July 4, 2025 • 40 mins
The Entreprenudist Podcast | Cameron Bishop: The Secret to a Successful Business Exit
The Entreprenudist Podcast https://entreprenudist.com In this episode of The Entreprenudist Podcast, we’re joined by Cameron Bishop, Managing Director at Raincatcher, to explore a topic every business owner needs to understand: “The Secret to a Successful Business Exit.”
Whether you're planning to sell your company soon or years down the line, this conversation is packed with insights that could protect — and multiply — the value of your business.
🎯 In this interview, Cameron answers: -Why do most businesses never sell? -What roadblocks stop owners from exiting successfully — and how can they be avoided? -What are the top mistakes that destroy a company’s sellability? -How should owners prepare mentally and emotionally for selling? -When is the right time to sell your business — and how do you know?
About Cameron Bishop:
Cameron Bishop is a seasoned executive and entrepreneur with a remarkable track record of driving growth and transformation in diverse industries. He began his career as a copywriter, quickly rising through the ranks to lead Intertec Publishing as CEO. Under his leadership, Intertec expanded from a $7 million company with 90 employees to a $400 million enterprise with nearly 2,000 employees across 23 U.S. offices and several international locations. Intertec’s portfolio included 100 trade journals, 300 technical book titles, and a $40 million trade show and conference group, achieving $100 million in EBITDA despite navigating ownership transitions.
Cameron’s entrepreneurial spirit was evident when he co-founded Ascend Media, a PE-backed startup launched from his kitchen table. With a $100 million commitment from JP Morgan Chase PE, Cameron spearheaded the company’s rapid growth, building a $120 million organization with 500 employees in just three years. Ascend was recognized as one of the top 20 most desirable media companies to work for in the U.S., cementing its reputation as an industry leader. In addition to his corporate success, Cameron has extensive experience advising private business owners through Capitus, where he helped clients ranging from $2 million to $100 million develop and execute strategic exit and transition plans. He also served as CEO of SkillPath Seminars, one of the nation’s largest management and leadership development training companies. At SkillPath, Cameron introduced innovative strategies, rebranded the company, streamlined operations, and harnessed data science and digital tools to enhance its offerings and market presence.
📌 Want expert guidance on selling your business? 👉 Visit our website: https://raincatcher.com/contact/
------------------------------- Welcome to ShieldWolf Strongholds — a 100% virtual wealth protection firm helping business owners, franchisees, and retirees secure their financial futures. Specializing in Business Exit Planning, Indexed Universal Life (IUL) insurance, and business funding solutions, ShieldWolf offers a seamless, fully online experience with no in-person meetings required. 👉 Discover how to protect your wealth today at https://shieldwolfstrong.com
Hosted by Randolph Love III, ChFC®, The Entreprenudist Podcast is a platform where real entrepreneurs and business owners bare it all. Ranked in the top 10% of business podcasts, it shares unfiltered stories, challenges, and triumphs, providing valuable insights for aspiring and seasoned business leaders alike. 🎧 Tune in and get inspired at https://entreprenudist.com
#TheEntreprenudistPodcast #CameronBishop #Raincatcher #BusinessExit #SellYourBusiness #BusinessGrowth #ExitStrategy #Entrepreneurship
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:08):
All right.
Welcome to another exciting episodeof The Entrepreneur Podcast.
The place to heal real entrepreneursand business owners bear it
all, emphasis on the real.
Uh, we have today a special guest, andas we start every episode when we're
interviewing somebody, uh, please tellpeople who are you and what do you do.
(00:30):
Hey.
Well, thanks for havingme on your show so far.
It's a great, great honor to be here.
Mm-hmm.
Yeah.
I'm Cameron Bishop.
I currently work, uh,as an investment banker.
Uh, for what are called lowermiddle market business owners.
Uh, so we're, uh, affiliated witha fedra registered broker dealer.
Our firm Rain Catcher isbased out of Denver, Colorado.
(00:52):
However, I work out of Kansas City.
I. We specialize in working withbusinesses that have generally a
million to 10 million in EBITDA profits.
This is a market sector that has beentremendously underserved by the, uh,
business brokers and investment bankingcommunities in the past, because
(01:13):
these companies are generally toobig to be really well represented by
what's referred to as a main streetbusiness broker, and they're just too
small for the big investment banks.
So.
We decided to focus on this lower SECsector because there is meaningful
value for these business ownershere, and as baby boomers continue
(01:34):
to age out, I think the statistic is10,000 of them turn age 65 every day.
Many of them are business owners andthe vast majority of them in this
day and age don't have children.
Who want to enter their businessand because their company is their,
usually their greatest source ofpotential net worth, then when it's
(01:57):
time to kind of kick back or retire orwork a little less, they're only left
with the option of of trying to sell.
So we help them there.
Uh, when it's time to sell, and we dothat in just about every industry you can
think of, from high tech SaaS platform.
Softwares co uh, companies tobusiness services, heavy construction,
(02:19):
some work in the food industry.
We're pretty much across the boardand these business owners really
need that help in order to extracta maximum value for the company.
Oh yeah, definitely because, uh,for whatever reason, majority
of businesses don't sell.
And a lot of it is, as you say, uh, a lotof people, uh, either don't know or they
(02:44):
don't want to know that their kids, uh.
Have no interest inbeing in their business.
I talk to a lot of business ownersand they, they always talk as if,
uh, the, the child is going to takeover the business, and of course,
the profits earned from that businessis gonna support them in retirement.
But when you ask them explicitly,have you ever asked your child
(03:06):
if they want your business?
The answer is usually no.
You are just spot on.
In fact, uh, before becoming an investmentbanker, I spent five years as a partner
in a boutique, uh, consulting firm,specializing in working with small company
business owners, family owned companies,uh, doing what's referred to as exit and
(03:29):
transition planning, so helping them.
Groom the company for a future sale inwhich they could get a, a maximum value
or even make the company sellable at all.
And that very conversation with theirchildren was something we had to bring up.
And it was often a surprise to them.
But we've also seen cases where thekids agree to go into the business,
(03:51):
but then once they're in there theyrealize that this is just not for them.
And the, uh, the parent, the businessowner is left with a. It's oftentimes
a more difficult choice at kind ofa last minute decision as opposed
to a pre-planned decision on how to,uh, get value out of the company.
Mm. So it, it, it seems like it's,it is better than be proactive than
(04:15):
reactive because Yeah, those, thoselast minute decisions, uh, can hurt.
And I've also seen the other way aroundto where the, the child had no interest.
And being in the business at all.
But once they work with a companylike yours and the business is finally
organized, all of a sudden, uh, the childalways wanted to be in the business.
(04:36):
What do you mean?
I didn't want the business?
Of course, I wanted it after I, afteryou worked with Cameron Bishop and his
team, and, and once you got everythingorganized, of course I wanted.
Yeah, you're exactly right.
But one of the smartest things thatI have seen, uh, business owners do
over time and, uh, to, to backtracka second, I spent 35 years of my
(04:58):
career doing what are called leverageroll-ups for private equity firms.
So we would buy a large platformcompany, then we would go
out and acquire much smaller.
Uh, strategic acquisitions calledtuck-ins to roll into that business.
And, uh, the classic example is webought a division of a company and, uh,
(05:20):
the father was a very wise guy and hesaid, look, part of the deal is, uh,
I'd love, I, I would like for your son,my son to come and work for you for
at least two years involved with the,uh, properties that we had acquired.
Really smart kid.
He ended up staying for, I think fouryears, but then he went back to fulfill
(05:42):
a senior role in his father's company.
So he had exposure to, uh, we were amuch larger company with a lot more,
uh, disciplines and organizationalstructure and processes in place.
So he was able to take those bestpractices back to his father's
company and ultimately, uh, ranit and worked out a deal with
(06:02):
his father to buy his father out.
And that was a great ending forthat business, and the father was
just very wise to re require his sonto get business exposure someplace
else besides in his own company.
Yeah.
And, and that wisdom wasprobably even better.
'cause a lot of times people think,uh, our company, especially if
it's a family owned business, howcome we're, we're the only ones
(06:25):
building our plane while flying it?
How come we're the onesputting out fires every day?
Go to another company andwe're like, okay, everybody's
putting out fires every day.
Yeah.
