May 7, 2025 • 56 mins
In this solo episode of the Ground Transportation Podcast, Ken dives deep into the myths and misconceptions surrounding the valuation and sale of transportation businesses. With insights from over 270 companies and 100+ transactions since 2018, Ken discusses:
- The vital metrics, processes, and preparations needed to create a sellable business
- The difference between a lifestyle businesses a real transportation company
- The importance of financial health, consistent profitability, and professional planning
- The common pitfalls that prevent businesses from selling
- When you should start planning for an exit
If you're thinking about selling your business in the future, this episode is essential listening for actionable advice and industry truths.
At Driving Transactions, Ken Lucci and his team offer financial analysis, KPI reviews, for specific purposes like improving profitability, enhancing the value of the enterprise business planning and buying and selling companies. So if you have any of those needs, please give us a call or check us out at www.drivingtransactions.com.
Pax Training is your all in one solution designed to elevate your team's skills, boost passenger satisfaction, and keep your business ahead of the curve. Learn more at www.paxtraining.com/gtp
Connect with Kenneth Lucci, Principle Analyst at Driving Transactions:
https://www.drivingtransactions.com/
Connect with James Blain, President at PAX Training:
https://paxtraining.com/
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Ken Lucci (00:27):
Welcome to another exciting episode of the Ground
Transportation Podcast.
Welcome to the studio.
unfortunately, my partner incrime is James Blaine from Pax,
training is at an undisclosedlocation training chauffeurs.
So you're gonna have to put upwith me today only.
this is something new.
This is gonna be a kind of amonologue.
(00:48):
I've been wanting to do this fora while.
We're gonna put this message outin, in a variety of forms.
I'm gonna describe a little bittoday, kind of myths and
misconceptions on what companiesare worth, what values they
have, what is important.
what sells, what doesn't sell.
(01:10):
And, um, there's a lot ofmisinformation out there.
And I've been doing this since2018.
I always tell people, look,don't take my word for it.
Talk to potential buyers or talkto operators who've bought
companies in order to dispel,um, the myths I'm gonna talk
about, or, you know.
(01:30):
confirm the facts that we'regonna talk about.
You know, everything we're gonnadiscuss today is absolute the
truth based on my involvement inthe industry.
Review of 270 plus companies.
And intimate knowledge with ahundred plus transactions.
Okay, so let's get started with,we have two types of customers
(01:50):
that are driving transactions.
65% of what we do is workingwith transportation company
owners needing assistance.
Being to grow, be moreprofitable, borrow to buy large
assets.
They want to get theirfinancials in order to be able
to do business with traditionalbanks.
They're buying companies.
We do a lot of buyer duediligence, and then we work with
(02:11):
sellers.
We're engaged by sellers to doenterprise values.
So.
For all our operated customers,we basically do the same thing,
which is a comprehensivefinancial review and revenue KPI
analysis.
It's a fancy way of basicallysaying we determine the
financial health of thebusiness.
(02:31):
So having done this since 2018,270 plus companies from the
chauffeur space to the motorcoach space, we have the most
expert insight into theindustry.
And the market for buying andselling financial and
operational metrics, uh, of allthese companies.
So, you know, what is financialanalysis and can my CPA do this?
(02:56):
Very unlikely.
Can my internal bookkeeper dothis?
Yeah, we can train her to do it.
But here's the basic difference.
There's two types of accounting.
One is tax financial accounting,and it's used to determine a
profit and loss and what you owein taxes.
Financial analysis or what'scalled management accounting, is
(03:18):
to use to determine the completefinancial health of the business
by examining industry specificfinancial metrics and key
performance indicators.
Um, for example, you know,what's the average gross profit
margin on an airport transfer?
Uh, by the way, it's 30 to 35%,but you have to know what all
your cost of goods drivers areto, to know that.
(03:40):
And there is about.
25 financial metrics.
We pull from financialstatements and we can tell
people whether they're healthyor unhealthy.
Another example is, how muchshould I be paying for driver
labor?
Uh, 25 to 27%.
We've seen as high as 31% in NewJersey.
We've seen it out in Californiaas high as, you know, 37%.
(04:02):
So we have all those metricsand.
Less than 5% of the companies inthis industry do what we'll call
ongoing financial analysis ormanagement accounting.
95% of it, 95% of them dofinancial p uh, profit and loss
statements and balance sheetsjust to determine tax, and quite
(04:23):
frankly.
It's the reason why they don'thave a handle on the financial
health of their business.
Um, if you ask me what mybiggest frustration is on my job
is, it's when a seller comes tome under a total delusion on
what his business is worth.
Total delusion.
And part of this today is goingto be to correct those myths and
(04:44):
misconceptions.
Now, it's not gonna be quitelike Mussolini from the balcony,
but it might get close.
Because I'm very passionateabout this and I want people,
operators to find out the truthof what their businesses are
worth long before they decide tosell, long before they think
that the sale of a business isgonna fund their entire
(05:07):
retirement.
So let's start with the reality.
This is a, is a true statement.
Every company is a business.
But not all businesses arecompanies.
So there are two types ofbusinesses that I look at.
One is operators are operating alifestyle business, and the
owner is doing much of the workseven days a week.
(05:27):
It lacks the three Ps,processes, policies, and
procedures.
Very poor financial practicesand record keeping.
Very poor financial trends, lowor no profits.
Low ebitda, which we'll get intolater.
And basically a lifestylebusiness is an extension of the
owner and is totally dependentupon them.
they're not able to paythemselves a high W2 income, um,
(05:49):
and the business could suffer,usually suffers, um, if they
suffer and it ends when theyend.
Okay?
So it can't run without theowner.
A sellable company, a realcompany, focuses on growth and
profitability as two equallyimportant objectives.
Two sides of an incrediblyimportant coin because frankly,
(06:13):
not all revenue growth is goodgrowth.
It's not all good for business.
A company is a formal structurein systems.
It has written policies andprocedures.
It has executable plans to growannually, and it creates
enterprise value throughsuperior financial performance.
What do I mean by that?
The ability to show consistentnet profits from the operation
(06:37):
and healthy ebitda, and it keepsaccurate financial statements,
timely reporting, and it managesits debt well.
So here's the reality.
Of selling businesses, and thisis not me.
This is the small businessadministration, so I defy
anybody to prove it wrong.
75% of businesses in the UnitedStates report less than a
(06:58):
million dollars in annual sales.
We're a small business country,but only 20% of those businesses
under a million will ever sellto a second owner.
Now 20% of US businesses reportrevenue a million to 30 million.
Now, that's an incredibly largeswing, okay?
That only increases theprobability of sale to 35%.
(07:22):
Now, I will tell you, in thisindustry what's ignored is the
fact that a seven day a weekbusiness is not as exciting to a
new generation of businessowners.
As a tech company, as a digitalmarketing company, et cetera.
Now, having said that.
If you are operating a truecompany with all the things I
(07:44):
talked about, you have a prettydarn good chance of selling your
business if it's above amillion.
Very good chance, and we'll talkabout the below a million, uh,
as we go through this.
Now, the one thing I wanna tellyou is this industry's going
through what I call m and amania.
Okay?
But you gotta realize something.
For every successful transactionyou hear about, there are four
(08:06):
that don't sell.
Because the sellers are totallyunprepared for the process.
Their financials are anightmare.
The sellers are unrealistic asto price and terms on what they
think their businesses areworth.
We actually just, you know,party company with a client that
was way out of their, the leagueon what, what these businesses
are worth.
No bank would financing, nobuyer would buy it.
(08:29):
Businesses have fatal flaws.
And the buyers don't want to.
Buyers don't.
Buyers don't wanna fix yourproblems, okay?
And that's why businesses don'tsell.
There's a high revenueconcentration with a, with a few
large clients like affiliatework in our industry, and the
financials are inaccurate.
Um.
(08:49):
Or there's poor performance.
So those are the reasons why forevery one successful
transaction, you hear about fourof them.
Never sell.
Never sell.
Okay, that was like Mussolinithere for a minute.
Okay, so let's talk about again,a well-prepared company has a
(09:10):
three times better chance ofselling than a company that is
not profitable.
That's not prepared to sell.
Ideally, you wanna prepare tosell your business three years
in advance for the people thatare selling their businesses
because they're approached by abuyer.
I can tell you the businessesare never, ever, ever ready to
(09:31):
show.
If somebody comes knocking onyour door, you, it's like
inviting somebody into a dirtyhouse.
So, why is it the only 25% ofprivate businesses ever sell As
a general rule.
Number one, there's no year toyear growth in revenue and
profits.
Those are equally important.
you know, a lot of people inthis industry like to brag about
(09:51):
their total revenue.
I.
And I have looked at companiesthat have grown from 10 million
to 20 million in five years thatare absolutely worthless and
upside down because they have somuch debt and they have lack of
profitability.
So year over year growth inrevenue and profitability is
critical.
The profits of these businessesare below industry averages and
(10:12):
their consistent losses.
That's why they don't sell.
There are major flaws.
The, the, the businesses and thebuyers don't wanna fix them.
Okay?
And that could be financialproblems, operational issues,
personnel problems.
The big one is old vehicles.
You know, no offense, thecompanies that don't sell are
the ones where the vehicles arepast their prime earning years.
(10:37):
They're past their, they're waypast in mileage or years, and
they could break down and peopledon't want to use them.
So they need to be replaced.
The other reason three out offour don't sell is there's no
brand recognition, no valueniche, no market presence.
So I can tell you that the topthree companies in every market,
I'll go out to say the top five,have twice the chance of
(10:59):
selling.
Um, the other reason whybusinesses don't sell, 75% of
them don't sell.
And this is critical for smallcompanies.
This is for, you know this.
Again, don't take my word forit.
Talk.
Talk to any other buyer out inthe marketplace.
The business could easily beduplicated for much less than
(11:21):
the seller is asking.
So over if, if you're a lessthan a million dollar operator
and you are asking someexorbitant amount of money, what
the buyer's gonna say to themis, wait a minute, what if I
started from scratch?
Would I spend this kind ofmoney?
When I spend what this guy isasking big problem for companies
(11:41):
under a million dollars, I wouldargue under 1,000,005.
They, they, the sellers arejust, uh, really unrealistic on
what their businesses are worth.
The business has always been alifestyle job for the owner, and
it can't run without them.
Nobody wants those businesses.
Nobody wants the business today.
When they're not on an existing,operator's gonna pay much less
(12:04):
if the labor to run the wholebusiness has been provided by
the owner.
Right.
It's a lifestyle job.
Right?
Great.
You've made a great living, butif something happens to you, the
business suffers and.
The other reason is they don'tsell three, three out of four is
they're unprepared and thesellers are, uh, in
documentation, financialdocumentation, and they're
(12:26):
uninformed sellers who thinkselling is easy.
Selling is fast and they're theones that set the prices.
Let's just clarify a few things.
Number one, selling takes a longto do it right and to get the
most value.
