it up for sale.
Speaker 2 (12:02):
Yeah, there are, there are. There are four main methods
that business owners will use in the in the privately held,
closely held businesses obviously not public companies, but in closely
held businesses, there are four main methods that we see
and that we discuss more in depth in the book.
One is called the seller's discretionary earnings, and that basically
(12:25):
covers it's a small business. It's maybe it's the business
owner and they have one or two employees or part
time employees, and they run a business and it's really
a job. It could be a bake shop, for instance,
and the bay the owner is there, she's baking everything
(12:45):
or he is baking everything, and they have a couple
of employees, and sellers discretionary earnings would be things like
what does the baker or the owner take home at
the end of the year, let's say one hundred thousand dollars.
That person also probably gets health insurance, maybe puts a
little bit of money away into a four oh one
K plan, and maybe puts their automobile through there. And
(13:06):
those total benefits and the like amount to one hundred
and fifty thousand dollars. We'll take that number and multiply
it by what we generically call a multiplier, which can
be two or three, and that is what the selling
price may be worth. So that's one method, so in
this case, in that case, the bakery may be worth
three to four hundred and fifty thousand dollars. Another method
(13:29):
is the earnings multiplier method. And let's think of this
another way, where it's the bakery, but now they have
five different stores, so now they have a lot more employees.
They have it's a more sophisticated operation. They have maybe
some intellectual property with their recipes, they maybe have a
delivery service, so it's just a more sophisticated operation. And
(13:53):
we'll take a very similar concept, what are the earnings
for the year of that company, and will multiply that
by again a multiplier. So somewhat similar method. The discount
of cash flow method is yet the most sophisticated method,
and this is really used where there are larger businesses
(14:15):
and where there's a more a recurring revenue and a
guaranteed revenue stream of income. You see it a lot
with subscription based companies because we know everybody's putting down
two ninety nine every month to get their subscription, or
you're paying your Netflix charge of every month. So that
(14:35):
makes the company very, very valuable because it's a guaranteed
stream of income. So the discounted cash flow method says, okay,
if we earn this amount of income over the next
ten years and we discount it back, what would the
value be. And that is really where you're going to
get the highest valuation for a business. But it's also
(14:58):
going to be used in very rare cases. You have
a very sophisticated business, a highly secure and stable stream
of income. So the most common as a result, the
most common are really going to be the earnings multiplier
and the seller's discretionary earnings. The last method in which
is used less frequently is the comparable sales method. So
(15:19):
we have our bakery and there might be another bakery
four miles down the road who just sold What did
that bakery sell for? And they'll compare the two and
that would be a guide as to what the value
might be. That's a much harder comparison because very rarely
are you ever comparing the same exactly the same types
of businesses. One bakery might focus on cakes and custom orders.
(15:44):
Another might be focused on cookies and people who just
come in off the street. So there's just so many
variables even between businesses in the same industry and even
within businesses that are four miles apart, that it's hard
to use comparable sales. But again, it's a guide.
Speaker 1 (16:00):
It can be a guide, right, yeah, because I think
of real estate when you talk about that last model,
you know, and you compare bedrooms and bathrooms, and you
can kind of do the same, you know what I'm saying.
You can do that, But with businesses, like you said,
it's so much more complicated because there's so many different
nuances that really can't be done that way. Are there
tax things we need to be thinking about if we're
(16:22):
looking to sell.
Speaker 2 (16:24):
There's tax, tax and more tax issues that you should
be aware of. The First tax issue that I would
focus on is just understanding the overall transaction and how
how will impact the taxation of the transaction. Without going
into too much detail. They're typically lined up into two segments.
(16:45):
One is a asset sale, where you're selling the assets
of the business, and the other would be the stock sale,
where you're selling your ownership interest in the business. Let's
not get too involved in there, but those will be
the two and they will field significantly different tax results.
And this is where your accountant and tax advisor are
(17:06):
going to come in and help you plan that. Interestingly
and really importantly, Rebecca, and I'm so glad you asked
that great question. Is that if the buyer wants an
asset sale, the seller usually wants a stock sale. So
the buyer and seller usually want different things. Number one,
because there's some there's some business issues and liability risks,
(17:29):
and also because the tax issues are different for the
buyer and the seller depending on how that transaction is structured. Okay,
so that's really a super important and also a super
often a strongly and heatedly negotiated area of the transaction,
whether it's an asset or stock sale. So let's talk
(17:50):
a little bit more dive in a little bit more
about the different types of taxes you'll pay federal income
tax when you sell it. You might have a state
income tax. You might have a local income You might
have taxes if you're selling real estate or other things.
There might be transfer taxes. If your state has what's
called a bulk sales tax, there might be a bulk
(18:12):
sales tax. There might be what we call recapture tax,
again a tax concept. So I think I listed probably
five or six different taxes right there that the seller
should be aware of.
