E280: From Yoga Studio to EBITDA Truths: The Hidden Financial Traps in Small Business Exits

Watch Here: https://youtu.be/PnKoDPkgKFI

About the Guest: 
Rosco Graves is the founder of Polaxis Professional Services and a former Deloitte advisor. He’s navigated both the boardrooms of Fortune 500 companies and the trenches of small business ownership—including launching a yoga franchise. Today, he helps small business owners prepare financially for growth, funding, and exits, specializing in turning messy books into stories buyers want to hear.

Summary:
In this episode of How2Exit, Ron sits down with Rosco Graves—former Deloitte advisor turned entrepreneurial CFO—to unravel the financial blind spots that plague many small businesses. From owning a yoga franchise to running Polaxis Professional Services, Graves offers rare insight on what owners get wrong when starting, running, and especially exiting a business. The conversation is an eye-opening roadmap for founders, buyers, and anyone serious about unlocking business value through financial clarity. 

Graves doesn’t just talk balance sheets—he breaks down the real-life implications of sloppy books, sketchy add-backs, and why sellers often sabotage their own exits to save a few tax dollars. This is one of the most tactical and truth-heavy episodes of the season. 

Key Takeaways

1. Most Small Business Owners Don’t Understand Their Financials – Many don’t know what “good books” look like, and believe that filing a tax return is sufficient for running or selling a business.
2. You’re Not Fooling Anyone with Your Add-Backs – There’s a line between aggressive adjustments and devious manipulation. Sophisticated buyers will catch it.
3. Clean Financials Win Deals – Having a finance-savvy team member who can explain your numbers is more valuable than having the best broker in the world.
4. Sloppy Books Kill Value – Underreporting income to avoid taxes might save you 30 cents today but cost you $3 per dollar at exit.
5. Inventory Stuffing and Payroll Gimmicks Are Red Flags – Buyers should watch for sudden revenue spikes without corresponding operational changes.
6. Buying Existing Businesses Beats Starting from Scratch – Graves advocates for acquiring operational businesses over new franchise launches due to lower risk and immediate cash flow.
7. You Can’t Outsource Sales if You Don’t Understand It – Founders must embrace being generalists early on and learn the core levers of their business.
8. Sellers Often Sabotage Trust – If you’ve lied to the IRS, why would a buyer trust you? Reputation, transparency, and consistency are deal-makers.

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Contact Rosco on
Linkedin: https://www.linkedin.com/in/roscograves/
Website: http://www.polaxis.co/
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Episode Transcript

Speaker 1 (00:06):
Hello and welcome to the How to Acceit Podcasts, where
we introduce you to a world of small to medium
business acquisitions and mergers. We interview business owners, industry leaders, authors, mentors,
and other influencers with the sole intent to share with
you what it looks like to buy or sell a business.
Let's get rolling and now a moment for our sponsors,

(00:33):
I want to highly recommend you get Acquisition Officionaudo magazine.
Every month, Acquisition Officient Audo Magazine brings you tactics for
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firsthand from industry leaders who share their success stories, featuring
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business acquisition industry. This multi platform mobile magazine speaks to

(00:57):
acquisition entrepreneurs wherever they are in the journey, and I
want you to visit acquisition Afficionado dot com today. Hello
and welcome to the Hot Exit podcast. Today, I'm here
with Roscoe Graves. He's the founder and CEO of Alaska's
Professional Services, and we're going to talk all things about
business growth, financials and just really see what we can

(01:19):
do to help you guys, you know, really honing in
on the financial side of your businesses. So thank you
for being here today, Roscoe.

Speaker 2 (01:26):
Thank you, thank you for having me. I'm glad to
be here.

Speaker 1 (01:29):
Yeah, we've chatted a little bit before on a pre
interview call on you and I were just chopping up before.
So if you see us kind of laughing, that's what
we always do that right before the show. I love
to tell people kind of the origin story and how
you ended up on a show about mergers and acquisitions. Right,
you have an interesting past. I've got, you know, kind
of all over the entrepreneur spectrum, and can you share
some of that with our listeners so they can get

(01:51):
to know you and get to understand why they should
be hanging out and listening to what you got to say.

Speaker 2 (01:55):
Sure.

Speaker 3 (01:56):
So, I've always had an entrepreneurial spirit meeting as a
young kid that I was constantly kind of creating businesses
and business ideas. Went to college, it decided to go
work for some in corporate America. Started out with Deloitte
professional services firm doing financial audits Fortune five hundred companies,

(02:18):
but always had this entrepreneurial kind of mindset and even
then I would go into rooms I was supposed to
talk about the accounting, but then hey, man, your sales
going up or why are your sales going down? And
they start talking to me about innovation, and you know,
I'm next thing. You know, I'm at the R and
D facility, like checking out the new products. So I've
always been business minded and got to a certain point

(02:39):
in my life that said, hey, you always wanted to
open up your own business and do some stuff, but
you haven't, so you probably you're not getting any younger.
You need to start doing that now. And so about
twenty eighteen, twenty nineteen, I started my entrepreneurial journey. Didn't
start with Pleaxis, but started with another venture and have
kind of transitioned into this and still looking and doing
some small stuff here and there. So I'm an entrepreneur

(03:02):
at heart. I'm business owner at heart, and I love it.

Speaker 1 (03:06):
So is that your first foray on your own and
as an adult into the business realm was Was it
a franchise?

Speaker 2 (03:13):
Yeah, it was a franchise.

Speaker 3 (03:14):
So I kind of took a year again kind of recognize,
hey do this, you better start now.

Speaker 2 (03:20):
If you're not going to do this, fine, but let
the dream go.

Speaker 3 (03:23):
And took a year to figure out what I wanted
to do, looked at a lot of different opportunities and
settled on franchising. I thought it would help me out
versus me trying to figure everything out on my own,
and so did that and that was the first venture.

Speaker 2 (03:36):
Thankfully, kind of had.

Speaker 3 (03:37):
Other stuff, other skills, the skills that kind of helped
me with Glaxes today.

Speaker 2 (03:42):
But you know, that was my first gen and entrepreneurship.

Speaker 1 (03:46):
Yeah, So what in the world had you choose that?
Is it just something did you do yoga regularly? Or
is this you just seen a good business?

Speaker 3 (03:54):
So honestly, I'd never I'd done yoga before, but it
was kind of inter mentally. Part of the reason why
I liked it was it was something that was making
that was helping people, right, So a business that's helping
people versus hurting people, I thought was pretty cool, and
I thought, hey, if we can do something, I like

(04:15):
the story, I liked what they were doing. The other
thing is I kind of tried yoga here and there,
but I never really found a place that I kind
of thought was home. It was either you know, I'm
the only guy in the room, I'm the only person
that doesn't look like anybody else that don't feel very welcome,
or it's a little bit like pseudo spiritual that I'm
not getting down into or whatever. And I think that's

(04:37):
what I liked about our brand was it was truly
yoga for everybody, and so started it. It was actually
kind of cool because what I kind of realized is
a lot of our members were kind of more the
regular people than the people you would think are yogi's.
It was a lot of people that got into yoga
based on some type of injury, and that was very

(04:58):
just interesting to hear the stories of car accident. You know,
couldn't move my right arm, did yoga, did yoga, and
now I'm doing handstands because of just the flexibility. So
so it was kind of cool to just sit there
and that was that was one of the best parts
was talking to our members, talking to the people that
were into yoga.