It takes a long time.
It takes time to prepare thebusiness.
We're gonna talk about thattoday.
It takes a long time and themarket sets.
(12:49):
The business, the prices forthese businesses.
Okay.
Undeniable truths about buyingand selling businesses.
Number one, the most profitablecompanies sell first accurate
financial statements andprovable profits sell
businesses.
Not what your revenue is, notwhat you think your domain name
is Worth, not what youruninformed lawyer or uninformed
(13:13):
CPA, who's never transacted abusiness tells you it's the
market that dictates it.
The market and the industrydynamics determine the ultimate
price and sellability of thebusiness.
And the real value of a businessis what a qualified buyer is
willing to pay for it.
Now in our industry.
Statistically about 68% of thelimo companies in the United
(13:37):
States post less than a milliondollars worth of revenue.
Now, I could sell'em.
We've sold quite a few companiesthat are between 500 and a
million, but they take a longtime.
And when they have theattributes I just talked about,
they don't sell because thereality is the average million
dollar landscape company posts.
(13:58):
Three times more profit than theaverage limousine company that
does less than a milliondollars.
Why?
No one cares how old the moweris.
Nobody cares who's behind themower.
The insurance is cheaper.
The owner is doing some of thework, okay?
And the reality is it's a Mondaythrough Friday business.
Remember that when you'rethinking of selling your, your
(14:19):
company, or we can sell'em, itjust takes, the best ones are
the ones that sell in thatcategory.
So let's talk.
Um, what really we tell peopleto focus on, first of all, the
time to focus on what yourbusiness is worth is not when
you want to exit.
Ideally, it's three yearsbefore, five years before, three
(14:40):
years before is good because ifthere's problems, we need some
time to put the, to correct the,the problems, real value.
Is created by executing provenstrategies to grow profitably
every day.
You can't juice your value forsix months.
You can't juice your profits andfor six months and a good market
(15:02):
and expect it to change.
The value of the business.
Value of the business isdetermined over the last three
years.
Okay, so focus on profitablegrowth only net profits, not
just churning money.
So those shuttle contracts thatare not making you a lot of
money, uh, those are, those areactually costing you because
they're, they're just not addingthe gross margins that you need.
(15:23):
Manage using monthly financialmetrics and KPIs and fix what's
unhealthy.
Fleet size is not a measure ofsuccess and neither is top line
revenue.
The most profitable businessesin this industry that sell have
30% of their revenue coming fromnon in-house fleet vehicles
(15:44):
That's making a good 30, 35%margin.
The businesses that sell havemaximum owner W2 income, a
business that cannot pay itsowner.
A W2 salary are not sellable.
By the way, if your CPA istelling you to take year end
distributions as yourcompensation, they're wrong.
Because not to get technical, adistribution is a balance sheet
(16:07):
item.
You need your income.
On the W2 that I can add back,you need a, your pro, your W2
income on your p and l, so I canadd you back in.
We tell people to, to createpredictable profits.
And it's much more importantthan just revenue growth.
Profit solves all problems, youknow, and the other thing I'm
(16:29):
gonna tell you is if you thinkthere's a large pile of cash
waiting for you when you sellyour business, and that's how
you're gonna fund yourretirement.
And I've had too manydisappointing conversations with
65 plus year old operators whohave no savings and think that
this is going to fund theirentire retirement, you will be
(16:52):
disappointed.
Now, unless that's, unlessyou're in the top 5% in terms of
total revenue in the industry,top 5% net profit and ebitda,
those three things.
But the average company outthere, it, it's gonna help you
with your retirement, but it'snot gonna fund all of it.
So the idea, the top 5% ownersout there that I've dealt with
(17:14):
for five years or seven yearslonger.
The top 5% pay themselves andfamily members very well in a W2
salary.
They take money off the tableannually and they invest outside
their primary business.
Okay?
They use their business as cashflow.
To buy commercial real estaterental properties in invest
(17:37):
investment accounts and otherbusinesses.
Uh, they don't just buy toys.
The most profitable and the mostsuccessful sellers, the top 5%.
Pay themselves extremely well.
They make a profit enough totake a good W2 salary, take
money off the table annually,every single year, and invest it
(18:00):
outside the primary business.
that's the key because you'rediversifying.
You're diversifying yourfinancials.
If you think you are gonnaretire on the sale.
Of a limousine company that'sworth that, that is, you know,
doing a couple million dollars.
Unfortunately, you're not, andagain, 68% of the businesses in
(18:21):
this industry do less than 1million.
So if you're banking on that, I.
It's a problem.
And if you're buying toys alongthe way, you know, I'm seeing
the Rolexes on Facebook and the,you know, and the real
expensive, you know, toys, etcetera, et cetera, you're gonna
be disappointed.
Take money off the table andinvest it in other things.
Okay, so let's talk about thecompanies that can sell.
(18:43):
Let's talk about the attributesof companies that sell.
First of all, the number onereason why people buy companies
is because they're profitableconsistently.
Both revenue and net profit.
So if, if you've posted losseson your p and l and you had
made, made money this year andthink, oh, this is a good year
(19:05):
to sell, that's not what banksand buyers want to see.
They want to see consistentprofitability.
They want to see growth inrevenue, but as importantly,
growth in profit.
Okay?
The only reason, the only wayyou can do that is to manage by
a strategic business plan and amonthly financial plan that
includes a budget.
(19:26):
A revenue forecast.
Okay?
That's the number one way youcan make sure that you can grow
consistently and profitconsistently, is to have a
budget.
What, what, how was last year?
Because that's the bestpredictor, right?
And how are we gonna get ourbusiness?
How are we gonna get the revenuethis year?
So created an annual financialplan and a profit roadmap.
Ideally, you want to be 10%increase in annual revenue, if
(19:49):
you can do it.
You want to post a greater than10% net profit from the
operation, and you want to havea greater than 15% ebitda, which
we'll talk about.
You know, the other reason to doan annual plan is to rally your
team around the plan and yourannual goals.
work on your business, not justin it.
(20:09):
This is what they mean when theysay that working on your
business is examining thefinancial health.
Really mapping out your growthinstead of just, you know, going
with the wind.
You know, bankers and buyers,like businesses that are
profitable.
Their revenue is growing andthey hit their goals, and the
(20:29):
most important reason to do thisand have a strategic business
plan and a financial plan is youreally can't achieve or improve
upon what you do not measure.
Okay?
So we do this with our clientsstarting in October.
You know the last ones.
We will do an annual budget andfinancial plan for the next
year.
Would be February 15.
Somebody, people like to startearly.
(20:51):
Some like to start late.
By the way, you could do this onyour own.
There's like a ton of businessplan softwares out there.
Okay, number two.
The companies that sell arepricing services to create
financial success, demonstratedfinancial success, okay?
You wanna be in on, in far asyour market is concerned, you
(21:13):
wanna be in the middle to highend of your market.
Low end, low price.
Companies don't sell.
Okay?
They just don't.
Nobody wants that.
So price your services to createfinancial success in both net,
ordinary income, net profit, andyear over year ebitda.
The only way you can do that iswhen you know your financial
metrics.
(21:33):
Okay.
Um, low profit or, or low, lowmargin, low profit businesses
means that the sellers are notmanaging their expenses.
They don't know their profitmargins, and they lack pricing
for predictable profits.
If you don't know how much itcosts you to do a, a trip.
How much do you spend in, uh, inlabor as a percentage of income,
(21:56):
fleet expense, fuel, fleetinsurance, et cetera?
You can't predict your profits,but you can if you know the
healthy metrics you're operatingunder.
So sellers who price forpredictable profits are creating
long-term enterprise value.
So you're not just having a goodyear, but you're building on
three or four or five years ofreally good performance
regardless.
(22:16):
Of what the economy does.
If you have a handle in yourbusiness, you can adjust
accordingly.
Okay?
So the cost structure of yourbusiness and your desired profit
should dictate your pricing, notwhatever your competition is
charging.
Okay, here's a safe bet for you.
Make the assumption that yourcompetition has absolutely no
idea or a handle on theirfinancials.
(22:38):
Be the one in the market thatknows your financials and prices
accordingly.
You are better off doing fivevery profitable trips, or seven
very profitable trips than 10trips with low margin.
Nobody wants that.
Create financial performance onall your services and all the
(23:00):
contracts you're going after andall the vehicle types so you
know your gross margins and wecan help you with that.
Establish and maintain grossmargins that are above industry
averages in all services.
I say I'm gonna give, just giveyou some general stuff.
The airport transfers you'remaking, everybody, the ones
people we work with that aredoing well are making about 35%
gross margin on.
(23:21):
Airport transfers 40% on, uh,sedan and SUV charters, but 30,
35% on sedan and SUVs to theairport.
Vans and minis, you should bemaking 40% margin.
I like to see 45% on charters.
Motor Coach.
You should be making 40%.
(23:42):
Again, this is charter work witha good quality motor coach.
So being above the market interms of price increases the
value of the business, and italso increases your chance of
selling.
Okay?
Lowest price.
Companies that do a ton ofairport work and they do a ton
of affiliate work are not worthanything.
(24:03):
Don't take my word for it.
Talk to any buyer who's anoperator.
So every problem in business canbe traced back to lack of
profitability.
So I don't know why there's suchan aversion to making a good
profit, but if any decision youwant to make in business.
It's only enhanced when you makemore profit.
(24:24):
You can do it.
I want to hire a newsalesperson.
Great.
You have the cash to do it.
I want to buy another uh, SUVbecause we're doing so much
work.
Great.
You have the cash to do it.
Okay.
Number three, if you wannasellable business address the
known operational organizationalfational.
Now, a sellable company haswritten prices, procedures, and
(24:47):
policies for every single.
Person in every function.
So update your job descriptionsor write them, update your ops,
manual or write it so that thereis a process and a checklist for
everything.
And if you're just starting out,nothing wrong with writing
things down so that the nextperson that comes in that does
the work that you're doing nowknows how to do it.
(25:09):
Update your sales processes,update your terms and
conditions, and a pricingmanual.
A seller just sent me a pricingmanual that said 2019 on it.
I said to him, I sent it back.
I said, I'm not showing this toa seller.
they're gonna know that youhaven't raised your prices and
this is why you're notprofitable.
Avoid the key person syndrome.
And that includes, you alwayshave the ability to have a bench
(25:32):
ready to train.
I'm never gonna forget that.
When my dad passed away, I wasa, a transp, I was a limo
operator, when he passed away.
I had some really good peopletake care of my company for 10
days.
I was gone for 10 days, and ifyou don't have a bench ready and
they don't know how to run thebusiness without you, then
(25:53):
again, you're running alifestyle company.
Manage your fleet assets so thatyou have 50% equity in your
fleet.
So, you know, buying it zerodown is not a good idea.
You should have a good, gooddeposit when you buy a, a new
vehicle.
So 50% fleet should be paid off,and then you should also have
(26:13):
35, 30, 30 5% remaining usefullife of the vehicle, right?