Uh, you are again, spot on.
So there's two situations we see,and you mentioned it earlier.
The statistics are, I think itcame outta, I've seen it written
in Forbes Magazine and I thinkPepperdine, uh, university has done, I.
(06:51):
Some research in their business schoolthat says something like 70 to 80% of
companies that try to sell never sell.
And there are, there area few reasons for that.
And I used to, uh, teach a coursefor the small business administration
at a local university, reallyfocused on small companies,
entrepreneurial companies at startups.
And one of the things that I really triedto drive home was if you start a company,
(07:17):
you need an exit strategy in mind whenyou start the company, and every time I
taught that class, there was a deer in aheadlights look on these business small
business owners who were in that roombecause that had never occurred to them.
They were solely focused on the frontend of the business and then, mm-hmm.
The other challenge for themis that we see all the time
(07:40):
and it's, it's human nature.
Uh, they run it, they start and runa company if it's successful and
financially, uh, doing well, they'refocused on running the company for.
Income or annual profit distributionsand usually legal income tax avoidance.
Mm-hmm.
But they don't think about running theircompany from the cr standpoint of creating
(08:04):
business value, uh, for the future, forwhatever kind of exit they're gonna have.
So they spend at least 95% of their time.
Working in their business, and if they'relucky, they spend 5% of it working on
the business to grow it and develop it.
Develop it to create true business value.
(08:24):
There's some real differences inthe strategy of managing a company
for one reason versus the other.
Yeah, they say, um, the, the time tothink about your exit is before you start.
Right, exactly.
So, so, so, so how do peopleovercome these roadblocks?
Because, you know, thestatistics are what they are.
(08:46):
Most businesses don't sell.
And a lot of business owners, whenthey actually finally do ask their
children, they don't want thebusiness, uh, for whatever reason.
How do you, how do youovercome these roadblocks?
So that's a, that is the perfect question,and that's part of my mission and
passion is to share this information.
With business owners because, uh,it's really sad when I have to tell a
(09:11):
business owner that for various reasons,your company's not sellable today.
Uh, and uh, so I'll go into the top fiveof those, which we see all the time.
But on the other side of thecoin, when they are wise enough
to engage with us as professionalrepresentation to sell their company.
And, and that's true for otherprofessional, lower middle market
(09:33):
investment banks or sophisticated brokers.
It's certainly not just us, but welove it when they come to us, is how
we extract maximum value based on thecriteria and dynamics of the company.
But back to the front end of the process,uh, we see way too many business owners
that literally just wake up one morningand say, I'm, it's time to sell.
(09:55):
But the, the, the perfect worldis they should be started.
Two or three years in advance.
And the factors that we see mostoften that impact sellability is
first and foremost is really bad,or no, uh, professional accounting.
Mm-hmm.
I can't tell you the number ofbusinesses we see where, uh.
(10:18):
We, we can't tell if they're sellable.
I'll give you one quick example of this.
A real world story had businessowners that, uh, manufactured
super high tech test equipmentfor the automotive industry.
They had like seven patents.
They were doing six or $7million a year in revenue.
And when we first, they firstapproach us, we always say,
(10:39):
well, why do you wanna sell?
And, uh, the husband was a. Engineer andhe just wanted to focus on engineering.
And the next question is, okay,tell me a little bit about
your revenues and profits.
And she said, well, we're doingsix or 7 million revenue and we're
doing about 1.5 million in profit.
Well, one of my partners hereat raincatcher, he's a licensed
(11:01):
CPA, and spent 15 years inthe audit practice with KPMG.
So we sign an NDA for them.
We ask them to send us theirlast three years of financials.
He goes over 'em with a fine tooth comb.
Uh, reformats of if necessaryto be kept compliant.
And when it was all said and done,they did not know how to properly
book, uh, raw materials and inventoryor inventory on work in progress.
(11:26):
And not only were they not making1.5 billion, but there were quite
literally a break even business.
Hmm.
So at that stage, you know, they, theyweren't, they weren't gonna be sellable.
So those are some of theexamples that we see with, uh,
fundamental flaws in accounting.
Uh, and that's something that reallyis worth the investment for these
business owners and to handle ithistorically and not just the year
(11:50):
you're thinking about selling.
Mm. So fundamental flaws in accounting,which definitely because, uh, it
doesn't matter what you say, uh,and it, and it doesn't even matter
if you get a letter of intent.
Once you get to that due diligencestage, once they start looking
over those financials, yeah.
That, that could kill it.
Because it's not about how muchyou're bringing in, is how much
(12:12):
based off your structure are youkeeping and, and can we continue
it on if we purchase this business?
Amen.
Exactly right.
And, uh, they might think that theirnumbers are, uh, correct or okay, but
any buyer for a business in this day andage, especially if they're gonna require
bank financing, they're gonna do what'scalled a buy side quality of earnings
(12:36):
on the financials of that company.
And it's a very deep, detailed.
Scale, uh, discoveryprocess of those financials.
And if they run into anomalies,they're gonna do two things.
They may walk or they may completelyrestructure their deal or deeply
(12:57):
discount the price, and thenthey're gonna be suspicious.
Other barriers of this, this, ifthe c. Some fundamental flaws in
the accounting for that company.
So yeah, you can't,you can't hide from it.
It's, it's, if there are errors,uh, they're gonna get found.
And so it's far better to have allof that addressed and cleaned up and
handled professionally on the front end.
(13:18):
It's worth the investment to havecompetent, uh, either fractional
CFOs if you're not big enough tohave a full-time one or a controller
or a really reputable outside.
Accounting or bookkeeping firm.
Okay, so that's one.
Um, don't just wake up inthe morning deciding that you
want to sell your business.
(13:40):
It sounds like what you're sayingis every business owner should
assume that it is because, you know,it's, it's good to have options.
Every business owner should assumethat even if they feel like they'll
never sell their business, yes.
Even if they feel like they wantto die with their shoes on, uh,
they should, they should still seethe benefit of having the option.
(14:00):
And in order to have thatoption, that means bringing
on good, reputable accountantsearlier, uh, sooner than later.
So there's about fiveor six of these things.
So accounting is number one.
Number two is what is referredto as owner dependency.
So if that business is successful,almost solely because of the
(14:23):
business owner, because he or shehas all the critical knowledge.
Uh, to run the company, uh, especiallyif he or she is the key point of
contact for customer relationships.
Uh, and if they have no successorthat could step into their shoes.
That's called owner dependency.
And that's a case where many buyers will.
(14:45):
Walk away because they don't like therisk or they're gonna require that
owner to stay on is either a consultantor an employee for an extended period
of time for proper knowledge transfer.
And while a successor is trained.
And generally that's not ideal forthe business owner 'cause they usually
reach a point where they want to sell,uh, because they want to begin to
(15:07):
step away or get outta the businessor, you know, reduce their workload.
So it becomes counterproductivefor them from that standpoint.
So having proper succession planningand an understanding of, of, uh,
delegation to other members of yourteam help reduce that, uh, dependency.
(15:27):
And one of the key, so it's kindof funny, but litmus test is if the
owner can go on extended vacationsand the business continues to
run properly and thrive, that's agood sign that the business isn't.
Solely dependent on that business owner.
Oh yeah.
And um, and, and I've heard, I,I'm definitely not a fan of this,
(15:52):
but I've heard what some people do.
Let's say that they're interestedin buying a company and they want to
help, they wanna, they want to ensurethat the company that they're looking
into buying is an owner dependent.
A lot of times what they do is theychange meetings at the last minute.
In order to see if that owner is ableto make these last minute changes.
(16:14):
And, and if they can make theselast minute changes, that means
that they're not in their business.
But if they're unable to, that meansthat this company is more dependent
than the, uh, current owner wantsto, uh, wants to, uh, make known.
Have you seen that type of gamesmanshipwhen it comes to buyers and sellers?
(16:34):
Oh yeah, you do.
But again, uh, any smart buyer who'sgonna be spending their own personal
money and, uh, you know, maybe bank money,uh, they're gonna do deep diligence.
A lot of that involves face-to-facemeetings with that business owner and
what his roles and responsibilities are.
They will look at organizationalcharts to see who else in the company.
(16:55):
Uh, is there and what their roles are.
So you can kind of run, but youreally can't hide from that.