Speaker 2 (05:17):
And the why behind you know, hey, why'd you get
into this?

Speaker 1 (05:21):
Cool? I'm into all that spiritual and all the meditation
and stuff because I find using it, I'd use less
any type of psych meds.

Speaker 2 (05:30):
I'm a happier guy.

Speaker 1 (05:32):
So right, instead of you know, having medicines and all
that stuff from my anxiety and other issues you get
when you get old and military and everything I've done
y I try to meditate it away. And I just
as like the second or third time I'd ever try
yoga in my life. And trust me, I'm a big
heavy dude. Right now, I'm on the floor and I
when I was young, I taught mass arge forever. I
could do the splits and touch my toes and all

(05:53):
that kind of stuff. I get down on the floor
and there's things I can't do that I just knew
I was able to do, and like you know, it
was just miserable. No, it's cool went down that path.
What was a lesson learned from it? Like you went
from Tilloyd to yoga studio, It's like, I don't know
if you can go any more pull opposite right.

Speaker 2 (06:09):
Yeah.

Speaker 3 (06:10):
In fact, there was a guy that he was one
of my clients at Deloitte and when I when I
changed on LinkedIn and said I had a yoga studio,
he reached out to me and it's like, how in
the world did this happen? Granted this was like fift Yeah,
it was like why and like you know, and given
my personality and kind of how I am. I think
a lot of people were like, how did this happen?

(06:30):
But there was a lot of things I learned. A
lot of it is you kind of have kind of
especially coming to corporate. You have a corporate mentality where
I was always in finance. I dibble and dabble in
something else. But I'm a finance guy, right, you have
a hard line your finance. These are operations that's legal.
When you're on your own business, there is no hard line,

(06:51):
and you have to enjoy today. I'm doing legal. Five
minutes from now, I may be doing some operations. I
maybe cleaning the toilet thirty minutes later. And I liked that,
but I didn't understand how deep you have to get
into it.

Speaker 2 (07:06):
You have to be a part of everything.

Speaker 3 (07:08):
And so, you know, I kind of thought, I'm a
finance guide, don't know how to sell. I'll leave sales
to other people and I'll do kind of everything else.
And I quickly realized, no, I have to be able
to understand sales enough and to work hard enough into
it that I can help my team be successful. So
it was really that, you know, I thought I was
a generalist until I owned a business, and then realized, No,

(07:30):
there's a whole lot more that I need to be
involved in, and you know, you've got to be You
can't just let your employees do everything. You have to
have a sense of this is the direction we're going
and you're not always not going to have experience in it,
nor are you going to have be the expert in it,
but you have to be able to add value. And
I would say those are probably the biggest things that

(07:51):
I learned out of the experience. There's a whole lot
I learned. Those are probably the biggest ones that I
took away from it.

Speaker 1 (07:56):
You know, people on this come on the show all
the time and they talk about buying companies, selling companies,
buying franchises, you know, and I always explained I always
have to get into the buying franchises. There's two different
ways of buying franchises, right. The first one is what
sounds like you did. You went to the franchise or
bott a license for it, found your location, went through
their training, and you started with you roop people in

(08:18):
your room.

Speaker 2 (08:19):
Right.

Speaker 1 (08:20):
That is almost as hard as a startup. You've got
some guidance and stuff, but you got to get first client.
You got to get product market fits still right, even
though they have maybe a national product market fit, did you,
you know, provide the right location? Is your town, right,
is your vibe right in that area that's going to
draw all customers and want to be there. You know,
I'm from redneck Oklahoma. You know maybe now, but fifteen

(08:41):
years ago, when I was in Montpreter journey, if I
would have went to one of my small towns and
popped up at yoga studio, they would have went in
there and asked if it soft serve right yogurt? You know,
so rednecks don't know what yoga is.

Speaker 2 (08:55):
Right.

Speaker 1 (08:55):
I grew up in a population of a town I
had population seven hundred, Killerbil, Oklahoma, wo right, you know
the nixt town over just a few thousand, fifteen thousand
or so, So it wouldn't have been like the product
market fit still has to do that. Now there's a
second way to buy a franchise. You got the guy
who's owned a franchise for fifteen years, he's retiring out,
and you buy one that has one hundred clients. They're profitable.

(09:18):
I still think that model's better because you get to
go in and go through the training, you have to
go through the franchise training or you can't run it.
And you step in, you have existing cash flow and
existing things. You get to see how it's always been done.
You see the cell script and everything else. People are
already doing referrals and bringing people in, and you got
a little more leeway to figure the rest of the
stuff out instead of you're just kind of on your

(09:40):
own getting customer one.

Speaker 2 (09:42):
Right, Yeah, and I totally agree with you.

Speaker 3 (09:44):
And if I would have done it over again, whether
it be a franchise or not a franchise, I probably
would have bought an existing business because to your point,
you're at least starting with something, and I think that's
the thing. And even as we talk to prospects and
even our clients that are franchised or starting a business,
I always tell them, you know, hey, when do you
think you're going to actually break even?

Speaker 2 (10:06):
And I always say double it? You know what, do
you think your construction costs is going to be? Double them?

Speaker 3 (10:10):
Because to your point, you're literally starting from scratch, and
there's a lot of things that go into that, whereas
at least if you bought a business, you have something
there and you're you're hopefully taking it over the edge.

Speaker 2 (10:22):
Now you've got to be really good though when you
buy a.

Speaker 3 (10:23):
Business that you're not buying someone else's problem that can't
just be fixed. But so you got to do your
diligence there. But to your point, you're not starting from
just a blank blanket, you know. And unfortunately, my wife works,
so I was kind of in a better situation. But
I had a lot of people they leave their good
paying corporate job to start a business because in six

(10:45):
months I'm gonna be making two hundred thousand dollars. That
doesn't happen, And now what do you do, right, because
now you can't pay you mortgage and you have this
business that's losing money, and you quickly go into a spiral.

Speaker 2 (10:56):
So yeah, it's I agree with you.

Speaker 3 (10:58):
I think buying existinct businesses can really be less stressful.

Speaker 1 (11:04):
Absolutely absolutely. Now you've went from fortune five hundred to
owning your own business and now you take on clients
all you know, you've seen the full spectrum. Now, yeah,
you know, what do you think is like kind of
the biggest myth that small business owners have around the
phrase franchise or I mean the finance or accounting, because
I know a lot of the ones I look at,
especially off market deals, they just don't have good books

(11:27):
or accounting. They just they just don't.

Speaker 3 (11:29):
Yeah, I think it's it's just a lack of understanding
of the importance kind of two things. One is really
what is you know, what are good books? What's a
finance structure? I think it's one. And then I think
the second thing of just not thinking it's important. I
think those are really the two biggest myths on the

(11:50):
not important. I think oftentimes the biggest issue is we
just need a tax return. And while that's good, that's
a compliance function, but it does not help you if
you're trying to exit a business, does not necessarily help
you understand how to run my business better. And you know,
we see it all the time new clients or people

(12:11):
that talk to us, well, I want to get a loan,
all right, Well.

Speaker 2 (12:14):
You know, show me your last three tax returns.