So this is the way we look atit.
Look at the industry norms.
Everybody gets rid of theirsedans and SUVs depending upon
the market between, you know, 3,4, 5 years.
Okay?
If you're running 7-year-oldvehicles, your company is not
gonna sell, excuse me,7-year-old sedans and SUVs.
(26:36):
If you are running mini busesthat are 15 years old and motor
coaches that are 15 years old.
No buyer wants to buy a businessand then invest in loss of
equipment, right?
So that's why we say you shouldhave a good 35% remaining useful
life of vehicles.
And if I had to look at thenumber, if you have 36 months
left in, in your big stuff, you,you're doing okay.
(26:59):
But if you are still runningmini buses that are 2000 and
twelves or 2000 and tens, youhave a problem.
You know, we have a customerthat, You know is running 1998
motor coaches and the buyerslooked at it and said, you gotta
be kidding me.
I have to spend$1.5 millionbecause I'm not gonna put these
this equipment out.
It keeps breaking down.
(27:19):
Use technology to reduce labor,reduce risk, and improve
efficiency and measure, improveevery aspect of your business,
including the client experience.
So this is all about really allabout.
Fixing the known problems ofyour business.
Now, the number one flaw we see,the number one flaw we see is
(27:40):
the organization is toodependent on the owner.
If the business, your businesscannot exist without you making
all of the decisions and you'reperforming multiple major tasks
every day.
Chances are your business is notsellable for a decent value.
Likely it's gonna be what I callthe earnout, right?
The, the, the, the earnout withno number at the end.
(28:02):
because you are the one that's alifestyle business.
So you know, what you've createdis a great job for yourself and
a lifestyle, but it's not acompany that can survive on its
own without disruption orrevenue degradation.
So the fourth way.
You wanna make sure your companyis sellable is to build a
company that the buyer wouldspend more creating, right?
(28:23):
So if a buyer looks at you andthey can make a credible case
that, that, that they can spendthe same money or less money
over a defined period, then whywould they buy your business?
This is incredibly true withbusinesses under a million
dollars in in revenue.
So if a buyer can recreate yourresults over.
(28:46):
2, 3, 4 years, they couldduplicate the revenue, duplicate
the profits, duplicate themarket share, and duplicate the
customers.
Then why would they buy yourbusiness?
This is, this is reality.
So how do you do that?
You gotta get on Google Pageone.
Above the fold.
You have to be on Google MyBusiness app and, uh, and maps.
(29:07):
Google My Business Maps in thetop five places you've gotta be.
On the new Main Street is GooglePage one.
80% of new customers search forproviders on their phone or on,
on their, uh, desktop during theday.
The number five thing that youcan do as far as making a
(29:29):
company more sellable is build asuperior brand recognition and
build or build a value and avalue niche in your business.
So here's what I mean by that.
When your ideal customer in yourmarket thinks about limousine
service, the airport servicemini bus service, motor coach
service is your brand name onthe tip of their tongue.
(29:51):
That's having brand recognition.
By the way.
You're not building brandrecognition with PPC.
You're building brandrecognition holistically by
being SE oed on page one withoutthe ad and being known out in
your community.
So how do you do that?
You design a brand persona.
What does your brand stand for?
(30:11):
And it better not be low price.
You consistently promote yourbrand.
Out in your marketplace andcontinually foster real market
presence, consistently ask forand receive five star reviews on
the service you're providing.
Now, I always do this.
I always embarrass my friendDoug Schwartz.
Um, Doug Schwartz runs executivelimousine out in, uh, long
(30:36):
Island, and he's a medium sizedoperator.
And I had the bad fortune oftrying to sell, uh, an operator
that was quadruple his size.
They had re and they had reviewsof 2.3 stars and Douglas has
eighteen hundred and ninety sixfive star reviews.
(30:56):
Now that stuff matters to buyersand it matters to customers.
And he's got one of the bestreputations on, on Long Island
'cause he's cultivated five starreviews.
Okay?
So how do you create another, apermanent brand presence because
making your brand known.
Not a cult of personality, not.
(31:16):
Everything comes through yourcell phone.
That's a cult to personalitytoo.
Reliant on the owner.
You have to create permanentpresence on Google, not just PPC
ads.
You have to have real searchengine optimization.
Google Page one, real onlinepresence.
Companies that are in the topthree to five in their market.
Always have a higher value andthey have a much better chance
(31:38):
of selling.
So the other piece of the puzzlehere is your market may not be
in the Geographic.
It, it, it actually could be the25 wealthiest zip codes in your
area.
It could be best known in anindustry.
Um, I have more lawyer clientsand professional service clients
than anybody for ex, you know,that's a good example of one.
(32:00):
it may be that you do businesswith a lot of entertainment
media, et cetera, et cetera.
So it can be a client type or itcan be a segment of, of your
area that 25 wealthiest zipcodes.
The key is you have brand netrecognition somewhere.
Number six, assure that thecompany is not dependent on a
(32:20):
few large clients.
So this is a, issue in ourindustry.
So buyers want to buy companiesthat have a growing diverse
customer list, and you wanna see80% of your annual revenue
spread among up a hundred to 300clients.
(32:41):
Most of the time when we doreviews, we see 80% of the
revenue.
Is tied up with a hundredclients, which is good, but if
you have revenue concentration,if 10% of your revenue is tied
up with one client, okay, it's aproblem.
If 20% of your business is tiedup in affiliate work, it's
(33:01):
affiliate work and it's one ortwo affiliates, it's a problem.
And this is not me saying it'sthe market saying it.
Uh, famous case I had with aclient, um, in Los Angeles.
50% of his revenue was tied upin two or three networks that
pretty much any decent buyer wasgonna say, holy crap, if I lose
that account, I'm, this businesshas gone way down in value.
(33:24):
The, the seller was notaccepting of that, and that's
why his business never sold.
So the best way to achieveexceptional value, sell more
stuff to the same people,continuously engage your
existing and past customers.
Nothing says success.
Like continually repeatcustomers always remind them of
(33:44):
everything you do.
You know, here's a misnomer.
They're not sitting on yourwebsite going page after page to
figure out what you have.
You have to continually,repeatedly let them know what
you do.
Another way to do this is tocreate an online sales engine
where your website is actuallyan e-commerce website.
Get on Google page one and makesure people can get quotes, make
(34:06):
sure people can order services.
There's some great software outthere in CRMs to be able to do
it, chat bots, et cetera, etcetera.
Review your aggregator andaffiliate revenue.
And here's the simple thing Itell people.
If you lost your biggestaggregator, you know, like in
our business it might be LimoLink or savoia, and you or you
(34:26):
lost one of the big networks, ifyou did a lot of affiliate work,
you know, for any of the Bigsempires, Boston Coach, RMA,
Carey, et cetera, if you lostthat work, how long would it
take you to make it up?
If you don't have a good answer,and that answer is not 60, 90 to
120 days, you got an issue.
It'll affect the value of thebusiness.
(34:47):
Manage a client, use trends andmarket to them.
Now we have an internal salestool that we use for our
clients.
It's, it's basically a salesheat map where we look at the
past few years to determine the.
Biggest clients and look at therevenue trends.
Are they using you for more orless now?
The, we do it simply red fur.
(35:07):
They're using you less yellow,you're, they're about 10% down
and green is, they're above thelast reported period, so.
24, they did more business withyou than 23.
Right?
Great stuff.
But if you are not measuringthat, you are also losing a lot
of sales.
You're taking your clients forgranted.
So we recommend that you comparethe use trends of the last two
(35:31):
to three years, and also youcompare your next 90 days.
To look at where your businesscame from last year and reach
out to the largest ticketclients.
So we do that with our clientswith a sales forecast.
You know, use the op, thisopportunity to look at how
they're doing business with youto to visit them, refresh the
(35:54):
relationship, and.
Discuss your full capability.
I mean, I can't tell you howmany times people say, well, I
didn't know you had a motor.
They, they didn't, my customerdidn't know I had a motor coach.
They didn't know I had that newmini bus that, that was 45
passengers, et cetera, etcetera.
So, so again, good practiceswith customers.
Number seven, the biggest thingI will tell you is create a real
(36:17):
company.
To create a real company.
It has.
Lots of Ps.
It has good profits.
It has an exceptional team,exceptional team of people.
It has processes, policies,procedures, and it has a
principle, an owner who isfocused on strategic planning.
(36:37):
Operational supervision andfinancial oversight.
In other words, it has aprincipal owner who is focused
on working on the business andwhat comes next, and how are we
doing instead of someone who'sworking in the business.
So people laugh at me when I saythis, but the owner should make
down the least important personin the actual day-to-day
(37:00):
operation of the business.
I mean, I've owned fivecompanies, five different
companies.
And if I wasn't at three o'clockin the afternoon, I wasn't doing
something I love to do.
There was a problem, right?
Everybody at my limousinecompany knew how to run it
better than I did.
So owners should focus onstrategy.
Key customer relationship,business plan, execution and
(37:23):
ongoing p and l and financialmanagement.
If you are leaving yourfinancial management to your
CPA, number one, you're notmaximizing profitability, you're
not maximizing your income.
They don't care and they don'tknow.
What you should be making forgross margin, what a good
industry average, et cetera.
(37:43):
But they'll tell you how muchyou own taxes.
So the owners should again, workon the business and not in the
business.
Okay, and I have a question foryou.
If you are not gonna do it,who's gonna do it?
If you are deep knee, deep,seven days a week in the block
and tackling, takingreservations and dispatching,
who is working on the plan togrow this business?
(38:04):
And you know, there's a bigreason why businesses don't
grow, and this is the number onereason is the owner doesn't
replace themselves in theprimary roles.
Okay?
So the number one p, it'sprofit.
It's the only indicator ofsuccess.
Financial performance trends aremeasured over two to three years
(38:25):
when it comes to the value of abusiness, and it really speaks
to the long-term viability ofthe business, and it, it is, is
totally used for enterprisevalue.
If you have no profits.
You have no value.
So in our industry, net ordinaryincome profit from the
day-to-day operation should bebetween eight and 12%.
(38:46):
Best.
Best we've ever seen.
19%.
But the average company outthere, the average company is
doing eight to 10.
The average EBITDA for a a wellperforming financially healthy
company is 15 to 17%.
Now, we've worked with peopleand we've helped in to get
EBITDA and net profit up to over20% on the ebitda.
(39:08):
You know, mid-teens on the NOInet ordinary income, but it
takes time.
So, by the way, NOI net ordinaryincome is the profit from the
day-to-day business.
It's not the sale of vehicles,it's not a one-time expense,
right?
It is how much money did youmake from doing what the
business does every single day,the transactions of the
(39:29):
business.
So those are the numbers thatyou should shoot for.
And if you're not showing aprofit of eight to 10 to 12%,
and your EBITDA is not at 15 to17%, chances are you don't have
value to sell.