Not with, uh, not with buyers of thisday and age and not with the demands.
Uh, again, if they're gonnarequire like SBA financing or some
other type of, uh, public bankfinancing or private financing.
Those banks require a tremendous amountof front end due diligence to make a
(17:19):
decision to loan money on that business.
And that all drives that whole, uh,very detailed due diligence process.
I. Oh yeah, absolutely.
So sounds like definitely get, uh,reputable accountants sooner than later.
Also sounds like you need to set upyour company in a manner to where
it is not solely dependent on you.
(17:41):
Because if they, if a companydoes, uh, determine that your
company is, is dependent on you,that doesn't always kill the deal.
But it might have it to where theymight have some type of buyout.
Instead of a outright uh, purchase,uh, what's your preference on
that when it comes to the buyoutversus the outright purchases?
(18:01):
Well, we don't see many, uh, outrightbuyouts, so business owners always think
that, oh, I'm gonna sell my company.
It's gonna be worth X million dollarsand I'm gonna find a buyer and
they're just gonna write me a checkand or a wire transfer, uh, that
amount of money into my bank account.
But in this day and age, we.
I don't think I've worked on a deal inthe last five years where that happened.
(18:26):
Uh, in almost every case, there is somekind of what's referred to as a seller
dough, where the, uh, seller carries backa loan for part of the purchase price,
and those are usually structured in.
You know, in a three year to five yeartimeframe with market based interest
rates and different payout structures,uh, some deals where there's a lot
(18:50):
of future business, you see what arecalled earnouts, where we're gonna
give you a total value of the business.
But over the next one year, two year,or three years, uh, you are gonna
get increments of that based on thecompany's financial performance.
And in a lot with some of these biggerdeals, especially if it's a. Private
equity buyer, uh, they're gonna want thatbusiness owner to roll over, uh, equity in
(19:16):
the new company, which means they're gonnatake part of that purchase price as equity
and what's referred to as the new co.
So you just don't see cases whereeverybody says, let's say the
company's worth a million dollars.
Nobody's writing up a checkfor a million dollars.
There's other elements to that structurethat are part of that purchase process.
(19:38):
Mm. And, and it, and it's a lot.
Sounds like it's a lot of moving parts.
Uh, a lot of, uh, essentiallyyou, you're setting yourself.
To of course get a big payday, but you'realso setting somebody, set yourself up for
somebody to call your baby ugly, right?
No, nobody wants theirbaby to be called ugly.
I, I, is there nothing that a businessowner can do, uh, either on the seller
(20:01):
side or the buyer side to preparethemselves psychologically for this,
uh, this type of, uh, engagement?
Um, well, you can to a certain degreeand, uh, we, when we sign up a new
client, one of our first conversationsis a real heart to heart conversation
(20:22):
about this process of selling a business.
Um, first of all, it's a lengthy process.
The national average, no matterwhat size the company, except for
maybe smaller deals like a localliquor store or a restaurant, maybe.
Um, this is a nine month process.
On average and selling yourcompany is literally a full-time
(20:47):
job on top of your full-time job.
Hmm.
It's an emotional rollercoaster ride.
It's very high stress, and that's whereone of the values of somebody like us
at Raincatcher comes into play becauseI've had on occasion, uh, needed to
talk my clients down off of the ledge.
(21:08):
Because they were just so stressedout about the whole thing.
They didn't know if they couldcontinue, and they have the potential
to become their own worst enemy.
But there's a lot of very complex,uh, vocabulary concepts, especially
around what's called networkingcapital, which is your balance
sheet, uh, where a professional.
(21:31):
Navigates that for you.
And again, even as I described differentdeal structures, an investment banker
kinda leads the charge on how to get thatdeal structured and negotiated properly.
A lot of business owners thinkthey can go it alone and it is
possible to do, but you're generallypenny wives and pound foolish.
(21:52):
And, uh, if you don'tunderstand the complexities.
How deals are generally structuredon what's called a cash free,
debt-free networking capital basis.
You know, if somebody says they're payingyou $5 million for your company, but the
way they have negotiated, uh, the cashon a balance sheet, the receivables,
(22:13):
the payables, any debt you mighthave on the business, uh, inventory,
uh, if you're selling real estate.
Uh, they can end up having a realizedoutcome far less than what it
looks like on the surface becauseof the way the, uh, balance sheet
factors were or were not negotiated.
(22:34):
And if they don't understand that, uh,they can have circles run around them.
When I, when I was, uh, uh, doingleveraged rollups, I bought about
50 companies, uh, for privateequity firms and spent about a
little over half a billion dollars.
And I saw so many cases wherethese business owners tried to
go it alone and, uh, they didn'tgo into an auction environment.
(22:58):
I. And buyers love nothing more to bein a non-competitive environment because
that means that seller hasn't benchmarkedwhat their true business value is.
They don't really know, and themarket sets the value for any company.
So we never paid top dollar for anybusiness that we acquired that was not
(23:20):
in a competitive auction environmentand not represented by professional.
Uh, either business brokersor investment bankers.
And they always left money on thetable because they didn't know
how to properly structure theircompany to obtain maximum valuation.
And again, a good investmentbanker helps them do that on
(23:40):
the front end of their process.
Hmm.
So, alright.
So.
Sounds like the best way for someoneto prepare themselves psychologically,
whether it's on the buyer's sideor the seller side, is to hire,
uh, a specialist sooner than later.
Yeah, that's exactly right because youknow, at the end of the day it's a peer
(24:01):
business transaction, but as you said, youdon't want anybody calling your baby ugly.
And you know, and that kindof thing happens if some buyer
makes a critical comment aboutsome element of your business.
This, this company is, theseowners is pride and joy.
They eat, sleep, breathe it, andthey've done it for many times, decades.
(24:22):
So they let emotions get in the way.
Instead of making smartbusinesses decisions.
And that's again, where an outsiderepresentative who views this as
a business transaction, uh, anddoesn't have skin in the game from
the emotional standpoint of thevested interest of the owner, uh,
it's all, it's all in their favor tohave someone to work with like that.
(24:46):
Uh, through the process.
So we, we kinda laugh about it.
Everybody thinks an investment bankeris, uh, somebody who, uh, deals with
numbers and dollars and true negotiationsand contracts and all that is true.
But oftentimes about 50% of what we do iswhat I kind of refer to as Dr. Phil work,
(25:07):
where we're just, you know, helping ourclient, advising our client counseling.
Them through this process.
And a good banker works withthem from beginning to end, from
site debt engagement until a wiretransfer hits their bank account.
They're on calls with,uh, the, the lawyers.
We can help refer proper m and aattorneys tax specialists, and we
(25:31):
oftentimes help put a lot of these legal.
Complicated legal concepts intolayman's terms for our clients because
it can be very intimidating for them.
And about 95% of our clients havenever sold a business before, so
they don't really understand alot of the factors around this.
So we help them through thatprocess all the way along.
(25:51):
I. Yeah, because it is one of thosethings to where usually, uh, one of the
reasons why entrepreneurs are successfulin their own right is, uh, when you
look back through their narrative,they went through against the grain.
You know, a lot of the, a lot of uh,entrepreneurs that I encounter are first,
first generation entrepreneurs, sometimessecond generation entrepreneurs, and
(26:16):
they've gone against the grain and didtheir own thing for so many decades and
that's what got them to where they are.
It's sometimes hard to transitionto, alright, I need to align myself
with, uh, with an institutionthat actually puts me almost.
The first time in their career, notagainst the grain following the rules,
(26:38):
as they say, in order to get it sold.
Right.
Is it it hard to switch that mindsetof yes, you did everything on your own.
Yes, you did everything against thegrain, but this right here, you need
a team and you need to follow certain,um, certain established standards.
Yep, it is.
And, and what I try to preach in counselfor these business owners is, and
(27:00):
this was one of my, uh, philosophiesrunning companies that I, I helped build
a company from 7 million in revenueto 400 million, and then I went out.
On my own entrepreneurially andspent a year shopping my business
plan with private equity andultimately landed with JP Morgan
Chase Bank's private equity group.
And we built another businessfrom zero revenue on my kitchen
(27:22):
table to about 120 million.
And in running those companies, oneof my key philosophies was, know what
you know how to do and do it well.