Speaker 3 (12:16):
And you got to you got a loss. Well, you're
not gonna be able to get a loan if you
got a lost. I don't want to pay tax, Okay, Well,
if you don't want to pay tax, that's great. That
if you want to loan, you got to have income
and so helping people to understand it's really beyond that,
and that's what you look. Do you name any Fortune
five company, They just don't have the tax department. They
have other departments that are helping them to make decisions.

(12:38):
And so I think that's the other side of it,
is accounting finance. Your books are more than just what happened.
It's how do I make a good decision? You know,
I look at stuff. We have people that come to
us with deals here and there, and it's interesting how
you can see somebody that's losing money for four years
and their numbers look exactly the same every year.

Speaker 2 (13:01):
And for me, that's hard because I'm one of these people.
I'm kind of like you.

Speaker 3 (13:04):
I want to solve a problem. So if I lost
one hundred thousand dollars in year one, and I can
guarantee you my P and L is gonna look different
than your two because I'm gonna try something different. The
result may be the exact same, but I'm gonna try
something different. But when you look at these books, you're
losing the same amount in the same areas every single year,
it kind of lends to you're not You're not trying

(13:26):
to solve the problem differently. And I think that's where
financial professionals, people that are good with the numbers, that's
what you need to be able to do is Hey,
let me figure out what I need to do to either.

Speaker 2 (13:38):
Make money or make more money, or to be more efficient. Yeah.

Speaker 1 (13:42):
I've seen the whole gamut of it, right. I've seen
so many business owners where they go, oh, yeah, that's
not Yeah you looked at my last three years bank statements,
in my last three years bank returns, but that's not
really the financial story of my business, right, Like what oh,
yeah that you know, we have a retail arm too,
And I was like, yeah, what does that mean? That
means we have a lot of cash that come in, right,
And I'm like, okay, you know that. Unfortunately, I can't

(14:06):
give you any evaluation on cash that you've never put
in your books, never put on your accounting, never paid
taxes on, you know, and like that you hurt yourself, right,
and they, you know, they say you can't have your
your cake and eat it too. This is like if
you do the math, I forgot what the math is.
But you're saving basically, you're trying to save twenty five

(14:27):
cents when when you could be making you know, three dollars.
So you know, if you're buying, if I mind a
company at three x four x five x, for every
twenty five cents or twenty thirty it's California, say it's
thirty three percents, you're saving on the dollar because your taxes. Right, yeah,
you're saving thirty three cents on the dollar. You just
spent thirty three cents or save thirty three cents. But
when you go to sell it, I would have paid

(14:48):
you five dollars for that dollar exactly, So you know,
you really hurt yourself. So and it takes I need
to see three years of steady, steady of it. So
you got to pay your taxes, You got to you know,
record every dime for the last three to five years,
and then then you get buyers interested.

Speaker 3 (15:05):
So and then to your point, I think there's also
a piece of just credibility. You know, I've had some
clients walk away from deals simply because of stuff like that. Right,
you start hearing things that say, I don't know that
I can trust this person and trust what they're doing.
And then you buy the business and you have to
deal with maybe some of the things that they've been
doing that are that are not trustworthy.

Speaker 2 (15:26):
So you want to you want to.

Speaker 3 (15:27):
It's just like anything else, a job interview or anything else.
Want to put your best food forward and telling people
those are the fake books and these are the real
and all that kind of stuff just doesn't help you
if you're trying to exit.

Speaker 1 (15:40):
Always, my gut feel is, if you light of the
ir S, what means what makes you think? I'm not
gonna believe you're gonna lie to me?

Speaker 2 (15:46):
Yes? Right, yep.

Speaker 1 (15:47):
I don't have any reper questions to give you. Really,
I just say yes or no, or I guess if
I bought it and I found out you'll lie to sue.
But you know, I'm pretty sure if you if you're
good at hiding money from RS, I'm never gonna find it.
So yep, let's put on our thinking hat. Let's do
one called let's do a little segment where you're like
spotting the land mines when you're looking what's the sneakiest
way that you think that a lot of these guys

(16:09):
hide things, or when you're looking at books and stuff,
and I don't know how many businesses you've evaluated for
sale or you know, they're thinking about taking to the
market and stuff, but when they go to correcting things,
I've seen some pretty sneaky things that are you know,
ad backs and what are some of the red flags
you you've spotted over the years. This just buyers should

(16:31):
be aware of. You see something like this at the
red flag.

Speaker 3 (16:34):
Yeah, I think that there's definitely ad backs. You should
question all the ad backs. And and I kind of
have a little bit of a because I work both
buyside and tel side, so there's a there's there's being
aggressive on ad backs that I think is just okay,
I got that, and then there's all right, you're you're
being You're being you know, you're being devious. You're going

(16:54):
from mischievous to devious, right right, mischievous. I don't have
a problem with because I may be a little bit
aggressive on ad backs one way or the other, dependent
on you know, how my clients are. So the add
backs I'm kind of a little bit you know, I'm
kind of you know, shaky on but things I've seen,
especially with people that do prepare. Do you have the
people that don't prepare at all, but people that do prepare?

(17:17):
Is I think you kind of got to look at,
all of a sudden, the business just gets much better, Right,
It's been steady, and then all of a sudden things change,
and well why was that?

Speaker 2 (17:27):
Right?

Speaker 3 (17:27):
You know, their customer count didn't change, their membership count
didn't change.

Speaker 2 (17:31):
All of a sudden things were getting better.

Speaker 3 (17:33):
Are they somehow not paying certain expenses to juice up
because to your point, hey, if I can get another dollar,
I really got five dollars. Are they doing things to
push things down the road? And oftentimes that comes down
the compliance to be honest with you, So I've seen
people that they stop paying their payroll taxes, they.

Speaker 2 (17:51):
Stop paying their.

Speaker 3 (17:53):
State taxes or IRS taxes, and funnel that money back
into growing the business. While that great and it increases ebadah.
If your go you know, depending on how you structure
your deal, you may be the person left with, you know,
those liabilities. And so I think you have to kind
of look at So that's one that I've definitely seen

(18:14):
that has caused caused me a little bit of all Right,
this is you know, this doesn't seem to make sense.
You know, people doing the same thing with rent or whatnot.
They negotiate some free rent, then they jump everything back
in the business and then they try to hopefully quickly sell.
Then you're the one that's going to be kind of
stuck with the ramifications of that.

Speaker 2 (18:32):
So anytime I.

Speaker 3 (18:34):
Always see just like significant increases, I'm all right, some
some men, Right, let's let's let's dig into it a
little bit more. Always there's always an environmental depending on
what type of businesses.

Speaker 2 (18:45):
That you're in. I've seen a lot of environmental issues.

Speaker 3 (18:48):
But you know, I think people that are again, you
have the people that don't prepare and or maybe don't
understand the finances.

Speaker 2 (18:55):
There's only so much that they do. But it's the
people that kind of get it.

Speaker 3 (18:59):
That sometimes they get real sneaky, and it's it typically
is around state in local taxes with some type of
compliance issue.