And again, you wanna see a, abuyer wants to see, and a bank
wants to see 2, 3, 4 year trendsof solid numbers.
(39:50):
Okay.
Um, or the business is notsellable.
So the owners of privatebusinesses, you know, I, I, I
have to tell you, I admire them.
I was growing, you know, I wasraised by people that owned
businesses and my parents workedin businesses, their businesses
for 50 years.
You know, you have really.
Three options when it comes tothe disposition of your
(40:11):
business.
Number one is you.
You have a plan to sell it, andthe ideal exit strategy, exit
plan should start three to fiveyear prior to execution because
there's always things to fix andimprove.
The second thing you could do iswhat's called an orderly
liquidation.
Now, while this might sounddramatic.
(40:32):
It happens with the majority ofprivate businesses that are
under, 3 million bucks in sales.
Okay?
It can be the moststraightforward approach, and it
definitely, if you don't havethe time to do a formal exit
plan, it's probably what's gonnahappen.
You're just gonna sell off thefleet.
and maybe give somebody thecustomer list.
You know, your third option isto keep the business, simplify
(40:55):
it, improve profit, andgradually have an owner exit or
succession plan, or at least theability for the GRA gradual.
The owner from taking the mostonerous parts of what they do
and have the business run on itsown so that they can come and go
as they please.
So how do you do that?
You look at every process in thebusiness and you simplify it and
(41:18):
you engineer yourself out of it.
Period.
End of story.
Okay.
You have to have somebody thatcan do everything you do except
I, you know, you, you, you don'twant them in the checkbook, but
you don't want them in thefinancials necessarily, but.
The day-to-day, every day-to-dayoperation, a process rather, you
need to engineer yourself out ofit.
(41:39):
The second way to do it is tocreate several options for a
succession plan if somethinghappens to you unexpectedly.
Now, we just had a client thatsuffered a, a, a, an automobile
accident, and he had a traumaticbrain injury and he was out of
the, out of his business forseven to nine months and his
poor wife had to run it, youknow, and the business is a
classic lifestyle business, andthe business has gone down
(42:02):
because of it.
So have a plan.
I, whether it's a part-timedriver that you can teach to do
reservations in dispatch,whether it's other operator who
can help you, but the bottomline is to turn your business
into a sellable company.
It cannot depend on you to dothe day-to-day block and tackle.
Oh, there is a fourth thing thatyou can do, uh, besides sell
(42:23):
orderly liquidation, or keep thebusiness and try to engineer you
yourself out of it is to donothing.
Don't do anything.
Don't listen to anything I say.
Don't listen to anything thatanybody who has expertise in
business.
transition exit strategies.
That's the worst of all, becausewe are all mortal and we are all
(42:47):
one sickness, death or divorceaway, God forbid, from our
business suffering.
So if you ever want to sell yourbusiness, my message is simple.
Create an exit strategy withseveral options multiple years
before you want to do it.
(43:07):
Ideally, three years, because weneed some track to track record
to fix problems if we're havingprofitability issues.
So let's wrap up here.
So let's talk about again.
Real companies that sell.
Number one, they have profits.
Number two, they have people,they have a team of people that
can run it, and you're a part ofit, but you're not all of it.
(43:30):
It has written processes,policies, procedures, and it has
demonstrated success year overseveral years.
That can only come when theprinciple of the business is
focused on strategic planning,supervising.
My dad used to say.
Inspect what you expect and thefinancial oversight of the
(43:52):
business.
That's the most important thingthat make businesses sellable is
those Ps.
The NU number one P isprofitability.
If your goal is to show a lossevery single year, and your goal
is to hide money.
Business is not sellable.
It's not bankable.
(44:12):
Banks that look at it for abuyer will understand it because
understand something.
In order for your business to befinanceable at the time of sale,
your financials need are asimportant, if not more important
than the buyers.
The buyer can put up stuff.
The buyer can do certain things,but if the asset he's trying to
buy does not have demonstratedprofitability, the bank's gonna
(44:35):
say no.
Alright, we're gonna finish upwith something today because
there is a misnomer out thereabout the how long it takes to
sell a business.
Okay?
I'm gonna give you the steps.
There are 12 step one is to do afinancial and profit review and
KPI analysis on the business tosee where you are now on the
financial health and performanceof the business.
(44:56):
Number two, it's establishingthat current value range, kind
of a from, and two that you as aseller agree with.
By the way, if you don't agreewith the range.
We wouldn't put the company upfor sale.
Uh, there's a reason why 20% ofgeneric business brokers, their
success rate is 20%.
Okay?
Because they don't know theindustry, they don't know the
(45:18):
value range, and they overpricethings, but you've gotta be
realistic.
So that's step two is to do avalue range on everything.
Step three is prepare thebusiness for sale.
Sometimes that takes time,fixing the financial flaws,
fixing the operational flaws,and if the flaws are big.
He could take.
18 months to two years.
Step four, assembling the data,creating a data room, and to
(45:42):
have creating an e-file so thatwhen people ask for information,
we have it.
Step five is our confidentiallymarketing the business for sale.
Basically, that involves tellingbuyers that we know about that.
We have a company coming up forsale in New York, or we have a
company for sale, you know, nearthe Philadelphia market, for
(46:03):
example.
Then we qualify the buyers.
We make sure that we do afinancial due diligence on the
buyer.
We execute non-disclosureagreements and we make sure they
understand.
This is completely confidential,by the way.
Sellers should keep itconfidential as well.
We have dropped clients.
They tell the world that theirbusiness is for sale.
It makes the drivers look atgoing other places.
(46:25):
It upsets their employees.
It's the worst thing in theworld that you can do.
It's a confidential processuntil a certain point.
Step eight, ideally, is wereview multiple offers and we
create counter offers once wefind two or three qualified
buyers.
Step nine is you execute aletter of intent.
Uh, with the final person.
Step 10 is that the step ninerather is execute an LOI.
(46:47):
Step 10 is draft transactionagreements, by the way, we do
that so that your lawyer doesn'thave to write contracts from
Ward.
One.
Step 11 is you close thetransact transaction, you have a
closing.
You sell the business and step12 is you help with the
post-closing transition.
Sometimes that's a short amountof time.
Others times the buyers want youto stay on for a period of time.
(47:11):
But fundamentally, the best casescenario, this is a six month
process.
If the business is profitableand it's in a good market and
it's got good revenue growth andit's of a specific size.
The worst case scenario is itcould take a couple of years,
and again, if that's if it's adesirable company.
(47:32):
Finally, besides us, an m and aadvisor, who do you need on your
team?
Well, first and foremost, youneed an m and a advisor who's
certified to do valuations inyour industry.
Okay, well in advance of thecontemplated sales, by the way,
it's not your CPA unless theyhave m and a transaction
(47:52):
experience, and it's 30% oftheir practice.
If m and a is 30% or greater.
Go with God.
Use your CPA if you don'tbelieve what we're saying.
If you want to go in a differentdirection, it's also not your
lawyer, unless they are in an mand a transaction attorney.
If they're commercial realestate lawyer or generalist,
they're not the person to torepresent you.
(48:15):
Okay, MA advisors facilitatesales.
Most lawyers, if they're notdirected properly, kill sales.
They kill deals.
So you don't want to, uh, in myestimation, a generalist
business broker, just look atthe numbers they sell one out of
five of what they have.
(48:35):
That's a universal industrystat.
That's not my stat.
You're certified andinexperienced tech planner.
I cannot emphasize this enough.
95% of the CPAs out there arenot certified tax planners, and
they have no asset sale taxplanning experience.
Okay.
That's, that's a separatecertification.
(48:56):
You need a tax planner who keepsup with all of the changes in
tax, investigate all of youroptions on seller proceeds
distribution, so that.
You, you limit your taxes, writethem into the purchase
agreements.
There are many ways that you cantake capital, by the way,
popular to do a 10 31 exchange.
A good tax planner will tellyou, you can take the proceeds
(49:18):
of your business and do certainthings with it.
You need an m and a transactionattorney, not your commercial
real estate lawyer or ageneralist counsel.
They don't know what to look forin agreements, and they're gonna
make mistakes.
I've seen it too often.
Current CPA's role is to makesure all the financial
statements and tax returns areaccurate and they're available
(49:38):
and have any information neededduring a due diligence period.
At the ready and accurate, andthey typically don't have a role
in transaction negotiations ortax planning.
Again, unless they're certified,and again, unless 50% of their
bi practice is tax planning, youneed a separate tax planner,
(49:58):
okay?
If, if not you, you're gonna paymore than you expect.
Finally.
Let's talk about the types oftransactions that are out there
in the Chae for transportationspace.
There's basically three types.
You know, TRA transaction typeone is when somebody comes in
and buys the business and they,they pick and choose the fleet,
(50:18):
and that's done separately.
Um, there's, in most cases ofthe sale of private businesses,
there are seller financingoptions.
The best companies.
We will sell the fastest if theseller is willing to take back a
promissory note.
The second type of transactionthat's out there is what's
called an all in transaction.
(50:38):
And that's a business that's,that's a transaction where the
buyer is buying all of thebusiness and all of the fleet.
and in those cases, you know,sometimes the buyer wants.
The seller to stay on for aperiod of time.
and again, there's some sellerfinancing on those transactions
and there's always some sort ofa contingency if something
(51:00):
changes in the business whereseller proceeds, you know, will
be adjusted.
The third type is, again, all inbusiness and fleet transactions
that are SBA financed andnormally.
Yeah.
SBA financed is not gonna getyou the top value because the
SBA wants to cover their bets.
The SBA wants to have plenty ofasset coverage.
(51:23):
Usually it's 80% cash at closingand 20% delayed payment to the
owner.
usually it's four to five yearsout, and in, in those cases, the
owner would stay on for 30 to 90days.
Those are generally whathappens.
I can tell you every transactionis different because every
company is different.
You know, the emphasis I willmake is it takes much longer
(51:45):
than you think it's gonna take.
the other piece I will tell youabout, about mergers and
acquisitions is besides thestatistic of, for every one that
closes, there are four thatdon't most, the most important
information.
About merger and acquisitiontransactions in any industry is
(52:07):
below the surface.
It is literally, you would neversee it as a buyer or a seller.
It's what bankers know, whatinvestment banks talk about,
what we talk about with privateequity firms, what we talk about
with potential buyers.
So.
That is why people usually hiresomeone whose full-time
(52:30):
occupation is doing valuationsand mergers and acquisitions.
So I hope I gave you someinformation, uh, straight talk
about what your business isworth and what the process is
like.
I can tell you if you ever planto exit.
There is no such thing asstarting too early.
Conversely, if, if a buyerknocks on your door today, I can
(52:53):
almost guarantee you withcertainty.
Number one, your business is notready to sell, and number two,
you will not be paid the highestvalue because you are not ready
your business.
Definitely needs conditioning.
It needs fixing, it needsadjustments.
(53:13):
It needs improvements in thefinancials.