Speaker 1 (18:26):
Right, so we've gotten you know, LESA, I'm the business owner.
We've consulted with everybody, everything, financial, user go. I'm emotionally ready.
We've done the valuation. We know we're going to ask.
We've made all these steps. How in the world do
we find a buyer?
Speaker 2 (18:46):
It's a great question. We already talked. We already talked
earlier about how hard it is to find a buyer.
So there, let's let's focus on. I'll start with many
business owners think that they're best suited to find the buyer,
and I'll be kind and I will say we always
try and dissuade them from that first, because finding a
(19:07):
buyer and finding the right buyer and finding the right
buyer who will pay the most money is a full
time job. That's why there are business brokers and mergers
and acquisition advisors because owners can't do that. The other
important thing about why people will hire a merger and
acquisition advisor is because it will keep the sale process confidential. Imagine, Rebecca,
(19:28):
you owned a business and you wanted to sell it.
Are you going to go all of a sudden go
around to all your friends and family and say, hey, hey,
my bakery is up for sale, now, do you know
anybody who wants to buy it? People don't want to
do that because they're afraid employees might leave, their suppliers
might leave, the landlord is worried about they're going to
they're no longer going to be there. So the sale
(19:49):
process is really kept confidential, and that's where a merger
and acquisition advisor can come in and help you with
that as well.
Speaker 1 (19:56):
So like non disclosure agreements, that kind of confidential.
Speaker 2 (20:00):
So yes, absolutely, whenever we're talking to a potential buyer,
they must sign a non disclosure agreement about the terms
and information they're going to learn about the business, and
even that the business is for sale. That's step one.
There are really three different types of buyers that we
see out there. The first, in which many of your
(20:22):
listeners may be familiar with, is just the individual buyer.
I go back again to the bakery, where a person
is selling their bakery and another person has always wanted
to own a bake shop, so they're going to buy it.
And a lot of these cases they don't necessarily have
a lot of financial resources to just pay the current
(20:43):
owner cash. They're not going to pay them three hundred
thousand dollars in cash, so the seller may have to
finance it essentially be the bank or take back a
seller note for the buyer oh wo, and the seller
will receive payments over time. The buyer in this type
of scenario also really likes to focus on operations. They're
(21:04):
heavily integrated into the business. That person might be the baker,
might be running the cash register, is ordering all the
sugar and flour and the like from suppliers. They look
at this as a job that they're going to have.
Another type of buyer is what we call a financial buyer,
and people may think of that similar to that as
(21:26):
a private equity group who wants to come in, and
a private equity group may want to come in. And
if you had ten bake shops ten bank stores, they're
going to want to come in because it's something bigger
and more substantial. Interestingly, about a private equity group or
a financial buyer, when they come and buy you, they're
already thinking about how they're going to exit. They will
usually want to buy, they'll stay there and they'll own
(21:49):
it for five to seven years, and then they're going
to want to sell it to try and get a
very big return on their investment. Usually their focus for
private equity is on a detailed understanding of the finances
and accounting. They don't always have sophisticated expertise in the industry,
although sometimes they do. Rather, they'll bring in and hire
(22:11):
expertise experts in the industry. So if they're buying a
widget company, or if private equity is buying a widget company,
they may think there's a room to make a big
profit in five to seven years, but they don't know
much about the industry. They'll go bring in maybe a
retired CEO who ran another widget company to help run
it and get it up and more profitable and even
(22:35):
expand it and buy other companies to grow a revenue.
The last type of buyer is a strategic buyer, and
that strategic buyer would be let's say they have it's
a widget company, it's an existing widget company, and they
want to increase market share, or they want to increase
a product scope or geographic area where they're selling. They
(22:58):
might buy a related widget company it's already in the
industry to expand their reach for these main purposes market share,
product growth, or geographic share. They often come to the
table with money, so they can pay cash, as does
private equity, and they have a ton of industry expertise,
a little bit different than financial or private equity buyer
(23:20):
who sometimes does not have as much industry expertise. So
they're coming in for a different reason, and they will
often hold the business for a longer period of time.
They're interested in growing it larger and larger, as opposed
to holding it for a short period of time and
selling it. What's really interesting, Rebecca and I want to
point out, and I think it's great that you raised
this issue, is that a lot of sellers will prefer
(23:43):
a strategic buyer because they know that their business is
going to have a legacy and it's going to be
around a long time. There might be changes in how
the operations are done or how works plant shifts are structured,
but in general, the business is going to be there.