Speaker 1 (19:06):
I'll share one of the ones I stumbled across. It
is a good, good one, and then we'll jump into
this what you just mentioned. He said something about having
the same number of clients, but their business is growing. Right,
so it's been almost two years now. I was really
digging into one and it just I couldn't figure it out.
They had the same number of clients, but all their

(19:27):
clients in the last about eighteen months to two years,
were growing like mad, taking order and bigger and bigger orders, right,
And I was like, they're just like everybody's growing, but him,
technically he's not. You know, maybe landed one or two
more clients, but something was fishy, and I just happened
to have a conversation. One of his sales reps actually
owned a bunch of the companies, you like, thirty eight percent,

(19:50):
So he allowed me talk to the sales reps because
the sells rep you need to sell. And I started
asking questions about sales and how did they How are
you guys going about selling more and more to these
clients and these customers and stuff, And they'd been doing
give you discounts and stuff. He said. He honestly broke
down towards the end. He said, you know, any day
now they're going to just say, hey, we got enough
inventory here, we're going to last for a while. We

(20:11):
can't buy anything else. So they've been stockpiling all their
customers to make their books look good. And then when
I get a hold of it, they're going to go,
ohh we don't need anything for six months. We're overstopped.

Speaker 2 (20:21):
Exactly.

Speaker 1 (20:22):
It was inventory I don't know what. I called it
inventory stuffing, but I didn't know what the real term was.
I'm not an accounting guy, but there's stuff in inventory
in their customers to make their books look good.

Speaker 2 (20:32):
Yep. Yeah, and that happens.

Speaker 3 (20:33):
And sometimes that happens that I've even had that issue
happened it just in corporate America, not that we were
doing anything fishy, but certain circumstances happen, right, And even
you know, with the yoga studio, there were some people
that were doing something kind of similar to that where
they were dramatically discounting the memberships and so hey, all

(20:55):
of a sudden, you're growing at twenty thirty percent a month.
Well that's because you're discount the memberships. And then they
would do a well you don't have to pay for
you know, thirty days.

Speaker 2 (21:05):
Sixty days, ninety days. So everything looks great.

Speaker 3 (21:09):
Well, something something in right, right, And so to your point,
I think you got to look at the metrics. What's
happening with the business, then what happens it's the story.
Then do I see that in the financials? And if not,
you gotta dig in to your point kind of having
conversations with more people kind of generally helps sometimes customers
sometimes things you know, other people within there. But but yeah,

(21:33):
I think a lot of people figure out, hey, I
can juice my my sales or I'm going to just
stop paying people and juicy badah.

Speaker 1 (21:42):
Another thing you mentioned there are the amateurs, right seller
prepared financials? Are they harmless? Are they eladed weapon? Right?
You know they can harm both sides, right.

Speaker 2 (21:52):
They certainly can.

Speaker 3 (21:54):
Certainly, you know, I've seen financials that they just don't
make any stinse, there's nothing furious is going on, but
you just don't you don't have, you know, have financials
that are putting you in the best life. And so
you know, if I was gonna go and meet you know,
my mentor or someone that I just some celebrity that
I loved, I'd probably wear something nice. I'd put on

(22:16):
nice shoes, I'd make sure my hair was cut. I
just wouldn't show up just naturally. And for some people,
they just hey, that's just who I am. But again,
you're trying to get to a result, right, and so
it can actually be a negative thing of hey, I'm
showing you everything.

Speaker 2 (22:30):
Well that that's sometimes in the right thing.

Speaker 3 (22:32):
Either you can scare people away by being too honest sometimes,
and so you gotta have financials that look a certain way.

Speaker 2 (22:39):
You gotta be able to tell a story.

Speaker 3 (22:42):
But then to your point, you can also hide things
by being a little bit too cute or knowing kind
of you know what you're trying to do. So diligence
is really and it's not just financial diligence. You need
to have legal diligence. You need to have environmental if
that makes sense. Everybody misses, you know, sales taxes. Everybody
is local taxes. Those are things that matter. The irs matters,

(23:03):
but the states matter just as much. You got to
look at all those kinds of things and look at
the metrics of the business, you know, sales members, units sold,
those kinds of things.

Speaker 1 (23:15):
Yeah, you got to. You brought up something really important
there too. Is that landlord issue?

Speaker 2 (23:19):
Right? Yeah.

Speaker 1 (23:21):
My wife and my son run a little catering business.
They make dessert pancakes called Miss Pearls Pancake Paradise, and
they set up as a pop up they set up
at events and stuff like that. We rent a commercial kitchen.
But when I was looking around, I thought I'll just
buy a commercial kitchen and we'll rent it out to
other people because we were having trouble finding something close,
like we're gonna have to drive us just to own it.

(23:41):
And I seen one on on sale and I asked
him one day, I said, we're chatting chat with him.
A couple times you had chat and one or twice
on the phone, and I get him on the phone,
I said, why exactly are you really selling. I know
COVID hit you pretty hard, but you can bring that
product back. They did an organic uh, they made organic
hips and snacks, the stuff out of gourmet mushrooms basically,

(24:03):
so instead of potato chips, they were made out of
different forms of mushrooms and stuff. And it was popular jerky,
you know, kinds of stuff they did. They were in
Whole Foods, in a bunch of other places. But COVID
kind of shut him down somehow, and then they just
never recovered. But when I cat down to it, the
reason he was truly not trying to bring him back.
He's just constantly at it with his landlords. Landlords want
to triple the rent. Landlords weren't letting him sub lease

(24:25):
it out. He was going to lease it out as
a commercial kitchen and They're like, we don't want other
people in there, right, And you know, so I went
down there. It's not too far from here. I went
down there and talked to some of the neighbors, you know,
in the same building, and I looked up online, like
the tax records. I could see they owned two other spots,
a burger joint, and I think, well, how's the spot.

(24:45):
You know, how do you like your landlord? Oh? You know,
they nobody liked him, so he couldn't sell his business
to me or anybody else because nobody wants to do
with this new guy.

Speaker 2 (24:53):
Exactly right, yep.

Speaker 3 (24:55):
And those are things that again, I think sometimes you
get caught up in I want I see the potential,
and that's great, but you also have to see the
downsides at the same time. And you either have to
have that, which is very difficult, or you need to
have a team around you that can help level set
you and say, yeah, totally understand and totally agree that

(25:18):
this is the opportunity, but this is the risk. What
do we do with the risk? And how do we
mitigate that risk? And there's some risks that you're just
not going to mitigrate. There are reasons to to to
you know, to to uh to walk away. And so
there's some businesses. Yeah, maybe you can readlocate and the
year lease or two years lease is not a big deal.
But you know, if you had my yoga studio, we

(25:39):
spent probably one hundred thousand dollars and heating and cooling.
I'm not ripping that out. So there's an issue.

Speaker 2 (25:46):
It's just stuck. And so you got to think about
that as well.

Speaker 1 (25:50):
What do you think the single quickst cosmetic fixed to
books and book keeping that can give you they can
give a business owner a higher multiple. Is there is
there something that would just besides just having books, Is
there something inside of there that somebody can start doing
or quit doing that would allow them to increase the
value of their company? Low hanging fruit.

Speaker 3 (26:12):
Oh wow, I'm always big in I mean, I don't
know how easy this is, but I think spending money
in the right areas. Even when I worked in corporate
you know, margin multinational organizations. I think every business has
three to four drivers, no more than four that really

(26:32):
drive revenue. Yeah, you got all these other things, but
these things drive revenue.