So, um, again, thank you forjoining today.
I hope I didn't bore you toomuch.
and we'll be back next weekwith, uh, James Blaine and
hopefully we'll have another,uh, another guest to talk to.
Thanks and have a great day.
Thank you for listening to theground transportation podcast.
(53:36):
If you enjoyed this episode,please remember to subscribe to
the show on apple, Spotify,YouTube, or wherever you get
your podcasts.
For more information about PAXtraining and to contact James,
go to PAX training.com.
And for more information aboutdriving transactions and to
contact Ken, Go to drivingtransactions.com.
(53:57):
We'll see you next time on theground transportation podcast.
Welcome to another exciting episode of the Ground
Transportation Podcast.
Welcome to the studio.
unfortunately, my partner incrime is James Blaine from Pax,
training is at an undisclosedlocation training chauffeurs.
So you're gonna have to put upwith me today only.
this is something new.
This is gonna be a kind of amonologue.
(00:48):
I've been wanting to do this fora while.
We're gonna put this message outin, in a variety of forms.
I'm gonna describe a little bittoday, kind of myths and
misconceptions on what companiesare worth, what values they
have, what is important.
what sells, what doesn't sell.
(01:10):
And, um, there's a lot ofmisinformation out there.
And I've been doing this since2018.
I always tell people, look,don't take my word for it.
Talk to potential buyers or talkto operators who've bought
companies in order to dispel,um, the myths I'm gonna talk
about, or, you know.
(01:30):
confirm the facts that we'regonna talk about.
You know, everything we're gonnadiscuss today is absolute the
truth based on my involvement inthe industry.
Review of 270 plus companies.
And intimate knowledge with ahundred plus transactions.
Okay, so let's get started with,we have two types of customers
(01:50):
that are driving transactions.
65% of what we do is workingwith transportation company
owners needing assistance.
Being to grow, be moreprofitable, borrow to buy large
assets.
They want to get theirfinancials in order to be able
to do business with traditionalbanks.
They're buying companies.
We do a lot of buyer duediligence, and then we work with
(02:11):
sellers.
We're engaged by sellers to doenterprise values.
So.
For all our operated customers,we basically do the same thing,
which is a comprehensivefinancial review and revenue KPI
analysis.
It's a fancy way of basicallysaying we determine the
financial health of thebusiness.
(02:31):
So having done this since 2018,270 plus companies from the
chauffeur space to the motorcoach space, we have the most
expert insight into theindustry.
And the market for buying andselling financial and
operational metrics, uh, of allthese companies.
So, you know, what is financialanalysis and can my CPA do this?
(02:56):
Very unlikely.
Can my internal bookkeeper dothis?
Yeah, we can train her to do it.
But here's the basic difference.
There's two types of accounting.
One is tax financial accounting,and it's used to determine a
profit and loss and what you owein taxes.
Financial analysis or what'scalled management accounting, is
(03:18):
to use to determine the completefinancial health of the business
by examining industry specificfinancial metrics and key
performance indicators.
Um, for example, you know,what's the average gross profit
margin on an airport transfer?
Uh, by the way, it's 30 to 35%,but you have to know what all
your cost of goods drivers areto, to know that.
(03:40):
And there is about.
25 financial metrics.
We pull from financialstatements and we can tell
people whether they're healthyor unhealthy.
Another example is, how muchshould I be paying for driver
labor?
Uh, 25 to 27%.
We've seen as high as 31% in NewJersey.
We've seen it out in Californiaas high as, you know, 37%.
(04:02):
So we have all those metricsand.
Less than 5% of the companies inthis industry do what we'll call
ongoing financial analysis ormanagement accounting.
95% of it, 95% of them dofinancial p uh, profit and loss
statements and balance sheetsjust to determine tax, and quite
(04:23):
frankly.
It's the reason why they don'thave a handle on the financial
health of their business.
Um, if you ask me what mybiggest frustration is on my job
is, it's when a seller comes tome under a total delusion on
what his business is worth.
Total delusion.
And part of this today is goingto be to correct those myths and
(04:44):
misconceptions.
Now, it's not gonna be quitelike Mussolini from the balcony,
but it might get close.
Because I'm very passionateabout this and I want people,
operators to find out the truthof what their businesses are
worth long before they decide tosell, long before they think
that the sale of a business isgonna fund their entire
(05:07):
retirement.
So let's start with the reality.
This is a, is a true statement.
Every company is a business.
But not all businesses arecompanies.
So there are two types ofbusinesses that I look at.
One is operators are operating alifestyle business, and the
owner is doing much of the workseven days a week.
(05:27):
It lacks the three Ps,processes, policies, and
procedures.
Very poor financial practicesand record keeping.
Very poor financial trends, lowor no profits.
Low ebitda, which we'll get intolater.
And basically a lifestylebusiness is an extension of the
owner and is totally dependentupon them.
they're not able to paythemselves a high W2 income, um,
(05:49):
and the business could suffer,usually suffers, um, if they
suffer and it ends when theyend.
Okay?
So it can't run without theowner.
A sellable company, a realcompany, focuses on growth and
profitability as two equallyimportant objectives.
Two sides of an incrediblyimportant coin because frankly,
(06:13):
not all revenue growth is goodgrowth.
It's not all good for business.
A company is a formal structurein systems.
It has written policies andprocedures.
It has executable plans to growannually, and it creates
enterprise value throughsuperior financial performance.
What do I mean by that?
The ability to show consistentnet profits from the operation
(06:37):
and healthy ebitda, and it keepsaccurate financial statements,
timely reporting, and it managesits debt well.
So here's the reality.
Of selling businesses, and thisis not me.
This is the small businessadministration, so I defy
anybody to prove it wrong.
75% of businesses in the UnitedStates report less than a
(06:58):
million dollars in annual sales.
We're a small business country,but only 20% of those businesses
under a million will ever sellto a second owner.
Now 20% of US businesses reportrevenue a million to 30 million.
Now, that's an incredibly largeswing, okay?
That only increases theprobability of sale to 35%.
(07:22):
Now, I will tell you, in thisindustry what's ignored is the
fact that a seven day a weekbusiness is not as exciting to a
new generation of businessowners.
As a tech company, as a digitalmarketing company, et cetera.
Now, having said that.
If you are operating a truecompany with all the things I
(07:44):
talked about, you have a prettydarn good chance of selling your
business if it's above amillion.
Very good chance, and we'll talkabout the below a million, uh,
as we go through this.
Now, the one thing I wanna tellyou is this industry's going
through what I call m and amania.
Okay?
But you gotta realize something.
For every successful transactionyou hear about, there are four
(08:06):
that don't sell.
Because the sellers are totallyunprepared for the process.
Their financials are anightmare.
The sellers are unrealistic asto price and terms on what they
think their businesses areworth.
We actually just, you know,party company with a client that
was way out of their, the leagueon what, what these businesses
are worth.
No bank would financing, nobuyer would buy it.
(08:29):
Businesses have fatal flaws.
And the buyers don't want to.
Buyers don't.
Buyers don't wanna fix yourproblems, okay?
And that's why businesses don'tsell.
There's a high revenueconcentration with a, with a few
large clients like affiliatework in our industry, and the
financials are inaccurate.
Um.
(08:49):
Or there's poor performance.
So those are the reasons why forevery one successful
transaction, you hear about fourof them.
Never sell.
Never sell.
Okay, that was like Mussolinithere for a minute.
Okay, so let's talk about again,a well-prepared company has a
(09:10):
three times better chance ofselling than a company that is
not profitable.
That's not prepared to sell.
Ideally, you wanna prepare tosell your business three years
in advance for the people thatare selling their businesses
because they're approached by abuyer.
I can tell you the businessesare never, ever, ever ready to
(09:31):
show.
If somebody comes knocking onyour door, you, it's like
inviting somebody into a dirtyhouse.
So, why is it the only 25% ofprivate businesses ever sell As
a general rule.
Number one, there's no year toyear growth in revenue and
profits.
Those are equally important.
you know, a lot of people inthis industry like to brag about
(09:51):
their total revenue.
I.
And I have looked at companiesthat have grown from 10 million
to 20 million in five years thatare absolutely worthless and
upside down because they have somuch debt and they have lack of
profitability.
So year over year growth inrevenue and profitability is
critical.
The profits of these businessesare below industry averages and
(10:12):
their consistent losses.
That's why they don't sell.
There are major flaws.
The, the, the businesses and thebuyers don't wanna fix them.
Okay?
And that could be financialproblems, operational issues,
personnel problems.
The big one is old vehicles.
You know, no offense, thecompanies that don't sell are
the ones where the vehicles arepast their prime earning years.
(10:37):
They're past their, they're waypast in mileage or years, and
they could break down and peopledon't want to use them.
So they need to be replaced.
The other reason three out offour don't sell is there's no
brand recognition, no valueniche, no market presence.
So I can tell you that the topthree companies in every market,
I'll go out to say the top five,have twice the chance of
(10:59):
selling.
Um, the other reason whybusinesses don't sell, 75% of
them don't sell.
And this is critical for smallcompanies.
This is for, you know this.
Again, don't take my word forit.
Talk.
Talk to any other buyer out inthe marketplace.
The business could easily beduplicated for much less than
(11:21):
the seller is asking.
So over if, if you're a lessthan a million dollar operator
and you are asking someexorbitant amount of money, what
the buyer's gonna say to themis, wait a minute, what if I
started from scratch?
Would I spend this kind ofmoney?
When I spend what this guy isasking big problem for companies
(11:41):
under a million dollars, I wouldargue under 1,000,005.
They, they, the sellers arejust, uh, really unrealistic on
what their businesses are worth.
The business has always been alifestyle job for the owner, and
it can't run without them.
Nobody wants those businesses.
Nobody wants the business today.
When they're not on an existing,operator's gonna pay much less
(12:04):
if the labor to run the wholebusiness has been provided by
the owner.
Right.
It's a lifestyle job.
Right?
Great.
You've made a great living, butif something happens to you, the
business suffers and.
The other reason is they don'tsell three, three out of four is
they're unprepared and thesellers are, uh, in
documentation, financialdocumentation, and they're
(12:26):
uninformed sellers who thinkselling is easy.
Selling is fast and they're theones that set the prices.
Let's just clarify a few things.
Number one, selling takes a longto do it right and to get the
most value.
It takes a long time.
It takes time to prepare thebusiness.
We're gonna talk about thattoday.
It takes a long time and themarket sets.
(12:49):
The business, the prices forthese businesses.
Okay.
Undeniable truths about buyingand selling businesses.
Number one, the most profitablecompanies sell first accurate
financial statements andprovable profits sell
businesses.
Not what your revenue is, notwhat you think your domain name
is Worth, not what youruninformed lawyer or uninformed
(13:13):
CPA, who's never transacted abusiness tells you it's the
market that dictates it.
The market and the industrydynamics determine the ultimate
price and sellability of thebusiness.