With a private equity there can be so many changes
(24:04):
to the business because they're just plain and simple. They're
interested in purely and maximizing the return on their investment,
and a lot of times sellers just kind of look
at it and say, a I think my legacy's going
to be gone. I think this company could be gone
in five years when a private equity group decides to
sell it again. So business owners are worried about that
(24:25):
and they'll they'll take a hard look at who's buying them. Right. Yeah.
Speaker 1 (24:30):
I was thinking it goes back to that whole emotional
thing you were talking about at the beginning, because you
know equity companies like you're talking about being that they're
thinking short term. There are things you can do to
maximize profit short term, but that also may or may
not have the company existing for much longer after that
short term, and that could be I guess one of
(24:52):
the dangers of that is they get their money out,
they sell to someone else, that person, you know, for
whatever reason, can't sustain what was what changes were made
and then fold. And you don't want to see that
happen when it's your baby. But somebody who a private
party or you know, like your bakery analogy, the baker,
he's gonna, you know, love that the way you loved it.
(25:13):
And so the emotional connection seems to be there more so,
I guess.
Speaker 2 (25:17):
Right spot on, And I think what's what's even more interesting,
and it's a really interesting point that you raise about
relating the type of buyer back to the emotional part.
And that's a great, great and thoughtful point is that
we counsel our clients. We tell our clients, while sellers
are going to do due diligence on you, you should be
(25:38):
evaluating the buyer as well. What's what's their history, what
have they done historically with businesses that they've bought, What
is their personality like, what is their name and reputation
in the community, what trade groups do they belong to,
How serious are they about keeping the business around. Those
are all things that we tell our clients the soul
(26:00):
to evaluate about the buyer, and that's something that I
think too many business owners and sellers don't take the
time to do. And I really think it's it's important,
especially for the business owner who is willing to sell
the company but also wants to secure the legacy of
what has been built up over their lifetime or even
over their families generations, right.
Speaker 1 (26:23):
Because I mean businesses, especially smaller businesses, you can tell
a lot about the character and the integrity and the
personality even of the creator, the business owner, the starter
or whoever, and the family that continue the legacy based
on the way they do business. And so to turn
(26:45):
that over to somebody who may turn it into something
that doesn't represent you, that would be really hard.
Speaker 2 (26:51):
Oh, spot on. I'll leave it at do. I could
not have said it better myself.
Speaker 1 (26:57):
I feel like we've covered this pretty thoroughly, do you
think so?
Speaker 2 (27:02):
Yeah, there's we've Obviously we didn't get into all the
blood and goods as I call it, of the sale
and purchase agreement. I discuss them in length in the book.
And then the really the one thing I want to
also make sure of. We talked about the emotions before
the sale, Rebecca, but I also want to make sure
business owners understand what's going to happen after the sale. Yes,
there will be some legal follow ups, but I really
(27:23):
want to make sure the business owner keeps clear on
on or understands how they're going to spend their time.
Do they have hobbies that they want to take up,
how are they going to be involved in the community.
Do they want to mentor younger entrepreneurs. That's really something
that I think is important for business owners to recognize
and to understand what post sale life will look like
(27:47):
as they go into this process. It's almost the idea
of beginning with the end in mind and understanding what
it's going to look like once you close the deal.
Speaker 1 (27:55):
Yeah, definitely, because if nothing else, it protects your mental health.
You don't want to go into a depression.
Speaker 2 (28:00):
We've literally seen people who are lost. They don't know.
They get up the next morning and they don't know
what to do, and that's understandable, but at least have
a process. Have Maybe you have you're going to go
to a coffee with some friends every morning, or you're
going to go to the corner and pick up a
newspaper if you're not reading it online, or you're gonna
(28:21):
work out in the morning, get yourself into a new routine,
sign up for some new hobbies, but make sure you're
using your time productively so you don't fall into a rut.
Speaker 1 (28:31):
Yeah, definitely, I think we're at the end of our time.
But would you like to promote your website for us
and let us know where we can buy your book?
Speaker 2 (28:40):
Thanks so much, Rebecca. You can get the book on Amazon, Candle,
paperback and hardcover versions. You can also find it and
find more information about the book and my practice and
the process of selling your business at the www dot
the Big Deal book dot com.
Speaker 1 (28:58):
Awesome. That is great. Thank you so much for spending
this time with us today and helping us navigate this
really complex and emotional subject matter that sometimes we don't
think about it being as big as it is.
Speaker 2 (29:14):
It's the largest transaction a business owner will undertake in
their lifetime, and my goal with the book is to
make sure they have confidence and clarity throughout the process
and they can do it with the least amount of
emotional upheaval that we can.
Speaker 1 (29:28):
I love it. I love it. Thank you for writing it,
and thank you for your time.
Speaker 2 (29:32):
Thanks a lot, Rebecca. Have a great day.