Speaker 2 (26:39):
What I would say is spend the money there and
forget about some of this other stuff at.

Speaker 1 (26:45):
Least to answer that question. I've asked more than one
business owner totally what drives yoursels? And they're like, well,
I don't know. We've been doing this for thirty years.
We got a brand name, like no, what is there?
You know a lot of companies they do great sales
because like if if you own a refurbished like one
of the companies was the Refurbished Equipment. Can you know

(27:06):
rebuilt carburetors for mostly farm equipment. It was in Oklahoma,
but they could do any type of you know, they
rebuilt engines, carburetors. They didn't do transmissions or they own
but their brother or cousin or somebody owned one on
the street. They do transmissions, but basically it was on
the engine or part of the engine. They could rebuild it.
Even rebuilt batteries like the car batteries. They would drain them,
you know, basically refurbished car batteries, and like what drives

(27:29):
your cells? And like well you think I was like,
excuse me, friend, like when ship breaks, that's all I
can say? Right, well, how do you know when of
customer stuff breaks? Right? And uh, and I this wasn't
even a guy for Seale. I just I'm naturally curious.
If I see a business owner, we're chatting for a
few minutes, they'll tell me their life story and about
their business and like what made you know? I always
ask questions what makes you you know? What makes a cell?

Speaker 2 (27:50):
Here?

Speaker 1 (27:51):
What happens? Like I knew why I was there. The
engine in our car blew up, right, it just died
one day and like it was not you know, our
mechanics said you got to do you need a new engine.
So I went to them and you know, said could
you pull us out and rebuild it? And it's cheaper
than money under the car. But that said, he just
didn't know. It was like, you know, he's friends with
all the mechanics in town, and when they don't want

(28:12):
to fix it, they needs to be a new engine rebuilt,
they call him.

Speaker 2 (28:15):
Right. Yeah.

Speaker 1 (28:16):
I was like, okay, well that's that's a driving factory.
You built relationships over time, so your relationship related business.
But a lot of times they just don't have a
quicker answer.

Speaker 3 (28:24):
Yeah, And I've actually had when I was when I
was you know, I've interviewed a couple of times at
businesses and Corporate America, and I mean, I've had I've
had public company CFOs and I've asked them this question,
what are the three drivers of this business? And thirty
minutes later they finished the answer, And I'm like, how
do you not understand it's got to be three to
it's it's and if it's not, it's not ten, it's

(28:45):
not fifty, it's three to four.

Speaker 2 (28:46):
And focus your money there.

Speaker 3 (28:48):
And so I'm the count and I love getting, you know, paid,
and I love my clients paying me.

Speaker 2 (28:52):
But at the same time, you know, I have some clients.

Speaker 3 (28:57):
You don't really need to spend a lot of money
on me because I'm not the driver to your success.
I can help you out tremendously, but you're not spending
enough in marketing, and you're spending too much over here
and too much over there. And so I think, really,
you know, spending the right places in the right your
money in the right places, I think is key.

Speaker 2 (29:15):
It drives plus it kind of it. It's gonna change that, ibadah.
You know. So the small thing like insurance, I always tell.

Speaker 3 (29:21):
People you need to call your insurance guy every two
to three years and see what you're doing. If you
haven't done that, you're probably paying too much, but really
focus on those drivers because that's what the outsiders are
going to care about, right, right, and that's really where
the values, what the value is.

Speaker 1 (29:36):
Everybody's always focused on these things called they call them
key performance indicators, and well the problem is if you
look at what they're calling key performance indicators, they're failing
to recognize there are two different things, right, there's leading
indicators and trolling indicators. Revenue is a trilling indicator. It's
hard to impact revenue when you go, okay, world revenues
thirty thousand this month, it was twenty five thousand dollars

(29:57):
last month. That's awesome, Well, next month is twenty back down.
It's a trilling indicator. You should have been able to see.
What's the leading indicator that causes revenue to fluctuate? Is
that the number of calls that come in? Is that
the number of marketing you know, your marketing has been
going down? What are the key factors that can cause
those numbers to do that? And a lot of times
they don't know. They just are like they know their revenue.

(30:18):
They might know that even if they're working for somebody
to know, you know, all these other things, But like
I want to know what your leading indicators are, right, you.

Speaker 3 (30:25):
Know we had, we had And to your point, that's
that's uh. I've done a lot of work with KPIs
and keep performance indicators in corporate and I was always
when I got into a new company and they had
like three pages of KPIs, I was I was always
kind of like, there's there's no way in the world
we got three pages. It's got to be one guy,
It's gotta be one. So we would work down and
may take me, you know, several years to get there.

(30:46):
But everything can be important. If everything's important, nothing's important,
and you get there. There are things that are more
important than others. They just have to be, and so
you have to know those things. Even in the yoga studio,
we would always talk about members, members, members, and members
are great, but there's a whole gambit of how.

Speaker 2 (31:06):
Much discount what type. We had three different types of members.

Speaker 3 (31:09):
So if I got three different types of members and
one is almost double the third is almost double the first,
why does it matter how many number of members? If
I have more of the higher value members, I don't
need as many members to make the same amount of profit. Right,
So to your point you got to find really what
leads and what trails. What I got to at the

(31:29):
yoga studio is this is how much revenue I need
to break even. Now how I get that revenue. I
got three different members, I can sell retail. I got
this whole gambit of I got its menu. But at
the end of the day, I need this amount of
money and I want to have as much of that
as recurring as possible. So let me also look at members,

(31:50):
but let me look at my attrition rates, because if
it takes me and we kind of did this, I
found this out over time. You spend a whole lot
of money getting a member and then they stay for
thirty days. I lost money, right, I didn't get customer
acquisition costs right exactly. So cust your acquisition cost is
so high that it doesn't really work out in the

(32:10):
long term. So there were certain sales I purposely wouldn't
run because it wasn't really getting someone that really wanted yoga.
They were just doing it because it was cheap. And
that's not gonna help me in the long term. And
my coastal acquisition cost is not gonna it's gonna take
me three months for them for me to break even,
for them to be a member, to break even, and

(32:31):
they're gonna be here two months, So I'm losing money.
And so to your point, you got to look at
what's going on the behind the scene to be able
to say, hey, this is generating.

Speaker 1 (32:40):
This is it the other thing I see you missing
all the time with small business owners and probably was
missing in your yoga studio. I'm not gonna throw the acquisition.
I'm not going to accuse you of this, but it's
very likely it is not understanding how the bottom level
evolves into the top level. What is the pathway, What
do they need to experiences, Why do they need to

(33:01):
get out of in that third that bottom level, what
do they need to miss and feel like the fear
of missing out that they're missing out on that next tier, Right,
they need to experience a while to keep them to
stay there, right, because you don't want you want the
tier you know, your general tier one person to come
in for thirty days to leave because they didn't cover
your customer acquisition costs. Right, Yeah, but you also want
to know that if they experience this type of experience

(33:23):
and they see tier level two and they don't get
to do certain things that tier level two gets to do,
and they miss out on that a little bit, that
they're thirty percent likely or forty more likely to make
tier level two. And then the same way, how do
we evolume evolve them to the luxury suite? Right, that
they're the best of the best. Confidence in some in
some industries that tier suite should be so high that

(33:45):
only a small percentage of your customers could afford it anyway, right,
and other industries, if you're just going like standard tiers,
it's just like another thing is like, okay, they're missing
out on Like I'm an easy sell. If I look
at something and go, this is free for thirty days,
and then this is fifteen dollars a month. But if
you pay thirty dollars a month, like I know I'm
going to make it to thirty dollars a month, then
I don't want to deal with the thought process again.