And the real value of a businessis what a qualified buyer is
willing to pay for it.
Now in our industry.
Statistically about 68% of thelimo companies in the United
(13:37):
States post less than a milliondollars worth of revenue.
Now, I could sell'em.
We've sold quite a few companiesthat are between 500 and a
million, but they take a longtime.
And when they have theattributes I just talked about,
they don't sell because thereality is the average million
dollar landscape company posts.
(13:58):
Three times more profit than theaverage limousine company that
does less than a milliondollars.
Why?
No one cares how old the moweris.
Nobody cares who's behind themower.
The insurance is cheaper.
The owner is doing some of thework, okay?
And the reality is it's a Mondaythrough Friday business.
Remember that when you'rethinking of selling your, your
(14:19):
company, or we can sell'em, itjust takes, the best ones are
the ones that sell in thatcategory.
So let's talk.
Um, what really we tell peopleto focus on, first of all, the
time to focus on what yourbusiness is worth is not when
you want to exit.
Ideally, it's three yearsbefore, five years before, three
(14:40):
years before is good because ifthere's problems, we need some
time to put the, to correct the,the problems, real value.
Is created by executing provenstrategies to grow profitably
every day.
You can't juice your value forsix months.
You can't juice your profits andfor six months and a good market
(15:02):
and expect it to change.
The value of the business.
Value of the business isdetermined over the last three
years.
Okay, so focus on profitablegrowth only net profits, not
just churning money.
So those shuttle contracts thatare not making you a lot of
money, uh, those are, those areactually costing you because
they're, they're just not addingthe gross margins that you need.
(15:23):
Manage using monthly financialmetrics and KPIs and fix what's
unhealthy.
Fleet size is not a measure ofsuccess and neither is top line
revenue.
The most profitable businessesin this industry that sell have
30% of their revenue coming fromnon in-house fleet vehicles
(15:44):
That's making a good 30, 35%margin.
The businesses that sell havemaximum owner W2 income, a
business that cannot pay itsowner.
A W2 salary are not sellable.
By the way, if your CPA istelling you to take year end
distributions as yourcompensation, they're wrong.
Because not to get technical, adistribution is a balance sheet
(16:07):
item.
You need your income.
On the W2 that I can add back,you need a, your pro, your W2
income on your p and l, so I canadd you back in.
We tell people to, to createpredictable profits.
And it's much more importantthan just revenue growth.
Profit solves all problems, youknow, and the other thing I'm
(16:29):
gonna tell you is if you thinkthere's a large pile of cash
waiting for you when you sellyour business, and that's how
you're gonna fund yourretirement.
And I've had too manydisappointing conversations with
65 plus year old operators whohave no savings and think that
this is going to fund theirentire retirement, you will be
(16:52):
disappointed.
Now, unless that's, unlessyou're in the top 5% in terms of
total revenue in the industry,top 5% net profit and ebitda,
those three things.
But the average company outthere, it, it's gonna help you
with your retirement, but it'snot gonna fund all of it.
So the idea, the top 5% ownersout there that I've dealt with
(17:14):
for five years or seven yearslonger.
The top 5% pay themselves andfamily members very well in a W2
salary.
They take money off the tableannually and they invest outside
their primary business.
Okay?
They use their business as cashflow.
To buy commercial real estaterental properties in invest
(17:37):
investment accounts and otherbusinesses.
Uh, they don't just buy toys.
The most profitable and the mostsuccessful sellers, the top 5%.
Pay themselves extremely well.
They make a profit enough totake a good W2 salary, take
money off the table annually,every single year, and invest it
(18:00):
outside the primary business.
that's the key because you'rediversifying.
You're diversifying yourfinancials.
If you think you are gonnaretire on the sale.
Of a limousine company that'sworth that, that is, you know,
doing a couple million dollars.
Unfortunately, you're not, andagain, 68% of the businesses in
(18:21):
this industry do less than 1million.
So if you're banking on that, I.
It's a problem.
And if you're buying toys alongthe way, you know, I'm seeing
the Rolexes on Facebook and the,you know, and the real
expensive, you know, toys, etcetera, et cetera, you're gonna
be disappointed.
Take money off the table andinvest it in other things.
Okay, so let's talk about thecompanies that can sell.
(18:43):
Let's talk about the attributesof companies that sell.
First of all, the number onereason why people buy companies
is because they're profitableconsistently.
Both revenue and net profit.
So if, if you've posted losseson your p and l and you had
made, made money this year andthink, oh, this is a good year
(19:05):
to sell, that's not what banksand buyers want to see.
They want to see consistentprofitability.
They want to see growth inrevenue, but as importantly,
growth in profit.
Okay?
The only reason, the only wayyou can do that is to manage by
a strategic business plan and amonthly financial plan that
includes a budget.
(19:26):
A revenue forecast.
Okay?
That's the number one way youcan make sure that you can grow
consistently and profitconsistently, is to have a
budget.
What, what, how was last year?
Because that's the bestpredictor, right?
And how are we gonna get ourbusiness?
How are we gonna get the revenuethis year?
So created an annual financialplan and a profit roadmap.
Ideally, you want to be 10%increase in annual revenue, if
(19:49):
you can do it.
You want to post a greater than10% net profit from the
operation, and you want to havea greater than 15% ebitda, which
we'll talk about.
You know, the other reason to doan annual plan is to rally your
team around the plan and yourannual goals.
work on your business, not justin it.
(20:09):
This is what they mean when theysay that working on your
business is examining thefinancial health.
Really mapping out your growthinstead of just, you know, going
with the wind.
You know, bankers and buyers,like businesses that are
profitable.
Their revenue is growing andthey hit their goals, and the
(20:29):
most important reason to do thisand have a strategic business
plan and a financial plan is youreally can't achieve or improve
upon what you do not measure.
Okay?
So we do this with our clientsstarting in October.
You know the last ones.
We will do an annual budget andfinancial plan for the next
year.
Would be February 15.
Somebody, people like to startearly.
(20:51):
Some like to start late.
By the way, you could do this onyour own.
There's like a ton of businessplan softwares out there.
Okay, number two.
The companies that sell arepricing services to create
financial success, demonstratedfinancial success, okay?
You wanna be in on, in far asyour market is concerned, you
(21:13):
wanna be in the middle to highend of your market.
Low end, low price.
Companies don't sell.
Okay?
They just don't.
Nobody wants that.
So price your services to createfinancial success in both net,
ordinary income, net profit, andyear over year ebitda.
The only way you can do that iswhen you know your financial
metrics.
(21:33):
Okay.
Um, low profit or, or low, lowmargin, low profit businesses
means that the sellers are notmanaging their expenses.
They don't know their profitmargins, and they lack pricing
for predictable profits.
If you don't know how much itcosts you to do a, a trip.
How much do you spend in, uh, inlabor as a percentage of income,
(21:56):
fleet expense, fuel, fleetinsurance, et cetera?
You can't predict your profits,but you can if you know the
healthy metrics you're operatingunder.
So sellers who price forpredictable profits are creating
long-term enterprise value.
So you're not just having a goodyear, but you're building on
three or four or five years ofreally good performance
regardless.
(22:16):
Of what the economy does.
If you have a handle in yourbusiness, you can adjust
accordingly.
Okay?
So the cost structure of yourbusiness and your desired profit
should dictate your pricing, notwhatever your competition is
charging.
Okay, here's a safe bet for you.
Make the assumption that yourcompetition has absolutely no
idea or a handle on theirfinancials.
(22:38):
Be the one in the market thatknows your financials and prices
accordingly.
You are better off doing fivevery profitable trips, or seven
very profitable trips than 10trips with low margin.
Nobody wants that.
Create financial performance onall your services and all the
(23:00):
contracts you're going after andall the vehicle types so you
know your gross margins and wecan help you with that.
Establish and maintain grossmargins that are above industry
averages in all services.
I say I'm gonna give, just giveyou some general stuff.
The airport transfers you'remaking, everybody, the ones
people we work with that aredoing well are making about 35%
gross margin on.
(23:21):
Airport transfers 40% on, uh,sedan and SUV charters, but 30,
35% on sedan and SUVs to theairport.
Vans and minis, you should bemaking 40% margin.
I like to see 45% on charters.
Motor Coach.
You should be making 40%.
(23:42):
Again, this is charter work witha good quality motor coach.
So being above the market interms of price increases the
value of the business, and italso increases your chance of
selling.
Okay?
Lowest price.
Companies that do a ton ofairport work and they do a ton
of affiliate work are not worthanything.
(24:03):
Don't take my word for it.
Talk to any buyer who's anoperator.
So every problem in business canbe traced back to lack of
profitability.
So I don't know why there's suchan aversion to making a good
profit, but if any decision youwant to make in business.
It's only enhanced when you makemore profit.
(24:24):
You can do it.
I want to hire a newsalesperson.
Great.
You have the cash to do it.
I want to buy another uh, SUVbecause we're doing so much
work.
Great.
You have the cash to do it.
Okay.
Number three, if you wannasellable business address the
known operational organizationalfational.
Now, a sellable company haswritten prices, procedures, and
(24:47):
policies for every single.
Person in every function.
So update your job descriptionsor write them, update your ops,
manual or write it so that thereis a process and a checklist for
everything.
And if you're just starting out,nothing wrong with writing
things down so that the nextperson that comes in that does
the work that you're doing nowknows how to do it.
(25:09):
Update your sales processes,update your terms and
conditions, and a pricingmanual.
A seller just sent me a pricingmanual that said 2019 on it.
I said to him, I sent it back.
I said, I'm not showing this toa seller.
they're gonna know that youhaven't raised your prices and
this is why you're notprofitable.
Avoid the key person syndrome.
And that includes, you alwayshave the ability to have a bench
(25:32):
ready to train.
I'm never gonna forget that.
When my dad passed away, I wasa, a transp, I was a limo
operator, when he passed away.
I had some really good peopletake care of my company for 10
days.
I was gone for 10 days, and ifyou don't have a bench ready and
they don't know how to run thebusiness without you, then
(25:53):
again, you're running alifestyle company.
Manage your fleet assets so thatyou have 50% equity in your
fleet.
So, you know, buying it zerodown is not a good idea.
You should have a good, gooddeposit when you buy a, a new
vehicle.
So 50% fleet should be paid off,and then you should also have
(26:13):
35, 30, 30 5% remaining usefullife of the vehicle, right?
So this is the way we look atit.
Look at the industry norms.
Everybody gets rid of theirsedans and SUVs depending upon
the market between, you know, 3,4, 5 years.
Okay?
If you're running 7-year-oldvehicles, your company is not
gonna sell, excuse me,7-year-old sedans and SUVs.
(26:36):
If you are running mini busesthat are 15 years old and motor
coaches that are 15 years old.
No buyer wants to buy a businessand then invest in loss of
equipment, right?
So that's why we say you shouldhave a good 35% remaining useful
life of vehicles.