Speaker 1 (29:34):
I hope you've enjoyed today's show. Thanks for tuning into
the show on your favorite local radio station. You can
now listen to this show or past shows through the
iheartapp or on iHeart dot com. Just search for Virginia
Focus under podcasts. I'm Rebecca Hughes with the Virginia News Network,
and I'll be here next week on Virginia Focus.
Welcome to Virginia Focus. I'm Rebecca Hughes of the Virginia
News Network. When the time feels right to sell your business,
how do you even get started? On this episode, we're
talking about what business owners need to know when selling
their business to avoid making the mistake of a lifetime
and what factors they should consider in today's dynamic marketplace.
The guest on the show is Andy Goldberg. He's an
(00:28):
attorney with decades of experience in the field of business
and the author of a new book, The Big Deal,
A Practical Guide to Selling your Business with Confidence and Clarity.
Welcome to the show, mister Goldberg. I am very anxious
to learn more about your book and about your experience.
Speaker 2 (00:43):
Pleasure to be here, Rebecca. It's great to be with you.
Speaker 1 (00:46):
So let's start by talking about your experience, just to
set the tone for everyone who may not know who
you are and what expertise you have in this field.
Speaker 2 (00:56):
So I've been practicing law and accounting for over thirty years.
I'm a CPA as well as a lawyer who focuses
his practice exclusively on representing owners of businesses who are
in the process of selling their business and moving on
to the next stage of their life.
Speaker 1 (01:14):
Okay, that sounds like a lot of fun. So you've
had clients from all industries.
Speaker 2 (01:20):
I assume all industries, whether it's medical, manufacturing, wholesale and distribution, retail,
it runs the gamut advertising and marketing. All industries are
represented in my practice. Okay, all sizes of businesses as well.
Speaker 1 (01:36):
So if I have a business and I know I'm
interesting in selling it, what is the most important aspect
that I need to look at to start and get prepared?
Speaker 2 (01:46):
Right? And that's a great question. We always start with that,
and I think, in my opinion, the most important place
to start is making a determination if you're emotionally ready
to sell and step away from your business. People are
to often jump right into the process, but they don't
really reflect on who they are and how this is
(02:06):
going to affect them after the deal closes. And this
can include several factors, Rebecca, and primarily because for most
business owners, they have spent a lifetime and it may
even be a second generation family business, and they've spent
a lifetime building it up, working serving the community, paying employees,
(02:29):
and now they're stepping away and departing from it. So
there's a big void for many of these business owners
in their life and in what they do on a
daily basis, and that's something that they struggle with and
they need to evaluate or they jump in right away.
Speaker 1 (02:42):
Okay, So I mean I've heard people refer to their
business as their baby. Is it that strong of a connection.
Speaker 2 (02:52):
Yes. Absolutely. When I sit down with my clients and
they're signing the papers to sell the business, you can
see a lot of the anxiety and stress just about
going through that process, in giving up something they've cared for, nurtured.
That's been the topic of family conversations that they've had
to run to the office when there's an emergency. It
(03:15):
is that much of a connection. And Rebecca, it's even
bigger because a lot of these are so invested in
their employees as well, and now all of a sudden,
they're handing off their employees to a new owner. So
we have clients that have employees who have been second generation,
first second, and actually I have a couple of clients
who there are third generation family members who are working
(03:37):
for the company and now all of a sudden, the
company is being sold. And you would not believe the
emotional impact that this has on business owners because they
feel such a debt of gratitude and responsibility to these employees.
So this is very It is very much like giving
up your baby in many respects.
Speaker 1 (04:00):
Well, I haven't dealt with that myself, but I can
only imagine that that really would be that stressful. How
do you know as a business owner when is the
right time to even consider selling your business.
Speaker 2 (04:14):
It's really difficult, and as I say in the book,
it's kind of like the Goldilocks syndrome, not too soon,
not too late. But I think what people have an
innate sense. Many times it's when it becomes harder to
just get out of bed and go to work in
the morning, or when they don't feel they're contributing as
(04:35):
much to the welfare of the business or of their
of their employees. A lot of times it's when they
start to see their kids grow up and then they
have kids. So now the business owner has grandkids and
they want to spend more time with them. That's a
huge motivator. It's about where they want to spend their time.
So family dynamics can be very influential. Horse Rebecca, there
(05:01):
are always the economic issues. Is my business at the
top of its value. Is there no way I'm going
to get any more money, so that is not at
the right time. Or unfortunately, if the business is not
doing well, do I need to sell it before it
declines even further and I can't get anything out of it.
So those are the economic conditions of the business are
(05:24):
very strong. We've also seen industry conditions. So there may
be some industries that are being taken over by AI
or tech and they're not going to be as valuable
in the future. So there are just plain old industry
conditions that will affect when you want to sell. And frankly,
(05:44):
for many people, they just want to relieve themselves of
the emotional burden and the economic risks that they take
on a day to day basis and it's time to
move on. So those are some of the factors that
we see as employees, as business owners decide or try
to determine when they want to sell their business.