Know what you don't know how to dowell, and hire experts to do it for you.
And that's the switch we try to getto flip for these business owners, you
know, the entrepreneurial world, a lotof times they have to wear many hats.
(27:44):
They're not specialized like professionalsat much larger companies are.
So that's a, that could be a, uh, adifficult switch for them to flip,
to understand how to leverage theexpertise of outside professionals
to kind of shore up where they don'thave, uh, experience or the knowledge.
(28:05):
Okay, so I'm a business owner.
I, I, I got an accountant.
I didn't just wake up themorning and say I wanted to sell.
I've been working with a, a reputable,reputable accounting company for
the fa past two to three years.
Uh, I've also, uh, I've had theconversation with my children.
Uh, we know exactly what we're doing.
I'm, I'm working, uh, now I'mlooking for a professional.
(28:29):
Um, uh, so before I get to thatprofessional, I have to first
decide that I want to sell.
Is there nothing, is there notrigger that a business owner should
look for in order to determine,all right, it's time to sell.
Uh, wow.
That's a great question and I've beenasked that numerous times and, uh, I'll
(28:49):
give you kind of an observation I've had.
So, uh, I've been withour firm Raincatcher.
I'm a, a partner and a managingdirector in the firm, and I've
probably, uh, taken calls from easily200 business owners, probably more,
uh, who are considering selling.
And there was an interesting change.
(29:10):
Uh, and when they call us, oneof the first questions we ask
them is, uh, alright, why areyou thinking about selling?
And there was a kind of sea change thatseems to be affiliated with the amazing,
uh, demarcation in our lives, COVID.
So before COVID, the majorityof business owners when asked
(29:31):
that question would say, well.
I wanna play more golf, or I wannastart traveling, or my spouse, uh,
has a health issue and I need to,you know, take care of him or her, or
spend more time with, with him or her.
I, they would say, I wanna spendtime with my grandchildren.
I wanna do charity work.
(29:52):
Those were typical answers.
But post COVID, a lot of thesebusiness owners, and it still exists
today, we don't hear it quite asmuch, but I. They're just tired.
Mm-hmm.
Uh, they would often say it oftenquite vitriolic terms, which I won't
repeat on, uh, on your podcast, butthis is how they would talk to us.
(30:15):
Uh, they were just frustrated tothe bitter end because they couldn't
find people to hire or they wouldhire somebody at that individual.
I would ghost them andnever show up for work.
Or they would show up for a week andthen ghost them and never show up again.
And the frustration these owners havefrom that is oftentimes pretty intense.
(30:41):
And many of 'em have told me that theyfeel handcuffed because they, they're
in a position where their businesscould grow 10, 20%, some even more.
But they can't find the employees togo to work for 'em, especially, uh,
at a construction industry client whohad huge demand Once this, uh, federal
infrastructure bill came out, and he couldhave put on a whole new crew of about
(31:06):
12 or 13 individuals and, and expandedhis business by 20%, and that this was a
$28 million company, couldn't find him.
And so there's a lot offrustration around that.
Then we went through the supply chainissues and coupled with the supply
chain issues were, uh, uncontrollableprice increases that these people
(31:29):
had to deal with, and many of themdidn't have the sophisticated, uh,
tracking systems, purchasing systemsor accounting systems to keep up with.
The increases they were getting hit withand they saw significant drops in their
profitability and their profit margins.
Uh, or they had to, uh, ramp upinventory excessively in order to protect
(31:55):
against these supply chain shortages.
And then they had to jam through theirown price increases and it's just tired.
A lot of 'em out.
And they've just kinda reached apoint where say, you know, it's
time for me to kind of move on.
Now we still do here again, I want playwith the grandkids or offer, et cetera.
(32:15):
But the show has droppedpretty substantially.
Mm. So, uh, I, I, I'mnoticing a common theme.
It, it, it seems like a lot when itcomes to everything from the, um, the
being prepared from the psychologicalaspect to the, uh, knowing when it's
time, uh, and being able to, uh,convey that to a potential buyer.
(32:40):
It seems like a lot of it, uh, goesback to having the right accounting
practices and balance sheets.
And I'm pretty sure it is a lot ofcompanies that have an accountant.
Is there nothing that a company,a business owner should look at to
what their accountant is doing ornot doing to know that the accountant
(33:00):
that they're working with is toptier as far as, uh, conveying the
narrative or the story are, are, are,are accounting for the right things?
Ha ha.
Have you, have you noticed anythingabout, uh, what are some red flags
or green flags for your accountant?
Yeah, sure.
It's a great question.
So there's two ways to handle accounting.
(33:21):
One is on, uh, what's called a cashbasis, and the other is on, uh, a
what's referred to as gap, GAAP,compliant accrual basis, and with
proper detailed, uh, expense line items.
And again, under the heading of.
You know, get an expert ifyou don't know these things.
(33:43):
Uh, there is a huge pool of highlyexperienced and sophisticated, uh,
fractional CFOs out there that you don'thave to bring 'em on as an employee.
You could set 'em up on a retainer basisor pay 'em a. Monthly fee and hire one
of those folks and have them come inand help structure your accounting and
(34:05):
reporting and if, uh, and they can alsoassess the quality of if you have any
accounting staff as employees, how they'redoing what they're doing, or restructure
some of that or help find an outside.
Uh, accounting or bookkeeping firm.
And then if you retain 'em on anongoing basis, they can spend limited
(34:26):
amount of time overseeing thatreporting to help give you comfort
and make sure that the, uh, financialsare being reported in a way that a
buyer is going to want to see those.
Uh, so that's the safest way to do that.
Yeah, and I, and I know that's a shock toa lot of people because, uh, definitely
cash accounting is much simpler.
(34:48):
Cash in, cash out.
But a lot of people don't know thatthe accrual, uh, way of accounting
is what, uh, a lot of banks andpotential buyers prefer to see.
Is, uh, is, is that usually a shockfor, for the people that you work with?
Yeah, it, it quite often is, and we haveto ask some companies to hold off on going
(35:10):
to market to sell their business and go toan outside accounting firm and have their
financials restructured on a gap basis.
And one of the reasons is on a cash basis,you're right, it's cash in, cash out, but
it's not correlated with the cost of your.
Ma ma manufacturing materials, uh, yourcost of goods as it's referred to, and
(35:34):
tied to the revenue affiliated with that.
So buyers want to see what the grossmargin percentage is on a business,
and that's one of those criteria.
That's a make it or break it.
So every industry has sort of astandard gross margin percentage.
And if you're running a companythat's at that percentage,
(35:56):
then you're in good shape.
If you're above it, you'regenerally in even shape.
But if you're below it, and that rule,a lot of, if you're below average on,
uh, on your gross margin percentage.
My second to last question, uh,ca uh, Cameron, 'cause you, you
(36:17):
definitely provided a, a lot of,uh, knowledge and food for thought.
Second to last question.
All right.
I've, I got a good accountant.
I'm psychologically ready.
Now is the time.
Uh, but a business broker just called me.
A mergers and acquisitionspecialist just called me.
An investment banker just called me.
Are those terms interchangeable?
(36:38):
Uh, do, do all three of those titleshave the same skillset or, uh, one
is more appropriate for the other?
Uh, depending on the situation?
In some cases, uh, yes, they canhave the same skillset, but generally
investment banker is gonna be a,have a more sophisticated approach.
(36:59):
Uh, but I would say also a, a, awise thing for these business owners.
If
someone approaches you about buyingyour business, and again, an auction
party can really validate what yourcompany's worth, you're, you're not
gonna know if you're getting top dollar,and it usually means that if one, that
(37:24):
there's a lot more of them out there.
And unless you need a quick sale, you'refar better off maximizing value of the
deal by hiring a professional and doinga whole market to sell your company.
Got it.
And my last question, um, is therenothing that separates Rain Catcher
from the other companies, uh, doingwhat you do, uh, do what, what would
(37:47):
you say is your differentiator?
Well differentiator for our firm, again,as a lower middle market investment bank,
we bring downstream the knowledge andskills and tactics of the big advantage.
Investment banks, we put out veryprofessional marketing materials and
there are some investment bankers orbrokers where they'll get you signed
(38:10):
up to represent you, they'll findyou a buyer, and then they kind of
wash their hand until a deal closes.