And if I had to look at thenumber, if you have 36 months
left in, in your big stuff, you,you're doing okay.
(26:59):
But if you are still runningmini buses that are 2000 and
twelves or 2000 and tens, youhave a problem.
You know, we have a customerthat, You know is running 1998
motor coaches and the buyerslooked at it and said, you gotta
be kidding me.
I have to spend$1.5 millionbecause I'm not gonna put these
this equipment out.
It keeps breaking down.
(27:19):
Use technology to reduce labor,reduce risk, and improve
efficiency and measure, improveevery aspect of your business,
including the client experience.
So this is all about really allabout.
Fixing the known problems ofyour business.
Now, the number one flaw we see,the number one flaw we see is
(27:40):
the organization is toodependent on the owner.
If the business, your businesscannot exist without you making
all of the decisions and you'reperforming multiple major tasks
every day.
Chances are your business is notsellable for a decent value.
Likely it's gonna be what I callthe earnout, right?
The, the, the, the earnout withno number at the end.
(28:02):
because you are the one that's alifestyle business.
So you know, what you've createdis a great job for yourself and
a lifestyle, but it's not acompany that can survive on its
own without disruption orrevenue degradation.
So the fourth way.
You wanna make sure your companyis sellable is to build a
company that the buyer wouldspend more creating, right?
(28:23):
So if a buyer looks at you andthey can make a credible case
that, that, that they can spendthe same money or less money
over a defined period, then whywould they buy your business?
This is incredibly true withbusinesses under a million
dollars in in revenue.
So if a buyer can recreate yourresults over.
(28:46):
2, 3, 4 years, they couldduplicate the revenue, duplicate
the profits, duplicate themarket share, and duplicate the
customers.
Then why would they buy yourbusiness?
This is, this is reality.
So how do you do that?
You gotta get on Google Pageone.
Above the fold.
You have to be on Google MyBusiness app and, uh, and maps.
(29:07):
Google My Business Maps in thetop five places you've gotta be.
On the new Main Street is GooglePage one.
80% of new customers search forproviders on their phone or on,
on their, uh, desktop during theday.
The number five thing that youcan do as far as making a
(29:29):
company more sellable is build asuperior brand recognition and
build or build a value and avalue niche in your business.
So here's what I mean by that.
When your ideal customer in yourmarket thinks about limousine
service, the airport servicemini bus service, motor coach
service is your brand name onthe tip of their tongue.
(29:51):
That's having brand recognition.
By the way.
You're not building brandrecognition with PPC.
You're building brandrecognition holistically by
being SE oed on page one withoutthe ad and being known out in
your community.
So how do you do that?
You design a brand persona.
What does your brand stand for?
(30:11):
And it better not be low price.
You consistently promote yourbrand.
Out in your marketplace andcontinually foster real market
presence, consistently ask forand receive five star reviews on
the service you're providing.
Now, I always do this.
I always embarrass my friendDoug Schwartz.
Um, Doug Schwartz runs executivelimousine out in, uh, long
(30:36):
Island, and he's a medium sizedoperator.
And I had the bad fortune oftrying to sell, uh, an operator
that was quadruple his size.
They had re and they had reviewsof 2.3 stars and Douglas has
eighteen hundred and ninety sixfive star reviews.
(30:56):
Now that stuff matters to buyersand it matters to customers.
And he's got one of the bestreputations on, on Long Island
'cause he's cultivated five starreviews.
Okay?
So how do you create another, apermanent brand presence because
making your brand known.
Not a cult of personality, not.
(31:16):
Everything comes through yourcell phone.
That's a cult to personalitytoo.
Reliant on the owner.
You have to create permanentpresence on Google, not just PPC
ads.
You have to have real searchengine optimization.
Google Page one, real onlinepresence.
Companies that are in the topthree to five in their market.
Always have a higher value andthey have a much better chance
(31:38):
of selling.
So the other piece of the puzzlehere is your market may not be
in the Geographic.
It, it, it actually could be the25 wealthiest zip codes in your
area.
It could be best known in anindustry.
Um, I have more lawyer clientsand professional service clients
than anybody for ex, you know,that's a good example of one.
(32:00):
it may be that you do businesswith a lot of entertainment
media, et cetera, et cetera.
So it can be a client type or itcan be a segment of, of your
area that 25 wealthiest zipcodes.
The key is you have brand netrecognition somewhere.
Number six, assure that thecompany is not dependent on a
(32:20):
few large clients.
So this is a, issue in ourindustry.
So buyers want to buy companiesthat have a growing diverse
customer list, and you wanna see80% of your annual revenue
spread among up a hundred to 300clients.
(32:41):
Most of the time when we doreviews, we see 80% of the
revenue.
Is tied up with a hundredclients, which is good, but if
you have revenue concentration,if 10% of your revenue is tied
up with one client, okay, it's aproblem.
If 20% of your business is tiedup in affiliate work, it's
(33:01):
affiliate work and it's one ortwo affiliates, it's a problem.
And this is not me saying it'sthe market saying it.
Uh, famous case I had with aclient, um, in Los Angeles.
50% of his revenue was tied upin two or three networks that
pretty much any decent buyer wasgonna say, holy crap, if I lose
that account, I'm, this businesshas gone way down in value.
(33:24):
The, the seller was notaccepting of that, and that's
why his business never sold.
So the best way to achieveexceptional value, sell more
stuff to the same people,continuously engage your
existing and past customers.
Nothing says success.
Like continually repeatcustomers always remind them of
(33:44):
everything you do.
You know, here's a misnomer.
They're not sitting on yourwebsite going page after page to
figure out what you have.
You have to continually,repeatedly let them know what
you do.
Another way to do this is tocreate an online sales engine
where your website is actuallyan e-commerce website.
Get on Google page one and makesure people can get quotes, make
(34:06):
sure people can order services.
There's some great software outthere in CRMs to be able to do
it, chat bots, et cetera, etcetera.
Review your aggregator andaffiliate revenue.
And here's the simple thing Itell people.
If you lost your biggestaggregator, you know, like in
our business it might be LimoLink or savoia, and you or you
(34:26):
lost one of the big networks, ifyou did a lot of affiliate work,
you know, for any of the Bigsempires, Boston Coach, RMA,
Carey, et cetera, if you lostthat work, how long would it
take you to make it up?
If you don't have a good answer,and that answer is not 60, 90 to
120 days, you got an issue.
It'll affect the value of thebusiness.
(34:47):
Manage a client, use trends andmarket to them.
Now we have an internal salestool that we use for our
clients.
It's, it's basically a salesheat map where we look at the
past few years to determine the.
Biggest clients and look at therevenue trends.
Are they using you for more orless now?
The, we do it simply red fur.
(35:07):
They're using you less yellow,you're, they're about 10% down
and green is, they're above thelast reported period, so.
24, they did more business withyou than 23.
Right?
Great stuff.
But if you are not measuringthat, you are also losing a lot
of sales.
You're taking your clients forgranted.
So we recommend that you comparethe use trends of the last two
(35:31):
to three years, and also youcompare your next 90 days.
To look at where your businesscame from last year and reach
out to the largest ticketclients.
So we do that with our clientswith a sales forecast.
You know, use the op, thisopportunity to look at how
they're doing business with youto to visit them, refresh the
(35:54):
relationship, and.
Discuss your full capability.
I mean, I can't tell you howmany times people say, well, I
didn't know you had a motor.
They, they didn't, my customerdidn't know I had a motor coach.
They didn't know I had that newmini bus that, that was 45
passengers, et cetera, etcetera.
So, so again, good practiceswith customers.
Number seven, the biggest thingI will tell you is create a real
(36:17):
company.
To create a real company.
It has.
Lots of Ps.
It has good profits.
It has an exceptional team,exceptional team of people.
It has processes, policies,procedures, and it has a
principle, an owner who isfocused on strategic planning.
(36:37):
Operational supervision andfinancial oversight.
In other words, it has aprincipal owner who is focused
on working on the business andwhat comes next, and how are we
doing instead of someone who'sworking in the business.
So people laugh at me when I saythis, but the owner should make
down the least important personin the actual day-to-day
(37:00):
operation of the business.
I mean, I've owned fivecompanies, five different
companies.
And if I wasn't at three o'clockin the afternoon, I wasn't doing
something I love to do.
There was a problem, right?
Everybody at my limousinecompany knew how to run it
better than I did.
So owners should focus onstrategy.
Key customer relationship,business plan, execution and
(37:23):
ongoing p and l and financialmanagement.
If you are leaving yourfinancial management to your
CPA, number one, you're notmaximizing profitability, you're
not maximizing your income.
They don't care and they don'tknow.
What you should be making forgross margin, what a good
industry average, et cetera.
(37:43):
But they'll tell you how muchyou own taxes.
So the owners should again, workon the business and not in the
business.
Okay, and I have a question foryou.
If you are not gonna do it,who's gonna do it?
If you are deep knee, deep,seven days a week in the block
and tackling, takingreservations and dispatching,
who is working on the plan togrow this business?
(38:04):
And you know, there's a bigreason why businesses don't
grow, and this is the number onereason is the owner doesn't
replace themselves in theprimary roles.
Okay?
So the number one p, it'sprofit.
It's the only indicator ofsuccess.
Financial performance trends aremeasured over two to three years
(38:25):
when it comes to the value of abusiness, and it really speaks
to the long-term viability ofthe business, and it, it is, is
totally used for enterprisevalue.
If you have no profits.
You have no value.
So in our industry, net ordinaryincome profit from the
day-to-day operation should bebetween eight and 12%.
(38:46):
Best.
Best we've ever seen.
19%.
But the average company outthere, the average company is
doing eight to 10.
The average EBITDA for a a wellperforming financially healthy
company is 15 to 17%.
Now, we've worked with peopleand we've helped in to get
EBITDA and net profit up to over20% on the ebitda.
(39:08):
You know, mid-teens on the NOInet ordinary income, but it
takes time.
So, by the way, NOI net ordinaryincome is the profit from the
day-to-day business.
It's not the sale of vehicles,it's not a one-time expense,
right?
It is how much money did youmake from doing what the
business does every single day,the transactions of the
(39:29):
business.
So those are the numbers thatyou should shoot for.
And if you're not showing aprofit of eight to 10 to 12%,
and your EBITDA is not at 15 to17%, chances are you don't have
value to sell.
And again, you wanna see a, abuyer wants to see, and a bank
wants to see 2, 3, 4 year trendsof solid numbers.
(39:50):
Okay.
Um, or the business is notsellable.
So the owners of privatebusinesses, you know, I, I, I
have to tell you, I admire them.
I was growing, you know, I wasraised by people that owned
businesses and my parents workedin businesses, their businesses
for 50 years.
You know, you have really.
Three options when it comes tothe disposition of your
(40:11):
business.
Number one is you.
You have a plan to sell it, andthe ideal exit strategy, exit
plan should start three to fiveyear prior to execution because
there's always things to fix andimprove.