Speaker 1 (06:05):
Okay, I forgot to ask you. As well as emotional considerations,
are there financial things you need to think about before
you decide to put your business up for sale.
Speaker 2 (06:17):
Well, certainly on the financial side, we always want to
make sure that the business owner has had conversations with
her or his financial advisor, and this includes understanding how
much you may walk away from the sale with. Sometimes
business owners don't realize that they sell a company, but
(06:38):
they had loans, they have bank loans they have to
pay off, they have taxes they have to pay, and
we go in depth in the book on taxes. There
are probably six or seven different layers of taxes that
might come into play. So they need to have a
full understanding of how much is left over, have conversations
with their financial advisor, and determine whether that is really
enough to continue living the same life lifestyle that they've
(07:01):
lived in the past, or live even a nice, nicer
lifestyle if they want to have a second home, and
they need to determine whether that sale will allow them
to enjoy those luxuries going forward.
Speaker 1 (07:16):
Okay, and you talked about the advisors. What does a
person look for in an advisor? How many should you
have and how do you find them?
Speaker 2 (07:27):
So I think there are really a couple different advisors
that are traditionally involved in the sale of a business.
The first is really your long standing accountant. He is
going to he is involved because the buyer is going
to look to you and your accountant to make sure
all the financial statements are up to day inaccurate. The
(07:48):
next advisor will be a tax advisor. This might be
the same person as your accountant, but it might be
someone different who has a particular specialty in making sure
and understanding all the tax implications from the sale of
the business, so that's a very important element. The next
person that will likely be involved in the business sale
(08:11):
is a mergers and acquisition advisor or sometimes referred to
as a business broker. They will help you and they
will be a lynchpin in the process because they will
help you understand the process, get your business ready for sale,
make sure all the business processes and concepts and organization
(08:33):
are properly documented so a buyer can see really what
they are buying. The merger and acquisition advisor also plays
an important role because they're going to help you determine
what the value of your business is and how much
the market will likely pay for it. And then finally
they're going to help you find a buyer for business,
so their role is really key. And then the final
(08:56):
advisor where I come in is the lawyer going to
make sure that the entire transaction is documented. It protects you.
And by protecting, I mean you get all the dollars
that you anticipated receiving from the transaction, and that there
are no ways that the buyer can try and come
(09:16):
back and make a request to we call it clawbacks
some of the purchase price because you may have misguided
them about the state of your business or not given
them the full truth about the condition of the business.
So we want to make sure that we develop a
purchase agreement that protects you from all those risks and
make sure that you get to retain all the proceeds
(09:38):
you receive at the closing table when you sign the
transfer documents and the transaction documents.
Speaker 1 (09:44):
Okay, And that probably all plays into the time it
takes that you were talking about before on the complexities.
And you may think you can turn around and sell
your business in sixty days or whatever like a house,
and it might take you a few years to get
that business ready. Is that what you're saying.
Speaker 2 (10:03):
It can take a few years depending on the condition.
We've seen that if a business, even if a business
is adequately prepared and has a strong organization in place,
strong management, strong employee base, once they decide to sell
It can still take nine to twelve months to sell,
(10:24):
and that's really in order to maximize the price, because
we want to go out and we're not interested in
just finding the first person who will make an offer.
There are many times where there are four or five
or six people who want to buy your business, so
we actually try and help have them negotiate against one
another to try and drive up the price or make
(10:45):
sure the owner gets the best deal. So that definitely
takes some time. It will take time to gather the
information that a buyer will want to see as part
of the due diligence process, which we can talk more
about later, but anywhere from nine to twelve months, and
I think we're back to the most important thing about
the time it's taking out is just the demographics are changing.
(11:06):
A lot of younger persons are interested in tech companies,
or they're interested in being Instagram influencers or YouTube video stars.
They don't necessarily want to get into the business of
managing people, having a sales and marketing department, managing operations,
understanding finances and having to apply for a bank loan.
(11:28):
They're just not interested in that. So that really reduces
the number of potential buyers. And we're seeing the baby
boomers who are now selling their business. It's going to
take them longer and longer to sell because of this
very fact.
Speaker 1 (11:43):
Wow, although those businesses are still very much needed and
very valuable. That's really interesting. Let's move on to are
there specific methods we can use for finding out the
value of our business when we're getting ready to, you know,
put it up for sale.
Speaker 2 (12:02):
Yeah, there are, there are. There are four main methods
that business owners will use in the in the privately held,
closely held businesses obviously not public companies, but in closely
held businesses, there are four main methods that we see
and that we discuss more in depth in the book.