(34:06):
I want to get this thing done, so I'll just
go and then you know, but you know, or sometimes
I look at it and go, all I ever need
is the bare minimum of this product. It's filling a
gap that I have. I'm something else, I'm already using
you know, so I'm going to stick around with her,
but not knowing that path, how do how do I
educate slash grow, slash develop a customer a you know,

(34:29):
who is in tier one to tier two to tier three?

Speaker 2 (34:32):
You know?

Speaker 3 (34:32):
And I think that's the thing to you. It's kind
of to your earlier point on starting a business from
scratch and having something that's already there. Regardless of the
franchise and the model, every single location, every single three
mile radius is slightly different, and so you got to
tap into profiling your customer. And that's even something I

(34:55):
do now and I try to encourage my clients to
do that. You have to know who you're what your
customer looks like, You have to know what they look like.
Just can't be And I feel victim to this a
couple of times in corporate we can just get one percent, right, there's.

Speaker 2 (35:11):
One hundred thousand people that live there.

Speaker 3 (35:13):
We just get one percent that there's no actionableness there, right,
Who is my customer?

Speaker 2 (35:18):
What is their age? What do they like? Are they?
Am I going for the luxury customer?

Speaker 3 (35:23):
Am I going for the customer that just hey, they
need to get something today? You can make money in
both instances, but it's very hard to market to everybody.
You really have to be pinpoint and say, hey, this
is who my customer is. Yeah, those are great, but
this is who my customer is. I am not going

(35:43):
after AT and T. You know, AT and T. AT
ANDK called me and said, hey, we want Palasis to
do some work. Great, but I cannot win going up
against Deloitte to try to try to win some work
at AT and T.

Speaker 2 (35:55):
I don't want to, but I couldn't do that right.

Speaker 3 (35:57):
So I have clients they just constantly spend their money
trying to go after something that's just flat out unattainable
versus hey, who is my customer.

Speaker 1 (36:07):
The There's just so much to understand inside of this.
You've been from the big side of the business down
to the you know, the bottom, and you know owners
love to bracket about their revenue and you know how
much their buyers care about their businesses and stuff like that.
But when it all comes down to it, it's the
numbers are the one that tell the story, right, and

(36:29):
and growth growth is something where as buyers, you know,
the business buyers, not their customer buyers, but the business buyers.
We're looking for repeatability, Can we do what you did?

Speaker 2 (36:39):
You know?

Speaker 1 (36:39):
And often we have a little bit of ego. Honest,
I hope that. I hope mine's mostly handled these days.
But like we think we can do it better than
you can.

Speaker 3 (36:46):
Yes, right right, because if they didn't, you wouldn't. And
so there are some things and I've told some people before.
You know, it's okay to not change that because you
want a little bit of meat on there and you
want to help people to say hey, yeah, hey man,
you can do that much better. But yeah, that's that's
that's part of it. And again, I think that's part
of the sales process. I've had some some some some

(37:10):
some engagement in the past where every time the buyer
would say something they took offense. It's like no, no, no, no,
you want them to think they're smarter than you. That's
why they're gonna pay you this money. And if if
you are smarter than them, they're not gonna pay you.
So let's keep let's keep focused on the on the.

Speaker 1 (37:27):
Result, which reminded the buyers out there though real carefully,
you need to check your egi a little bit. If
you think you're stepping into a company who has been
that the owner has been running it for the last
thirty years, and you're gonna fix everything that he ever
did wrong. In the first thirty days, you're gonna mess
some things up. Plus your your customers, and your clients
are gonna hate you.

Speaker 2 (37:47):
Right, I'll end people your employees.

Speaker 1 (37:49):
Yeah, yeah, absolutely. My rule of thumb is don't change
anything for the first sixty to ninety days, and then
start looking for things yours, all your clients you know,
and your employees what they think you need to change, right,
and start with those items that are on that list
that mirror things you know you need to change that
you've seen. And then after that you'll have trust and

(38:10):
rapport through everybody you can start making some of the
other minor and even major changes. But I've seen I've
interviewed a couple of guys where they lost an entire
business because they wouldn't fixed everything in their first thirty days.
And the one guy had twenty one software engineers in
South Africa, so the only entire company left. Every one
of his employees left within like three weeks.

Speaker 3 (38:29):
So yeah, yeah, when we were doing murders and acquisition
in corporate, that was always one thing that we were.

Speaker 2 (38:37):
We would look at is what's the what the human
side of this.

Speaker 3 (38:41):
I've worked at two companies that were sold, so it's
helped me to understand all of the emotions that go
with being in a organization that you thought was great
that no longer's going to be there and your boss
is changing and you may have to go to a
different office or even a different building and manage that
change is huge and when people start looking, it's kind

(39:05):
of hard to stop them. And so to your point,
you know, you're buying this thing, you're buying a good
of you're buying customers, you're buying vendors, you're buying employees
that are a baseline to help you get there. But
every misstep in those buckets only makes it harder for
you to get to where you need to be. And
so to your point, kind of need to be a

(39:25):
little bit cautious, need to figure things out. There's ways
that you can do. We were always big in hey,
let's go there, let's talk to them, let's throw a party,
let's do let's let's get.

Speaker 2 (39:35):
To know them.

Speaker 3 (39:36):
Because the more you can do that, the better you
kind of stave off.

Speaker 2 (39:40):
Oh these are these are the bad guys. And that's
that's who you're going to be. You're the new owner.

Speaker 1 (39:43):
You're the bad guy, oh man. And it's a it's
a report building game with buying. The company's a report
building company. Uh, you know, managing a new culture and
a new environment and new employees is a report building game.
You got to build trust and report. Let's talk a
little bit about like kind of how do how does
it come evolved from startup to you know, Deloitte potential

(40:04):
client company in the realm of corporate finals, since you've
seen the whole spectrum, right, where do you think in
the life cycle of a company I've started something up,
do I need a bookkeeper versus an accountant? And a
bookkeeper versus a bookkeeper accountant at a CFO level type
of person. I honestly think there's revenue marks in my head.
I haven't painted out anyway the picture I paint. Is

(40:26):
there a certain revenue marks where you really probably should
can't afford to and you probably should have different tiers
of expertise come in.

Speaker 3 (40:34):
Yeah, so I don't have revenue marks, but only because
ideal in multiple industries, and I think depending on the
industries and the complexity of the operations, you may need it.
So you know, if you're a one man painter, you
may be able to make three four million dollars a
year and not really need much more than a bookkeeper.

(40:54):
You may be able to few great an excel. You
may be able to do it by yourself. You can
make five hundred thousand dollars. But if you've got manufacturing
and you have this, and you have this and you
have this, Okay, now the level of complexity kind of increases.
I would say, you know, the first thing is you
have to as an owner, you can't do everything. So
you have to decide where you're going to lean in

(41:15):
and where you can find somebody that is going to
take a load off and allow you to lean spend
more time to lean in. I think, you know, for
most people accounting you should be part of that. The
other thing you should have is someone to help you
make some decisions and help you think through some things.