But we hold our client's handsfrom beginning to end in that
process, and that's a level ofservice that a lot of banks don't
provide for their sell side clients.
Oh yeah, man.
Um, I was, uh, recently, uh, I, Ithink a lot of it people have heard
(38:33):
the term idiot and Ile, right?
Uh, and usually, uh, today when youthink about the term idiot and imbecile,
and then you look up the definition,it usually means, uh, stupid, right?
But I, I'm one of those people where Ilike to look at the, you know, go deep,
deep into the, or origin of the word.
And I determined that, uh, theword, the original word for idiot
(38:58):
meant a private person, right?
As opposed to a publiccitizen, a private person.
And then I, then I looked atthe, the, the original, uh,
definition of the word Emile.
And it meant a personwithout supporting staff.
He, uh, one more time.
Just let, let people know who youare, uh, what do you do, and how
they can get in contact can bereached at Cameron Bishop at Rain.
(39:23):
Dot com or you could go to ouron LinkedIn at Cameron Bishop.
I appreciate it, uh, Cameron, and ifyou are, uh, looking for any speaking
engagements, please let me know.
I do a, a monthly event here inJacksonville, Florida for business
owners, investors, uh, affluent retirees.
We would love, I. To have youcome and speak to our audience.
(39:46):
Uh, this has been another episode of TheEntrepreneur Podcast, A place to hear
real entrepreneurs and business owners.
Bear it all.
Make sure you visit Cameron Bishopand his crew@raincatcher.com,
R-A-I-N-C-A-T-C-H-E r.com.
Uh, have an amazing day andwe'll see you next time.
(40:06):
Thanks for having me.
All right.
Welcome to another exciting episodeof The Entrepreneur Podcast.
The place to heal real entrepreneursand business owners bear it
all, emphasis on the real.
Uh, we have today a special guest, andas we start every episode when we're
interviewing somebody, uh, please tellpeople who are you and what do you do.
(00:30):
Hey.
Well, thanks for havingme on your show so far.
It's a great, great honor to be here.
Mm-hmm.
Yeah.
I'm Cameron Bishop.
I currently work, uh,as an investment banker.
Uh, for what are called lowermiddle market business owners.
Uh, so we're, uh, affiliated witha fedra registered broker dealer.
Our firm Rain Catcher isbased out of Denver, Colorado.
(00:52):
However, I work out of Kansas City.
I. We specialize in working withbusinesses that have generally a
million to 10 million in EBITDA profits.
This is a market sector that has beentremendously underserved by the, uh,
business brokers and investment bankingcommunities in the past, because
(01:13):
these companies are generally toobig to be really well represented by
what's referred to as a main streetbusiness broker, and they're just too
small for the big investment banks.
So.
We decided to focus on this lower SECsector because there is meaningful
value for these business ownershere, and as baby boomers continue
(01:34):
to age out, I think the statistic is10,000 of them turn age 65 every day.
Many of them are business owners andthe vast majority of them in this
day and age don't have children.
Who want to enter their businessand because their company is their,
usually their greatest source ofpotential net worth, then when it's
(01:57):
time to kind of kick back or retire orwork a little less, they're only left
with the option of of trying to sell.
So we help them there.
Uh, when it's time to sell, and we dothat in just about every industry you can
think of, from high tech SaaS platform.
Softwares co uh, companies tobusiness services, heavy construction,
(02:19):
some work in the food industry.
We're pretty much across the boardand these business owners really
need that help in order to extracta maximum value for the company.
Oh yeah, definitely because, uh,for whatever reason, majority
of businesses don't sell.
And a lot of it is, as you say, uh, a lotof people, uh, either don't know or they
(02:44):
don't want to know that their kids, uh.
Have no interest inbeing in their business.
I talk to a lot of business ownersand they, they always talk as if,
uh, the, the child is going to takeover the business, and of course,
the profits earned from that businessis gonna support them in retirement.
But when you ask them explicitly,have you ever asked your child
(03:06):
if they want your business?
The answer is usually no.
You are just spot on.
In fact, uh, before becoming an investmentbanker, I spent five years as a partner
in a boutique, uh, consulting firm,specializing in working with small company
business owners, family owned companies,uh, doing what's referred to as exit and
(03:29):
transition planning, so helping them.
Groom the company for a future sale inwhich they could get a, a maximum value
or even make the company sellable at all.
And that very conversation with theirchildren was something we had to bring up.
And it was often a surprise to them.
But we've also seen cases where thekids agree to go into the business,
(03:51):
but then once they're in there theyrealize that this is just not for them.
And the, uh, the parent, the businessowner is left with a. It's oftentimes
a more difficult choice at kind ofa last minute decision as opposed
to a pre-planned decision on how to,uh, get value out of the company.
Mm. So it, it, it seems like it's,it is better than be proactive than
(04:15):
reactive because Yeah, those, thoselast minute decisions, uh, can hurt.
And I've also seen the other way aroundto where the, the child had no interest.
And being in the business at all.
But once they work with a companylike yours and the business is finally
organized, all of a sudden, uh, the childalways wanted to be in the business.
(04:36):
What do you mean?
I didn't want the business?
Of course, I wanted it after I, afteryou worked with Cameron Bishop and his
team, and, and once you got everythingorganized, of course I wanted.
Yeah, you're exactly right.
But one of the smartest things thatI have seen, uh, business owners do
over time and, uh, to, to backtracka second, I spent 35 years of my
(04:58):
career doing what are called leverageroll-ups for private equity firms.
So we would buy a large platformcompany, then we would go
out and acquire much smaller.
Uh, strategic acquisitions calledtuck-ins to roll into that business.
And, uh, the classic example is webought a division of a company and, uh,
(05:20):
the father was a very wise guy and hesaid, look, part of the deal is, uh,
I'd love, I, I would like for your son,my son to come and work for you for
at least two years involved with the,uh, properties that we had acquired.
Really smart kid.
He ended up staying for, I think fouryears, but then he went back to fulfill
(05:42):
a senior role in his father's company.
So he had exposure to, uh, we were amuch larger company with a lot more,
uh, disciplines and organizationalstructure and processes in place.
So he was able to take those bestpractices back to his father's
company and ultimately, uh, ranit and worked out a deal with
(06:02):
his father to buy his father out.
And that was a great ending forthat business, and the father was
just very wise to re require his sonto get business exposure someplace
else besides in his own company.
Yeah.
And, and that wisdom wasprobably even better.
'cause a lot of times people think,uh, our company, especially if
it's a family owned business, howcome we're, we're the only ones
(06:25):
building our plane while flying it?
How come we're the onesputting out fires every day?
Go to another company andwe're like, okay, everybody's
putting out fires every day.
Yeah.
Uh, you are again, spot on.
So there's two situations we see,and you mentioned it earlier.
The statistics are, I think itcame outta, I've seen it written
in Forbes Magazine and I thinkPepperdine, uh, university has done, I.
(06:51):
Some research in their business schoolthat says something like 70 to 80% of
companies that try to sell never sell.
And there are, there area few reasons for that.
And I used to, uh, teach a coursefor the small business administration
at a local university, reallyfocused on small companies,
entrepreneurial companies at startups.
And one of the things that I really triedto drive home was if you start a company,
(07:17):
you need an exit strategy in mind whenyou start the company, and every time I
taught that class, there was a deer in aheadlights look on these business small
business owners who were in that roombecause that had never occurred to them.
They were solely focused on the frontend of the business and then, mm-hmm.
The other challenge for themis that we see all the time
(07:40):
and it's, it's human nature.
Uh, they run it, they start and runa company if it's successful and
financially, uh, doing well, they'refocused on running the company for.
Income or annual profit distributionsand usually legal income tax avoidance.
Mm-hmm.
But they don't think about running theircompany from the cr standpoint of creating
(08:04):
business value, uh, for the future, forwhatever kind of exit they're gonna have.
So they spend at least 95% of their time.
Working in their business, and if they'relucky, they spend 5% of it working on
the business to grow it and develop it.
Develop it to create true business value.
(08:24):
There's some real differences inthe strategy of managing a company
for one reason versus the other.
Yeah, they say, um, the, the time tothink about your exit is before you start.
Right, exactly.
So, so, so, so how do peopleovercome these roadblocks?
Because, you know, thestatistics are what they are.