One is called the seller's discretionary earnings, and that basically
(12:25):
covers it's a small business. It's maybe it's the business
owner and they have one or two employees or part
time employees, and they run a business and it's really
a job. It could be a bake shop, for instance,
and the bay the owner is there, she's baking everything
(12:45):
or he is baking everything, and they have a couple
of employees, and sellers discretionary earnings would be things like
what does the baker or the owner take home at
the end of the year, let's say one hundred thousand dollars.
That person also probably gets health insurance, maybe puts a
little bit of money away into a four oh one
K plan, and maybe puts their automobile through there. And
(13:06):
those total benefits and the like amount to one hundred
and fifty thousand dollars. We'll take that number and multiply
it by what we generically call a multiplier, which can
be two or three, and that is what the selling
price may be worth. So that's one method, so in
this case, in that case, the bakery may be worth
three to four hundred and fifty thousand dollars. Another method
(13:29):
is the earnings multiplier method. And let's think of this
another way, where it's the bakery, but now they have
five different stores, so now they have a lot more employees.
They have it's a more sophisticated operation. They have maybe
some intellectual property with their recipes, they maybe have a
delivery service, so it's just a more sophisticated operation. And
(13:53):
we'll take a very similar concept, what are the earnings
for the year of that company, and will multiply that
by again a multiplier. So somewhat similar method. The discount
of cash flow method is yet the most sophisticated method,
and this is really used where there are larger businesses
(14:15):
and where there's a more a recurring revenue and a
guaranteed revenue stream of income. You see it a lot
with subscription based companies because we know everybody's putting down
two ninety nine every month to get their subscription, or
you're paying your Netflix charge of every month. So that
(14:35):
makes the company very, very valuable because it's a guaranteed
stream of income. So the discounted cash flow method says, okay,
if we earn this amount of income over the next
ten years and we discount it back, what would the
value be. And that is really where you're going to
get the highest valuation for a business. But it's also
(14:58):
going to be used in very rare cases. You have
a very sophisticated business, a highly secure and stable stream
of income. So the most common as a result, the
most common are really going to be the earnings multiplier
and the seller's discretionary earnings. The last method in which
is used less frequently is the comparable sales method. So
(15:19):
we have our bakery and there might be another bakery
four miles down the road who just sold What did
that bakery sell for? And they'll compare the two and
that would be a guide as to what the value
might be. That's a much harder comparison because very rarely
are you ever comparing the same exactly the same types
of businesses. One bakery might focus on cakes and custom orders.
(15:44):
Another might be focused on cookies and people who just
come in off the street. So there's just so many
variables even between businesses in the same industry and even
within businesses that are four miles apart, that it's hard
to use comparable sales. But again, it's a guide.
Speaker 1 (16:00):
It can be a guide, right, yeah, because I think
of real estate when you talk about that last model,
you know, and you compare bedrooms and bathrooms, and you
can kind of do the same, you know what I'm saying.
You can do that, But with businesses, like you said,
it's so much more complicated because there's so many different
nuances that really can't be done that way. Are there
tax things we need to be thinking about if we're
(16:22):
looking to sell.
Speaker 2 (16:24):
There's tax, tax and more tax issues that you should
be aware of. The First tax issue that I would
focus on is just understanding the overall transaction and how
how will impact the taxation of the transaction. Without going
into too much detail. They're typically lined up into two segments.
(16:45):
One is a asset sale, where you're selling the assets
of the business, and the other would be the stock sale,
where you're selling your ownership interest in the business. Let's
not get too involved in there, but those will be
the two and they will field significantly different tax results.
And this is where your accountant and tax advisor are
(17:06):
going to come in and help you plan that. Interestingly
and really importantly, Rebecca, and I'm so glad you asked
that great question. Is that if the buyer wants an
asset sale, the seller usually wants a stock sale. So
the buyer and seller usually want different things. Number one,
because there's some there's some business issues and liability risks,
(17:29):
and also because the tax issues are different for the
buyer and the seller depending on how that transaction is structured. Okay,
so that's really a super important and also a super
often a strongly and heatedly negotiated area of the transaction,
whether it's an asset or stock sale. So let's talk
(17:50):
a little bit more dive in a little bit more
about the different types of taxes you'll pay federal income
tax when you sell it. You might have a state
income tax. You might have a local income You might
have taxes if you're selling real estate or other things.
There might be transfer taxes. If your state has what's
called a bulk sales tax, there might be a bulk
(18:12):
sales tax. There might be what we call recapture tax,
again a tax concept. So I think I listed probably
five or six different taxes right there that the seller
should be aware of.
Speaker 1 (18:26):
Right, so we've gotten you know, LESA, I'm the business owner.
We've consulted with everybody, everything, financial, user go. I'm emotionally ready.