Speaker 2 (41:32):
And so I think the fractional route. We do a
lot of fractional.

Speaker 3 (41:35):
Work with our with with with our clients where we're
part time bill keeper, we're part time CFO. You know,
even and I've done this, I've even just spent. All right,
I'm gonna spend three hundred dollars and we'll talk to
a sales executive just to figure out what do they
know that I don't know? And so I think it
does depend on the industry. Unfortunately, you need to you

(41:56):
need to be able to get the compliance done without
you being intently involved. I think is key. That's sales tax,
that's workman's comp that's payroll, those those those those kinds
of things. And then I think once you get to
a million, two million, three million, you really need to
start saying, am I making decisions? Are is this this

(42:17):
historical view of what happened thirty days, sixty days, ninety
days ago? That kind of by that point doesn't really matter, right,
And so then you need someone that is going to
help you again make those forward looking decisions. Where are
we going? Is this helping us to get where we're going?
Those kinds of things. So I don't know if I'm
answering your question one hundred percent, but.

Speaker 2 (42:40):
You know, I think it. Those are the two big
things I would say, is can I get my compliance?

Speaker 3 (42:44):
And then am I really getting questions answered that helped
me run my business better?

Speaker 1 (42:50):
So let's just give a hypothetical. You know, somebody's listening
to the show right now. They bought a company a
couple of years ago, they're getting ready to sell it.
What is that? You know, a finance makeover? What is that?
What is that day frame where they would hire a
guy like you come in clean up everything and make
everything look perfect so they can prep the best light
for like making a quality of EARNAE teams your stroll

(43:13):
because it's just done right.

Speaker 3 (43:15):
So part of it is all right, and that depends
on what the revenue is. But if I'm looking for
a quality of earnings a like do the financials make sense?
We run into balance sheets that don't balance. Your assets
have to equal your liabilities plus equity, and if they don't,
we got a problem.

Speaker 2 (43:32):
Inventory.

Speaker 3 (43:32):
You're a company that's inventory focused and inventory is the
same number for the last ten years.

Speaker 2 (43:39):
There's a problem there.

Speaker 3 (43:40):
Inventory's got to change, even if it's a dollar right,
inventory has to go up go down. Same with payables,
same with receivables. And so we would come in try
to help you. What are the big things that impact
your business? You know of your software sales and you
have people's credit cards, ar shouldn't be a big deal.
We're not gonna spend a bunch of time there. But
maybe we really need to look at revenue recognition. Are

(44:02):
you counting all of that someone pays you in January
for twelve months, are you counting all of that as
revenue or when in reality they could cancel at any
point in time. And really we need to be creating
a prepaid or something like that. So really kind of
having a financials that match the business, that's a hand
is I think key, and.

Speaker 2 (44:23):
That's what we would kind of help you with.

Speaker 3 (44:24):
And I think the other piece then is do you
have all the supporting documents to help So if you're
gonna go through a quality of earnings, they're gonna say,
great that you have inventory, but let me see your
subledger every inventory item. And if you don't have that,
that's gonna be a problem. So hey, maybe we need
to go in and dig on that. There's your subledger
actually equal your gl If it doesn't, that could potentially

(44:47):
be a problem. We need to make sure that we
have that because it's gonna be a very it's gonna
be a whole lot of requests to the extent that
that stuff can be.

Speaker 2 (44:56):
Done and done early.

Speaker 3 (44:59):
Then now you're not scrounging around trying to find bank
record bank statements and you know, realizing, well, wait a minute,
my AR doesn't match.

Speaker 2 (45:09):
I got a problem.

Speaker 3 (45:10):
Those aren't things that you want to be in the
middle of the the the the transaction doing. And I'd
say the last piece is the story. What's happened over
the last five years. Why did the business go up?
Why did the business go down? Some of that may
be key performance indicators, membership numbers, you know, sales numbers, widgets,

(45:30):
a number of customers, customer concentration. These maybe things that
we need to have. And again, now we're leading with
the story versus oh great question. We'll get back to
you and we'll we'll tell you in a minute.

Speaker 1 (45:43):
Given all that, if somebody has decent books, they're keeping records,
they're focused on you. But other they think they know
they're going to sell this thing, what's the window that
they need to before they work with you or somebody else,
because they know if they're selling the pe or something.
In particular industries, a quality versions is basically really right.
If you're gonna sell the pe in certain industries, some

(46:03):
industries they know kind of if you're selling your Mama
pop plumbing company in the PE, they're probably gonna get
away without it. You're selling, you know, a professional service,
a software company, there's some other stuff out there. They're
gonna do something equivalent to a kioe. So having one
is essential. What does it look like? What's the timeframe
they should like reach out to a guy like you
or your company or to do that prep work? Right,

(46:26):
you need ninety days, one hundred and eighty days? What
do you you know, a full twelve months? What do
you need to for most companies if they're in decent shape.

Speaker 3 (46:33):
Yeah, if they're in decent shape, I would at least
day a year because the way I view it is
you also don't want it to be a certain way
and then all of a sudden it just looks a
lot better, right, because then people are gonna they can
see that. A lot of people, every kind of house
has a different view. Some people are going to take

(46:54):
last twelve months, that's kind of typical.

Speaker 2 (46:57):
But you have some buyers. We have some clients average
of the last three years.

Speaker 3 (47:02):
So if the last year is great, but the last
two years, I don't have the information we don't have
bank statements. Then we got a client that wants three years. Hey,
this isn't going to help us. So I would say
at least a year, maybe two years if you can,
but definitely ninety days at least to be able to
go in and unfortunately, what you don't want to do

(47:25):
is be in a process and realize I got a
problem with my books. Right, that's not the right place,
especially if you're in the middle of an LI you
have an interested buyer, they're looking at it, and now
they're probably gonna go away, and now you need to
take time to fix it. That's just not a place
you want to be in. So earlier you know it's
rather that doesn't mean it's all work, but at least
to be able to find somebody and then to take

(47:46):
a step back and say, yeah, you're in pretty good shape,
or hey there's a lot more work here than you think.

Speaker 1 (47:52):
What else do you I have asked you a bunch
of questions. What have I missed? What should I What
kind of questions should I be asking you?

Speaker 3 (47:57):
Oh man, you've asked a lot of great questions. I'm
trying to think through. How important is it to have
a team around you, I think is one or even
a broker. I honestly think I know a lot of people,
especially there's the lower evaluations. They want to do everything themselves.
But I don't think that's actually helpful. I think you

(48:20):
need somebody that's independent that can also say, yeah, this person,
this is a good business, right, versus just the owner.
They're always going to tell you this is the best
thing since sliced bread. But you kind of need some
people that are independent. And then I think you still
need to run the business, and so you need some
people that can help, depending on the industry, depending on

(48:41):
what you are, depending on what you want to get
out of it. Marketing a business may be a full
time job and that's not what we do. But you
need someone that is out there that is fielding some
of this and again not that it's coming to you.
You need a buffer zone. And sometimes you know, I
have engagements where guys I'm ana go in. You guys
have this issue, but let me say it because I'm

(49:03):
the independent person, Whereas if you guys say it, it
may it may create some issues and hurt some relationships.