(08:46):
Most businesses don't sell.
And a lot of business owners, whenthey actually finally do ask their
children, they don't want thebusiness, uh, for whatever reason.
How do you, how do youovercome these roadblocks?
So that's a, that is the perfect question,and that's part of my mission and
passion is to share this information.
With business owners because, uh,it's really sad when I have to tell a
(09:11):
business owner that for various reasons,your company's not sellable today.
Uh, and uh, so I'll go into the top fiveof those, which we see all the time.
But on the other side of thecoin, when they are wise enough
to engage with us as professionalrepresentation to sell their company.
And, and that's true for otherprofessional, lower middle market
(09:33):
investment banks or sophisticated brokers.
It's certainly not just us, but welove it when they come to us, is how
we extract maximum value based on thecriteria and dynamics of the company.
But back to the front end of the process,uh, we see way too many business owners
that literally just wake up one morningand say, I'm, it's time to sell.
(09:55):
But the, the, the perfect worldis they should be started.
Two or three years in advance.
And the factors that we see mostoften that impact sellability is
first and foremost is really bad,or no, uh, professional accounting.
Mm-hmm.
I can't tell you the number ofbusinesses we see where, uh.
(10:18):
We, we can't tell if they're sellable.
I'll give you one quick example of this.
A real world story had businessowners that, uh, manufactured
super high tech test equipmentfor the automotive industry.
They had like seven patents.
They were doing six or $7million a year in revenue.
And when we first, they firstapproach us, we always say,
(10:39):
well, why do you wanna sell?
And, uh, the husband was a. Engineer andhe just wanted to focus on engineering.
And the next question is, okay,tell me a little bit about
your revenues and profits.
And she said, well, we're doingsix or 7 million revenue and we're
doing about 1.5 million in profit.
Well, one of my partners hereat raincatcher, he's a licensed
(11:01):
CPA, and spent 15 years inthe audit practice with KPMG.
So we sign an NDA for them.
We ask them to send us theirlast three years of financials.
He goes over 'em with a fine tooth comb.
Uh, reformats of if necessaryto be kept compliant.
And when it was all said and done,they did not know how to properly
book, uh, raw materials and inventoryor inventory on work in progress.
(11:26):
And not only were they not making1.5 billion, but there were quite
literally a break even business.
Hmm.
So at that stage, you know, they, theyweren't, they weren't gonna be sellable.
So those are some of theexamples that we see with, uh,
fundamental flaws in accounting.
Uh, and that's something that reallyis worth the investment for these
business owners and to handle ithistorically and not just the year
(11:50):
you're thinking about selling.
Mm. So fundamental flaws in accounting,which definitely because, uh, it
doesn't matter what you say, uh,and it, and it doesn't even matter
if you get a letter of intent.
Once you get to that due diligencestage, once they start looking
over those financials, yeah.
That, that could kill it.
Because it's not about how muchyou're bringing in, is how much
(12:12):
based off your structure are youkeeping and, and can we continue
it on if we purchase this business?
Amen.
Exactly right.
And, uh, they might think that theirnumbers are, uh, correct or okay, but
any buyer for a business in this day andage, especially if they're gonna require
bank financing, they're gonna do what'scalled a buy side quality of earnings
(12:36):
on the financials of that company.
And it's a very deep, detailed.
Scale, uh, discoveryprocess of those financials.
And if they run into anomalies,they're gonna do two things.
They may walk or they may completelyrestructure their deal or deeply
(12:57):
discount the price, and thenthey're gonna be suspicious.
Other barriers of this, this, ifthe c. Some fundamental flaws in
the accounting for that company.
So yeah, you can't,you can't hide from it.
It's, it's, if there are errors,uh, they're gonna get found.
And so it's far better to have allof that addressed and cleaned up and
handled professionally on the front end.
(13:18):
It's worth the investment to havecompetent, uh, either fractional
CFOs if you're not big enough tohave a full-time one or a controller
or a really reputable outside.
Accounting or bookkeeping firm.
Okay, so that's one.
Um, don't just wake up inthe morning deciding that you
want to sell your business.
(13:40):
It sounds like what you're sayingis every business owner should
assume that it is because, you know,it's, it's good to have options.
Every business owner should assumethat even if they feel like they'll
never sell their business, yes.
Even if they feel like they wantto die with their shoes on, uh,
they should, they should still seethe benefit of having the option.
(14:00):
And in order to have thatoption, that means bringing
on good, reputable accountantsearlier, uh, sooner than later.
So there's about fiveor six of these things.
So accounting is number one.
Number two is what is referredto as owner dependency.
So if that business is successful,almost solely because of the
(14:23):
business owner, because he or shehas all the critical knowledge.
Uh, to run the company, uh, especiallyif he or she is the key point of
contact for customer relationships.
Uh, and if they have no successorthat could step into their shoes.
That's called owner dependency.
And that's a case where many buyers will.
(14:45):
Walk away because they don't like therisk or they're gonna require that
owner to stay on is either a consultantor an employee for an extended period
of time for proper knowledge transfer.
And while a successor is trained.
And generally that's not ideal forthe business owner 'cause they usually
reach a point where they want to sell,uh, because they want to begin to
(15:07):
step away or get outta the businessor, you know, reduce their workload.
So it becomes counterproductivefor them from that standpoint.
So having proper succession planningand an understanding of, of, uh,
delegation to other members of yourteam help reduce that, uh, dependency.
(15:27):
And one of the key, so it's kindof funny, but litmus test is if the
owner can go on extended vacationsand the business continues to
run properly and thrive, that's agood sign that the business isn't.
Solely dependent on that business owner.
Oh yeah.
And um, and, and I've heard, I,I'm definitely not a fan of this,
(15:52):
but I've heard what some people do.
Let's say that they're interestedin buying a company and they want to
help, they wanna, they want to ensurethat the company that they're looking
into buying is an owner dependent.
A lot of times what they do is theychange meetings at the last minute.
In order to see if that owner is ableto make these last minute changes.
(16:14):
And, and if they can make theselast minute changes, that means
that they're not in their business.
But if they're unable to, that meansthat this company is more dependent
than the, uh, current owner wantsto, uh, wants to, uh, make known.
Have you seen that type of gamesmanshipwhen it comes to buyers and sellers?
(16:34):
Oh yeah, you do.
But again, uh, any smart buyer who'sgonna be spending their own personal
money and, uh, you know, maybe bank money,uh, they're gonna do deep diligence.
A lot of that involves face-to-facemeetings with that business owner and
what his roles and responsibilities are.
They will look at organizationalcharts to see who else in the company.
(16:55):
Uh, is there and what their roles are.
So you can kind of run, but youreally can't hide from that.
Not with, uh, not with buyers of thisday and age and not with the demands.
Uh, again, if they're gonnarequire like SBA financing or some
other type of, uh, public bankfinancing or private financing.
Those banks require a tremendous amountof front end due diligence to make a
(17:19):
decision to loan money on that business.
And that all drives that whole, uh,very detailed due diligence process.
I. Oh yeah, absolutely.
So sounds like definitely get, uh,reputable accountants sooner than later.
Also sounds like you need to set upyour company in a manner to where
it is not solely dependent on you.
(17:41):
Because if they, if a companydoes, uh, determine that your
company is, is dependent on you,that doesn't always kill the deal.
But it might have it to where theymight have some type of buyout.
Instead of a outright uh, purchase,uh, what's your preference on
that when it comes to the buyoutversus the outright purchases?
(18:01):
Well, we don't see many, uh, outrightbuyouts, so business owners always think
that, oh, I'm gonna sell my company.
It's gonna be worth X million dollarsand I'm gonna find a buyer and
they're just gonna write me a checkand or a wire transfer, uh, that
amount of money into my bank account.
But in this day and age, we.
I don't think I've worked on a deal inthe last five years where that happened.
(18:26):
Uh, in almost every case, there is somekind of what's referred to as a seller
dough, where the, uh, seller carries backa loan for part of the purchase price,
and those are usually structured in.
You know, in a three year to five yeartimeframe with market based interest
rates and different payout structures,uh, some deals where there's a lot
(18:50):
of future business, you see what arecalled earnouts, where we're gonna
give you a total value of the business.
But over the next one year, two year,or three years, uh, you are gonna
get increments of that based on thecompany's financial performance.