The second thing you could do iswhat's called an orderly
liquidation.
Now, while this might sounddramatic.
(40:32):
It happens with the majority ofprivate businesses that are
under, 3 million bucks in sales.
Okay?
It can be the moststraightforward approach, and it
definitely, if you don't havethe time to do a formal exit
plan, it's probably what's gonnahappen.
You're just gonna sell off thefleet.
and maybe give somebody thecustomer list.
You know, your third option isto keep the business, simplify
(40:55):
it, improve profit, andgradually have an owner exit or
succession plan, or at least theability for the GRA gradual.
The owner from taking the mostonerous parts of what they do
and have the business run on itsown so that they can come and go
as they please.
So how do you do that?
You look at every process in thebusiness and you simplify it and
(41:18):
you engineer yourself out of it.
Period.
End of story.
Okay.
You have to have somebody thatcan do everything you do except
I, you know, you, you, you don'twant them in the checkbook, but
you don't want them in thefinancials necessarily, but.
The day-to-day, every day-to-dayoperation, a process rather, you
need to engineer yourself out ofit.
(41:39):
The second way to do it is tocreate several options for a
succession plan if somethinghappens to you unexpectedly.
Now, we just had a client thatsuffered a, a, a, an automobile
accident, and he had a traumaticbrain injury and he was out of
the, out of his business forseven to nine months and his
poor wife had to run it, youknow, and the business is a
classic lifestyle business, andthe business has gone down
(42:02):
because of it.
So have a plan.
I, whether it's a part-timedriver that you can teach to do
reservations in dispatch,whether it's other operator who
can help you, but the bottomline is to turn your business
into a sellable company.
It cannot depend on you to dothe day-to-day block and tackle.
Oh, there is a fourth thing thatyou can do, uh, besides sell
(42:23):
orderly liquidation, or keep thebusiness and try to engineer you
yourself out of it is to donothing.
Don't do anything.
Don't listen to anything I say.
Don't listen to anything thatanybody who has expertise in
business.
transition exit strategies.
That's the worst of all, becausewe are all mortal and we are all
(42:47):
one sickness, death or divorceaway, God forbid, from our
business suffering.
So if you ever want to sell yourbusiness, my message is simple.
Create an exit strategy withseveral options multiple years
before you want to do it.
(43:07):
Ideally, three years, because weneed some track to track record
to fix problems if we're havingprofitability issues.
So let's wrap up here.
So let's talk about again.
Real companies that sell.
Number one, they have profits.
Number two, they have people,they have a team of people that
can run it, and you're a part ofit, but you're not all of it.
(43:30):
It has written processes,policies, procedures, and it has
demonstrated success year overseveral years.
That can only come when theprinciple of the business is
focused on strategic planning,supervising.
My dad used to say.
Inspect what you expect and thefinancial oversight of the
(43:52):
business.
That's the most important thingthat make businesses sellable is
those Ps.
The NU number one P isprofitability.
If your goal is to show a lossevery single year, and your goal
is to hide money.
Business is not sellable.
It's not bankable.
(44:12):
Banks that look at it for abuyer will understand it because
understand something.
In order for your business to befinanceable at the time of sale,
your financials need are asimportant, if not more important
than the buyers.
The buyer can put up stuff.
The buyer can do certain things,but if the asset he's trying to
buy does not have demonstratedprofitability, the bank's gonna
(44:35):
say no.
Alright, we're gonna finish upwith something today because
there is a misnomer out thereabout the how long it takes to
sell a business.
Okay?
I'm gonna give you the steps.
There are 12 step one is to do afinancial and profit review and
KPI analysis on the business tosee where you are now on the
financial health and performanceof the business.
(44:56):
Number two, it's establishingthat current value range, kind
of a from, and two that you as aseller agree with.
By the way, if you don't agreewith the range.
We wouldn't put the company upfor sale.
Uh, there's a reason why 20% ofgeneric business brokers, their
success rate is 20%.
Okay?
Because they don't know theindustry, they don't know the
(45:18):
value range, and they overpricethings, but you've gotta be
realistic.
So that's step two is to do avalue range on everything.
Step three is prepare thebusiness for sale.
Sometimes that takes time,fixing the financial flaws,
fixing the operational flaws,and if the flaws are big.
He could take.
18 months to two years.
Step four, assembling the data,creating a data room, and to
(45:42):
have creating an e-file so thatwhen people ask for information,
we have it.
Step five is our confidentiallymarketing the business for sale.
Basically, that involves tellingbuyers that we know about that.
We have a company coming up forsale in New York, or we have a
company for sale, you know, nearthe Philadelphia market, for
(46:03):
example.
Then we qualify the buyers.
We make sure that we do afinancial due diligence on the
buyer.
We execute non-disclosureagreements and we make sure they
understand.
This is completely confidential,by the way.
Sellers should keep itconfidential as well.
We have dropped clients.
They tell the world that theirbusiness is for sale.
It makes the drivers look atgoing other places.
(46:25):
It upsets their employees.
It's the worst thing in theworld that you can do.
It's a confidential processuntil a certain point.
Step eight, ideally, is wereview multiple offers and we
create counter offers once wefind two or three qualified
buyers.
Step nine is you execute aletter of intent.
Uh, with the final person.
Step 10 is that the step ninerather is execute an LOI.
(46:47):
Step 10 is draft transactionagreements, by the way, we do
that so that your lawyer doesn'thave to write contracts from
Ward.
One.
Step 11 is you close thetransact transaction, you have a
closing.
You sell the business and step12 is you help with the
post-closing transition.
Sometimes that's a short amountof time.
Others times the buyers want youto stay on for a period of time.
(47:11):
But fundamentally, the best casescenario, this is a six month
process.
If the business is profitableand it's in a good market and
it's got good revenue growth andit's of a specific size.
The worst case scenario is itcould take a couple of years,
and again, if that's if it's adesirable company.
(47:32):
Finally, besides us, an m and aadvisor, who do you need on your
team?
Well, first and foremost, youneed an m and a advisor who's
certified to do valuations inyour industry.
Okay, well in advance of thecontemplated sales, by the way,
it's not your CPA unless theyhave m and a transaction
(47:52):
experience, and it's 30% oftheir practice.
If m and a is 30% or greater.
Go with God.
Use your CPA if you don'tbelieve what we're saying.
If you want to go in a differentdirection, it's also not your
lawyer, unless they are in an mand a transaction attorney.
If they're commercial realestate lawyer or generalist,
they're not the person to torepresent you.
(48:15):
Okay, MA advisors facilitatesales.
Most lawyers, if they're notdirected properly, kill sales.
They kill deals.
So you don't want to, uh, in myestimation, a generalist
business broker, just look atthe numbers they sell one out of
five of what they have.
(48:35):
That's a universal industrystat.
That's not my stat.
You're certified andinexperienced tech planner.
I cannot emphasize this enough.
95% of the CPAs out there arenot certified tax planners, and
they have no asset sale taxplanning experience.
Okay.
That's, that's a separatecertification.
(48:56):
You need a tax planner who keepsup with all of the changes in
tax, investigate all of youroptions on seller proceeds
distribution, so that.
You, you limit your taxes, writethem into the purchase
agreements.
There are many ways that you cantake capital, by the way,
popular to do a 10 31 exchange.
A good tax planner will tellyou, you can take the proceeds
(49:18):
of your business and do certainthings with it.
You need an m and a transactionattorney, not your commercial
real estate lawyer or ageneralist counsel.
They don't know what to look forin agreements, and they're gonna
make mistakes.
I've seen it too often.
Current CPA's role is to makesure all the financial
statements and tax returns areaccurate and they're available
(49:38):
and have any information neededduring a due diligence period.
At the ready and accurate, andthey typically don't have a role
in transaction negotiations ortax planning.
Again, unless they're certified,and again, unless 50% of their
bi practice is tax planning, youneed a separate tax planner,
(49:58):
okay?
If, if not you, you're gonna paymore than you expect.
Finally.
Let's talk about the types oftransactions that are out there
in the Chae for transportationspace.
There's basically three types.
You know, TRA transaction typeone is when somebody comes in
and buys the business and they,they pick and choose the fleet,
(50:18):
and that's done separately.
Um, there's, in most cases ofthe sale of private businesses,
there are seller financingoptions.
The best companies.
We will sell the fastest if theseller is willing to take back a
promissory note.
The second type of transactionthat's out there is what's
called an all in transaction.
(50:38):
And that's a business that's,that's a transaction where the
buyer is buying all of thebusiness and all of the fleet.
and in those cases, you know,sometimes the buyer wants.
The seller to stay on for aperiod of time.
and again, there's some sellerfinancing on those transactions
and there's always some sort ofa contingency if something
(51:00):
changes in the business whereseller proceeds, you know, will
be adjusted.
The third type is, again, all inbusiness and fleet transactions
that are SBA financed andnormally.
Yeah.
SBA financed is not gonna getyou the top value because the
SBA wants to cover their bets.
The SBA wants to have plenty ofasset coverage.
(51:23):
Usually it's 80% cash at closingand 20% delayed payment to the
owner.
usually it's four to five yearsout, and in, in those cases, the
owner would stay on for 30 to 90days.
Those are generally whathappens.
I can tell you every transactionis different because every
company is different.
You know, the emphasis I willmake is it takes much longer
(51:45):
than you think it's gonna take.
the other piece I will tell youabout, about mergers and
acquisitions is besides thestatistic of, for every one that
closes, there are four thatdon't most, the most important
information.
About merger and acquisitiontransactions in any industry is
(52:07):
below the surface.
It is literally, you would neversee it as a buyer or a seller.
It's what bankers know, whatinvestment banks talk about,
what we talk about with privateequity firms, what we talk about
with potential buyers.
So.
That is why people usually hiresomeone whose full-time
(52:30):
occupation is doing valuationsand mergers and acquisitions.
So I hope I gave you someinformation, uh, straight talk
about what your business isworth and what the process is
like.
I can tell you if you ever planto exit.
There is no such thing asstarting too early.
Conversely, if, if a buyerknocks on your door today, I can
(52:53):
almost guarantee you withcertainty.
Number one, your business is notready to sell, and number two,
you will not be paid the highestvalue because you are not ready
your business.
Definitely needs conditioning.
It needs fixing, it needsadjustments.
(53:13):
It needs improvements in thefinancials.
So, um, again, thank you forjoining today.
I hope I didn't bore you toomuch.
and we'll be back next weekwith, uh, James Blaine and
hopefully we'll have another,uh, another guest to talk to.
Thanks and have a great day.
Thank you for listening to theground transportation podcast.
(53:36):
If you enjoyed this episode,please remember to subscribe to
the show on apple, Spotify,YouTube, or wherever you get
your podcasts.
For more information about PAXtraining and to contact James,
go to PAX training.com.
And for more information aboutdriving transactions and to
contact Ken, Go to drivingtransactions.com.
(53:57):
We'll see you next time on theground transportation podcast.
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