We've done the valuation. We know we're going to ask.
We've made all these steps. How in the world do
we find a buyer?
Speaker 2 (18:46):
It's a great question. We already talked. We already talked
earlier about how hard it is to find a buyer.
So there, let's let's focus on. I'll start with many
business owners think that they're best suited to find the buyer,
and I'll be kind and I will say we always
try and dissuade them from that first, because finding a
(19:07):
buyer and finding the right buyer and finding the right
buyer who will pay the most money is a full
time job. That's why there are business brokers and mergers
and acquisition advisors because owners can't do that. The other
important thing about why people will hire a merger and
acquisition advisor is because it will keep the sale process confidential. Imagine, Rebecca,
(19:28):
you owned a business and you wanted to sell it.
Are you going to go all of a sudden go
around to all your friends and family and say, hey, hey,
my bakery is up for sale, now, do you know
anybody who wants to buy it? People don't want to
do that because they're afraid employees might leave, their suppliers
might leave, the landlord is worried about they're going to
they're no longer going to be there. So the sale
(19:49):
process is really kept confidential, and that's where a merger
and acquisition advisor can come in and help you with
that as well.
Speaker 1 (19:56):
So like non disclosure agreements, that kind of confidential.
Speaker 2 (20:00):
So yes, absolutely, whenever we're talking to a potential buyer,
they must sign a non disclosure agreement about the terms
and information they're going to learn about the business, and
even that the business is for sale. That's step one.
There are really three different types of buyers that we
see out there. The first, in which many of your
(20:22):
listeners may be familiar with, is just the individual buyer.
I go back again to the bakery, where a person
is selling their bakery and another person has always wanted
to own a bake shop, so they're going to buy it.
And a lot of these cases they don't necessarily have
a lot of financial resources to just pay the current
(20:43):
owner cash. They're not going to pay them three hundred
thousand dollars in cash, so the seller may have to
finance it essentially be the bank or take back a
seller note for the buyer oh wo, and the seller
will receive payments over time. The buyer in this type
of scenario also really likes to focus on operations. They're
(21:04):
heavily integrated into the business. That person might be the baker,
might be running the cash register, is ordering all the
sugar and flour and the like from suppliers. They look
at this as a job that they're going to have.
Another type of buyer is what we call a financial buyer,
and people may think of that similar to that as
(21:26):
a private equity group who wants to come in, and
a private equity group may want to come in. And
if you had ten bake shops ten bank stores, they're
going to want to come in because it's something bigger
and more substantial. Interestingly, about a private equity group or
a financial buyer, when they come and buy you, they're
already thinking about how they're going to exit. They will
usually want to buy, they'll stay there and they'll own
(21:49):
it for five to seven years, and then they're going
to want to sell it to try and get a
very big return on their investment. Usually their focus for
private equity is on a detailed understanding of the finances
and accounting. They don't always have sophisticated expertise in the industry,
although sometimes they do. Rather, they'll bring in and hire
(22:11):
expertise experts in the industry. So if they're buying a
widget company, or if private equity is buying a widget company,
they may think there's a room to make a big
profit in five to seven years, but they don't know
much about the industry. They'll go bring in maybe a
retired CEO who ran another widget company to help run
it and get it up and more profitable and even
(22:35):
expand it and buy other companies to grow a revenue.
The last type of buyer is a strategic buyer, and
that strategic buyer would be let's say they have it's
a widget company, it's an existing widget company, and they
want to increase market share, or they want to increase
a product scope or geographic area where they're selling. They
(22:58):
might buy a related widget company it's already in the
industry to expand their reach for these main purposes market share,
product growth, or geographic share. They often come to the
table with money, so they can pay cash, as does
private equity, and they have a ton of industry expertise,
a little bit different than financial or private equity buyer
(23:20):
who sometimes does not have as much industry expertise. So
they're coming in for a different reason, and they will
often hold the business for a longer period of time.
They're interested in growing it larger and larger, as opposed
to holding it for a short period of time and
selling it. What's really interesting, Rebecca and I want to
point out, and I think it's great that you raised
this issue, is that a lot of sellers will prefer
(23:43):
a strategic buyer because they know that their business is
going to have a legacy and it's going to be
around a long time. There might be changes in how
the operations are done or how works plant shifts are structured,
but in general, the business is going to be there.
With a private equity there can be so many changes
(24:04):
to the business because they're just plain and simple. They're
interested in purely and maximizing the return on their investment,
and a lot of times sellers just kind of look
at it and say, a I think my legacy's going
to be gone. I think this company could be gone
in five years when a private equity group decides to
sell it again. So business owners are worried about that
(24:25):
and they'll they'll take a hard look at who's buying them. Right. Yeah.