And in a lot with some of these biggerdeals, especially if it's a. Private
equity buyer, uh, they're gonna want thatbusiness owner to roll over, uh, equity in
(19:16):
the new company, which means they're gonnatake part of that purchase price as equity
and what's referred to as the new co.
So you just don't see cases whereeverybody says, let's say the
company's worth a million dollars.
Nobody's writing up a checkfor a million dollars.
There's other elements to that structurethat are part of that purchase process.
(19:38):
Mm. And, and it, and it's a lot.
Sounds like it's a lot of moving parts.
Uh, a lot of, uh, essentiallyyou, you're setting yourself.
To of course get a big payday, but you'realso setting somebody, set yourself up for
somebody to call your baby ugly, right?
No, nobody wants theirbaby to be called ugly.
I, I, is there nothing that a businessowner can do, uh, either on the seller
(20:01):
side or the buyer side to preparethemselves psychologically for this,
uh, this type of, uh, engagement?
Um, well, you can to a certain degreeand, uh, we, when we sign up a new
client, one of our first conversationsis a real heart to heart conversation
(20:22):
about this process of selling a business.
Um, first of all, it's a lengthy process.
The national average, no matterwhat size the company, except for
maybe smaller deals like a localliquor store or a restaurant, maybe.
Um, this is a nine month process.
On average and selling yourcompany is literally a full-time
(20:47):
job on top of your full-time job.
Hmm.
It's an emotional rollercoaster ride.
It's very high stress, and that's whereone of the values of somebody like us
at Raincatcher comes into play becauseI've had on occasion, uh, needed to
talk my clients down off of the ledge.
(21:08):
Because they were just so stressedout about the whole thing.
They didn't know if they couldcontinue, and they have the potential
to become their own worst enemy.
But there's a lot of very complex,uh, vocabulary concepts, especially
around what's called networkingcapital, which is your balance
sheet, uh, where a professional.
(21:31):
Navigates that for you.
And again, even as I described differentdeal structures, an investment banker
kinda leads the charge on how to get thatdeal structured and negotiated properly.
A lot of business owners thinkthey can go it alone and it is
possible to do, but you're generallypenny wives and pound foolish.
(21:52):
And, uh, if you don'tunderstand the complexities.
How deals are generally structuredon what's called a cash free,
debt-free networking capital basis.
You know, if somebody says they're payingyou $5 million for your company, but the
way they have negotiated, uh, the cashon a balance sheet, the receivables,
(22:13):
the payables, any debt you mighthave on the business, uh, inventory,
uh, if you're selling real estate.
Uh, they can end up having a realizedoutcome far less than what it
looks like on the surface becauseof the way the, uh, balance sheet
factors were or were not negotiated.
(22:34):
And if they don't understand that, uh,they can have circles run around them.
When I, when I was, uh, uh, doingleveraged rollups, I bought about
50 companies, uh, for privateequity firms and spent about a
little over half a billion dollars.
And I saw so many cases wherethese business owners tried to
go it alone and, uh, they didn'tgo into an auction environment.
(22:58):
I. And buyers love nothing more to bein a non-competitive environment because
that means that seller hasn't benchmarkedwhat their true business value is.
They don't really know, and themarket sets the value for any company.
So we never paid top dollar for anybusiness that we acquired that was not
(23:20):
in a competitive auction environmentand not represented by professional.
Uh, either business brokersor investment bankers.
And they always left money on thetable because they didn't know
how to properly structure theircompany to obtain maximum valuation.
And again, a good investmentbanker helps them do that on
(23:40):
the front end of their process.
Hmm.
So, alright.
So.
Sounds like the best way for someoneto prepare themselves psychologically,
whether it's on the buyer's sideor the seller side, is to hire,
uh, a specialist sooner than later.
Yeah, that's exactly right because youknow, at the end of the day it's a peer
(24:01):
business transaction, but as you said, youdon't want anybody calling your baby ugly.
And you know, and that kindof thing happens if some buyer
makes a critical comment aboutsome element of your business.
This, this company is, theseowners is pride and joy.
They eat, sleep, breathe it, andthey've done it for many times, decades.
(24:22):
So they let emotions get in the way.
Instead of making smartbusinesses decisions.
And that's again, where an outsiderepresentative who views this as
a business transaction, uh, anddoesn't have skin in the game from
the emotional standpoint of thevested interest of the owner, uh,
it's all, it's all in their favor tohave someone to work with like that.
(24:46):
Uh, through the process.
So we, we kinda laugh about it.
Everybody thinks an investment bankeris, uh, somebody who, uh, deals with
numbers and dollars and true negotiationsand contracts and all that is true.
But oftentimes about 50% of what we do iswhat I kind of refer to as Dr. Phil work,
(25:07):
where we're just, you know, helping ourclient, advising our client counseling.
Them through this process.
And a good banker works withthem from beginning to end, from
site debt engagement until a wiretransfer hits their bank account.
They're on calls with,uh, the, the lawyers.
We can help refer proper m and aattorneys tax specialists, and we
(25:31):
oftentimes help put a lot of these legal.
Complicated legal concepts intolayman's terms for our clients because
it can be very intimidating for them.
And about 95% of our clients havenever sold a business before, so
they don't really understand alot of the factors around this.
So we help them through thatprocess all the way along.
(25:51):
I. Yeah, because it is one of thosethings to where usually, uh, one of the
reasons why entrepreneurs are successfulin their own right is, uh, when you
look back through their narrative,they went through against the grain.
You know, a lot of the, a lot of uh,entrepreneurs that I encounter are first,
first generation entrepreneurs, sometimessecond generation entrepreneurs, and
(26:16):
they've gone against the grain and didtheir own thing for so many decades and
that's what got them to where they are.
It's sometimes hard to transitionto, alright, I need to align myself
with, uh, with an institutionthat actually puts me almost.
The first time in their career, notagainst the grain following the rules,
(26:38):
as they say, in order to get it sold.
Right.
Is it it hard to switch that mindsetof yes, you did everything on your own.
Yes, you did everything against thegrain, but this right here, you need
a team and you need to follow certain,um, certain established standards.
Yep, it is.
And, and what I try to preach in counselfor these business owners is, and
(27:00):
this was one of my, uh, philosophiesrunning companies that I, I helped build
a company from 7 million in revenueto 400 million, and then I went out.
On my own entrepreneurially andspent a year shopping my business
plan with private equity andultimately landed with JP Morgan
Chase Bank's private equity group.
And we built another businessfrom zero revenue on my kitchen
(27:22):
table to about 120 million.
And in running those companies, oneof my key philosophies was, know what
you know how to do and do it well.
Know what you don't know how to dowell, and hire experts to do it for you.
And that's the switch we try to getto flip for these business owners, you
know, the entrepreneurial world, a lotof times they have to wear many hats.
(27:44):
They're not specialized like professionalsat much larger companies are.
So that's a, that could be a, uh, adifficult switch for them to flip,
to understand how to leverage theexpertise of outside professionals
to kind of shore up where they don'thave, uh, experience or the knowledge.
(28:05):
Okay, so I'm a business owner.
I, I, I got an accountant.
I didn't just wake up themorning and say I wanted to sell.
I've been working with a, a reputable,reputable accounting company for
the fa past two to three years.
Uh, I've also, uh, I've had theconversation with my children.
Uh, we know exactly what we're doing.
I'm, I'm working, uh, now I'mlooking for a professional.
(28:29):
Um, uh, so before I get to thatprofessional, I have to first
decide that I want to sell.
Is there nothing, is there notrigger that a business owner should
look for in order to determine,all right, it's time to sell.
Uh, wow.
That's a great question and I've beenasked that numerous times and, uh, I'll
(28:49):
give you kind of an observation I've had.
So, uh, I've been withour firm Raincatcher.
I'm a, a partner and a managingdirector in the firm, and I've
probably, uh, taken calls from easily200 business owners, probably more,
uh, who are considering selling.
And there was an interesting change.
(29:10):
Uh, and when they call us, oneof the first questions we ask
them is, uh, alright, why areyou thinking about selling?
And there was a kind of sea change thatseems to be affiliated with the amazing,
uh, demarcation in our lives, COVID.
So before COVID, the majorityof business owners when asked
(29:31):
that question would say, well.
I wanna play more golf, or I wannastart traveling, or my spouse, uh,
has a health issue and I need to,you know, take care of him or her, or
spend more time with, with him or her.
I, they would say, I wanna spendtime with my grandchildren.
I wanna do charity work.
(29:52):
Those were typical answers.
But post COVID, a lot of thesebusiness owners, and it still exists
today, we don't hear it quite asmuch, but I. They're just tired.
Mm-hmm.
Uh, they would often say it oftenquite vitriolic terms, which I won't
repeat on, uh, on your podcast, butthis is how they would talk to us.
(30:15):
Uh, they were just frustrated tothe bitter end because they couldn't
find people to hire or they wouldhire somebody at that individual.
I would ghost them andnever show up for work.
Or they would show up for a week andthen ghost them and never show up again.
And the frustration these owners havefrom that is oftentimes pretty intense.
(30:41):
And many of 'em have told me that theyfeel handcuffed because they, they're
in a position where their businesscould grow 10, 20%, some even more.
But they can't find the employees togo to work for 'em, especially, uh,
at a construction industry client whohad huge demand Once this, uh, federal
infrastructure bill came out, and he couldhave put on a whole new crew of about
(31:06):
12 or 13 individuals and, and expandedhis business by 20%, and that this was a
$28 million company, couldn't find him.
And so there's a lot offrustration around that.
Then we went through the supply chainissues and coupled with the supply
chain issues were, uh, uncontrollableprice increases that these people
(31:29):
had to deal with, and many of themdidn't have the sophisticated, uh,
tracking systems, purchasing systemsor accounting systems to keep up with.
The increases they were getting hit withand they saw significant drops in their
profitability and their profit margins.
Uh, or they had to, uh, ramp upinventory excessively in order to protect
(31:55):
against these supply chain shortages.
And then they had to jam through theirown price increases and it's just tired.
A lot of 'em out.
And they've just kinda reached apoint where say, you know, it's
time for me to kind of move on.
Now we still do here again, I want playwith the grandkids or offer, et cetera.
(32:15):
But the show has droppedpretty substantially.
Mm. So, uh, I, I, I'mnoticing a common theme.
It, it, it seems like a lot when itcomes to everything from the, um, the
being prepared from the psychologicalaspect to the, uh, knowing when it's
time, uh, and being able to, uh,convey that to a potential buyer.
(32:40):
It seems like a lot of it, uh, goesback to having the right accounting
practices and balance sheets.
And I'm pretty sure it is a lot ofcompanies that have an accountant.
Is there nothing that a company,a business owner should look at to
what their accountant is doing ornot doing to know that the accountant
(33:00):
that they're working with is toptier as far as, uh, conveying the
narrative or the story are, are, are,are accounting for the right things?
Ha ha.
Have you, have you noticed anythingabout, uh, what are some red flags
or green flags for your accountant?
Yeah, sure.
It's a great question.
So there's two ways to handle accounting.
(33:21):
One is on, uh, what's called a cashbasis, and the other is on, uh, a
what's referred to as gap, GAAP,compliant accrual basis, and with
proper detailed, uh, expense line items.
And again, under the heading of.
You know, get an expert ifyou don't know these things.
(33:43):
Uh, there is a huge pool of highlyexperienced and sophisticated, uh,
fractional CFOs out there that you don'thave to bring 'em on as an employee.
You could set 'em up on a retainer basisor pay 'em a. Monthly fee and hire one
of those folks and have them come inand help structure your accounting and
(34:05):
reporting and if, uh, and they can alsoassess the quality of if you have any
accounting staff as employees, how they'redoing what they're doing, or restructure
some of that or help find an outside.
Uh, accounting or bookkeeping firm.
And then if you retain 'em on anongoing basis, they can spend limited
(34:26):
amount of time overseeing thatreporting to help give you comfort
and make sure that the, uh, financialsare being reported in a way that a
buyer is going to want to see those.
Uh, so that's the safest way to do that.
Yeah, and I, and I know that's a shock toa lot of people because, uh, definitely
cash accounting is much simpler.
(34:48):
Cash in, cash out.
But a lot of people don't know thatthe accrual, uh, way of accounting
is what, uh, a lot of banks andpotential buyers prefer to see.
Is, uh, is, is that usually a shockfor, for the people that you work with?
Yeah, it, it quite often is, and we haveto ask some companies to hold off on going
(35:10):
to market to sell their business and go toan outside accounting firm and have their
financials restructured on a gap basis.
And one of the reasons is on a cash basis,you're right, it's cash in, cash out, but
it's not correlated with the cost of your.
Ma ma manufacturing materials, uh, yourcost of goods as it's referred to, and
(35:34):
tied to the revenue affiliated with that.
So buyers want to see what the grossmargin percentage is on a business,
and that's one of those criteria.
That's a make it or break it.
So every industry has sort of astandard gross margin percentage.
And if you're running a companythat's at that percentage,
(35:56):
then you're in good shape.
If you're above it, you'regenerally in even shape.
But if you're below it, and that rule,a lot of, if you're below average on,
uh, on your gross margin percentage.
My second to last question, uh,ca uh, Cameron, 'cause you, you
(36:17):
definitely provided a, a lot of,uh, knowledge and food for thought.
Second to last question.
All right.
I've, I got a good accountant.
I'm psychologically ready.
Now is the time.
Uh, but a business broker just called me.
A mergers and acquisitionspecialist just called me.
An investment banker just called me.
Are those terms interchangeable?
(36:38):
Uh, do, do all three of those titleshave the same skillset or, uh, one
is more appropriate for the other?
Uh, depending on the situation?
In some cases, uh, yes, they canhave the same skillset, but generally
investment banker is gonna be a,have a more sophisticated approach.
(36:59):
Uh, but I would say also a, a, awise thing for these business owners.
If
someone approaches you about buyingyour business, and again, an auction
party can really validate what yourcompany's worth, you're, you're not
gonna know if you're getting top dollar,and it usually means that if one, that
(37:24):
there's a lot more of them out there.
And unless you need a quick sale, you'refar better off maximizing value of the
deal by hiring a professional and doinga whole market to sell your company.
Got it.
And my last question, um, is therenothing that separates Rain Catcher
from the other companies, uh, doingwhat you do, uh, do what, what would
(37:47):
you say is your differentiator?
Well differentiator for our firm, again,as a lower middle market investment bank,
we bring downstream the knowledge andskills and tactics of the big advantage.
Investment banks, we put out veryprofessional marketing materials and
there are some investment bankers orbrokers where they'll get you signed
(38:10):
up to represent you, they'll findyou a buyer, and then they kind of
wash their hand until a deal closes.
But we hold our client's handsfrom beginning to end in that
process, and that's a level ofservice that a lot of banks don't
provide for their sell side clients.
Oh yeah, man.
Um, I was, uh, recently, uh, I, Ithink a lot of it people have heard
(38:33):
the term idiot and Ile, right?
Uh, and usually, uh, today when youthink about the term idiot and imbecile,
and then you look up the definition,it usually means, uh, stupid, right?
But I, I'm one of those people where Ilike to look at the, you know, go deep,
deep into the, or origin of the word.
And I determined that, uh, theword, the original word for idiot
(38:58):
meant a private person, right?
As opposed to a publiccitizen, a private person.
And then I, then I looked atthe, the, the original, uh,
definition of the word Emile.
And it meant a personwithout supporting staff.
He, uh, one more time.
Just let, let people know who youare, uh, what do you do, and how
they can get in contact can bereached at Cameron Bishop at Rain.
(39:23):
Dot com or you could go to ouron LinkedIn at Cameron Bishop.
I appreciate it, uh, Cameron, and ifyou are, uh, looking for any speaking
engagements, please let me know.
I do a, a monthly event here inJacksonville, Florida for business
owners, investors, uh, affluent retirees.
We would love, I. To have youcome and speak to our audience.
(39:46):
Uh, this has been another episode of TheEntrepreneur Podcast, A place to hear
real entrepreneurs and business owners.
Bear it all.
Make sure you visit Cameron Bishopand his crew@raincatcher.com,
R-A-I-N-C-A-T-C-H-E r.com.
Uh, have an amazing day andwe'll see you next time.
(40:06):
Thanks for having me.
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