Speaker 1 (24:30):
I was thinking it goes back to that whole emotional
thing you were talking about at the beginning, because you
know equity companies like you're talking about being that they're
thinking short term. There are things you can do to
maximize profit short term, but that also may or may
not have the company existing for much longer after that
short term, and that could be I guess one of
(24:52):
the dangers of that is they get their money out,
they sell to someone else, that person, you know, for
whatever reason, can't sustain what was what changes were made
and then fold. And you don't want to see that
happen when it's your baby. But somebody who a private
party or you know, like your bakery analogy, the baker,
he's gonna, you know, love that the way you loved it.
(25:13):
And so the emotional connection seems to be there more so,
I guess.
Speaker 2 (25:17):
Right spot on, And I think what's what's even more interesting,
and it's a really interesting point that you raise about
relating the type of buyer back to the emotional part.
And that's a great, great and thoughtful point is that
we counsel our clients. We tell our clients, while sellers
are going to do due diligence on you, you should be
(25:38):
evaluating the buyer as well. What's what's their history, what
have they done historically with businesses that they've bought, What
is their personality like, what is their name and reputation
in the community, what trade groups do they belong to,
How serious are they about keeping the business around. Those
are all things that we tell our clients the soul
(26:00):
to evaluate about the buyer, and that's something that I
think too many business owners and sellers don't take the
time to do. And I really think it's it's important,
especially for the business owner who is willing to sell
the company but also wants to secure the legacy of
what has been built up over their lifetime or even
over their families generations, right.
Speaker 1 (26:23):
Because I mean businesses, especially smaller businesses, you can tell
a lot about the character and the integrity and the
personality even of the creator, the business owner, the starter
or whoever, and the family that continue the legacy based
on the way they do business. And so to turn
(26:45):
that over to somebody who may turn it into something
that doesn't represent you, that would be really hard.
Speaker 2 (26:51):
Oh, spot on. I'll leave it at do. I could
not have said it better myself.
Speaker 1 (26:57):
I feel like we've covered this pretty thoroughly, do you
think so?
Speaker 2 (27:02):
Yeah, there's we've Obviously we didn't get into all the
blood and goods as I call it, of the sale
and purchase agreement. I discuss them in length in the book.
And then the really the one thing I want to
also make sure of. We talked about the emotions before
the sale, Rebecca, but I also want to make sure
business owners understand what's going to happen after the sale. Yes,
there will be some legal follow ups, but I really
(27:23):
want to make sure the business owner keeps clear on
on or understands how they're going to spend their time.
Do they have hobbies that they want to take up,
how are they going to be involved in the community.
Do they want to mentor younger entrepreneurs. That's really something
that I think is important for business owners to recognize
and to understand what post sale life will look like
(27:47):
as they go into this process. It's almost the idea
of beginning with the end in mind and understanding what
it's going to look like once you close the deal.
Speaker 1 (27:55):
Yeah, definitely, because if nothing else, it protects your mental health.
You don't want to go into a depression.
Speaker 2 (28:00):
We've literally seen people who are lost. They don't know.
They get up the next morning and they don't know
what to do, and that's understandable, but at least have
a process. Have Maybe you have you're going to go
to a coffee with some friends every morning, or you're
going to go to the corner and pick up a
newspaper if you're not reading it online, or you're gonna
(28:21):
work out in the morning, get yourself into a new routine,
sign up for some new hobbies, but make sure you're
using your time productively so you don't fall into a rut.
Speaker 1 (28:31):
Yeah, definitely, I think we're at the end of our time.
But would you like to promote your website for us
and let us know where we can buy your book?
Speaker 2 (28:40):
Thanks so much, Rebecca. You can get the book on Amazon, Candle,
paperback and hardcover versions. You can also find it and
find more information about the book and my practice and
the process of selling your business at the www dot
the Big Deal book dot com.
Speaker 1 (28:58):
Awesome. That is great. Thank you so much for spending
this time with us today and helping us navigate this
really complex and emotional subject matter that sometimes we don't
think about it being as big as it is.
Speaker 2 (29:14):
It's the largest transaction a business owner will undertake in
their lifetime, and my goal with the book is to
make sure they have confidence and clarity throughout the process
and they can do it with the least amount of
emotional upheaval that we can.
Speaker 1 (29:28):
I love it. I love it. Thank you for writing it,
and thank you for your time.
Speaker 2 (29:32):
Thanks a lot, Rebecca. Have a great day.
Speaker 1 (29:34):
I hope you've enjoyed today's show. Thanks for tuning into
the show on your favorite local radio station. You can
now listen to this show or past shows through the
iheartapp or on iHeart dot com. Just search for Virginia
Focus under podcasts. I'm Rebecca Hughes with the Virginia News Network,
and I'll be here next week on Virginia Focus.
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