Speaker 1 (49:11):
I can tell you from the buyer's perspective, and I've
interviewed a bunch of buyers. I'm hanging out. I have
a a WhatsApp group that has one hundred and fifty
undred buyers. I hang out in there. We would much
rather in all cases have somebody on your team and
buy a seller's team that truly understand their financials and

(49:33):
can answer any question about the financials. Then we would
ever care about what you have as a broker. I
can tolerate your broker if you have the finance guy,
but if you don't have If you have a great
you can have the best broker in the world, and
if you don't, if he's blowing hot air up my
butt about your financials but can't answer the detailed questions,
you're gonna lose the deal. And the saying goes the

(49:54):
other way you go around. You can have the best
financial guy in the world. You can answer every question
about that, and the deal will get done without a broker.
Now I still think you need a broker. I think
you need a broker. Don't get me wrong. If you're
out there and you're thinking about selling your company, make
sure your financiers are solid to work with the financial
find you a financial guy that's comfortable in the mergers
and acquisitions conversations because there's some tough questions we're going

(50:16):
to you know, buyers are going to ask. Then pick
a broker that's okay working hand to hand with that
guy and communicating with that guy, because that's what we
want to see. It's at every buyer I talk to,
we want good, clean, solid financials. When we get lost
in your books, because everybody does them different, we're going
to get lost in there, looking around, stumbling around.

Speaker 2 (50:34):
Yep.

Speaker 1 (50:34):
We want somebody who can tell us what the story?
What is this you're trying to show me? Here? Why?
What's the story you're trying to tell? And then usually
we're gonna have somebody on our team that's really good
with financials that will tell us here's the story we
get from reading these financials. So reading financials, I told
you this before we hit the record button. I honestly
think it's kind of like reading a book. A person
really great at financials can sit down, look through all

(50:56):
some of some of these financials last two or three years,
spend maybe thirty minutes to an hour, sometimes two or
three hours to come back and go here's the story
that I see from this, you know, Yeah, they can.
They can tell you the almost the same thing that
the business owner tried to tell you in the interview.
We had great twenty nineteen, we had great this, you know, teraboratory.
Your struggles during this timeframe all the same story. But

(51:18):
the finance guy will be able to tell that too,
if the books are right. And if the books, if
the book story, the financial guy's story is different than
the seller story, usually something is wrong.

Speaker 2 (51:28):
Yes, yep, yep.

Speaker 3 (51:30):
So from your perspective, doesn't matter if that person's internal
external or is it kind of the same.

Speaker 1 (51:35):
I don't I don't care as long as somebody like
thoroughly understands what's going. And I don't think anybody that
I've ever interviewed or know friends with or buying companies,
we don't care who it is. Whether you have you know,
accounting firms. We find that easier to deal with than
we find brokers. A lot of the guys don't like
it too much because the accounting guys, well, if our

(51:56):
guys listening to the show are trying to negotiate creative
fine and seller finance and stuff like that, the accounting
guys always going to tell them. Now you should you
should get a lot more money down or you should
you know, there's their risk adverse, right, and that their
job is to you know, as as an accounting guy,
as an attorney, as a lot of these professions, your
job is to protect that client.

Speaker 2 (52:16):
Right.

Speaker 1 (52:16):
Well, there's more protection if the buyer gives a seller
a bigger down payment, right. And and most sellers, including myself,
and when I try to minimize the down payment so
we can go get a second one or a third one, right,
we're trying to give as little money up front as
possible so that you know we can grow by acquisition.
We can do three or four. So that said, I
still think hands down, having great financials and somebody can

(52:40):
answer questions about them will win you more hearten and
report and and and get you further down the path
of a sale than having the best broker on the planet.

Speaker 3 (52:51):
Yeah, no, I agree with you, And I think to
your you said something that that i'bum and piggyback on
is having someone that understands the process and so your
tax prepared may not be the best person for an
M and a transaction. I can't tell you how many
deals where well they're busy with taxes after April, you

(53:16):
know it's December. Yeah, in April they'll be able to
work on this. Well, my buyer is not going to
be here in April, right, and so you need to
have someone that understands the timing and to your point,
can can speak to the story. And quite honestly, I
love my profession, but that's where my profession needs to
get better. Is we'll tell you all the you know,

(53:38):
we're we're complying with this accounting pronouncement, that counting pronouncement.
That's great, but what's the story? And somebody that's been
through this to be able to tell the story is key.
And then you know, to some degree, I try to
coach my seller clients, Hey, this is what you got
to be able to say. I can say it, but

(53:59):
this is what's happening in your business. You have to
be able to say it.

Speaker 2 (54:03):
You know.

Speaker 3 (54:03):
So do you have an issue like something like sales,
what happened with sales? Sales went up, sales went down?
Would you have an issue if the accountant answers that
and not the owner, or if the owner says, well,
my account can answer that, would you have an issue
with that? It?

Speaker 2 (54:18):
Would you would you be okay with it.

Speaker 1 (54:20):
I want to hear both stories, and I want them
to align to some extent. I want to hear from
the sales guy, well, sales went up, you know we
you know, and the sales guys are going to tell
me things like, well, we spent less on marketing, right,
or he could even tell me like, it looks like
we had less on the sales team had less salary
that for the last two quarters, so it looks like
we lost a guy.

Speaker 2 (54:40):
Right.

Speaker 1 (54:40):
There's a there's a story told like a great accountant
or a great a financial person can go look at
it and go, hey, yeah, this business is a solid business.
It has ups and down, has some inventory issues we
have sometimes we run into issues with or it's got
some good turnover. They can see the turnover because they
see the payroll, right, they can see the turner. They
can see growth because they see roll increased. Right, and

(55:01):
it's not just commissions. They can see that it's broken
down in salaries and workers comp They see all those
numbers going out, So they go like, we're growing in
your The company is growing in people, it's growing in cells.
Inventory seems to be steady. You know, well, we don't
have any uh you know or even you know this
business industry. The economy looks great because our accounts receivable

(55:22):
is being paid on time still, you know, we're no
longer getting thirty sixteen, ninety and eighty days late or whatever.
They can tell you a story there that the seller
the owner sometimes I don't even know, you know. I asked
go owner, how the business doing. He's like, well, we're
doing four million in revenue. I was like, cool, what's
the You know, it's the life cycle of a customer,
right from the day you run into any medium on
the street to the day you get paid on the invoice.

(55:44):
What's that life cycle? Not the day you make the sell,
but the day that your money is in your your
your deposit in your account. And I don't know how
many banks I've seen, I mean, how business I've seen
where the guy says, you know, we've got three million
dollars in revenue. It's like, yeah, you got two million
of it in account's receivable in what a million of
it's right? One million of it's over three hundred days old. Man,
Like that's that's not good right now, So like you

(56:07):
got to fix that.

Speaker 3 (56:09):
So that said would that with that, Sorry for the question, Well,
would that keep you from buying the company or would
that would you see that as a potential opportunity, Hey,
this is a synergy that I can get. I can
come in, I can I can reduce the payment terms,
I can do whatever.

Speaker 2 (56:23):
But or would you this would this make you say?

Speaker 3 (56:25):
Uh?

Speaker 1 (56:26):
That would make for myself and all the other vis
I'm in the mode right now where I'm actually building
something again. I'm writing software. I don't know why I
got back in that mode, so I'm kind of out.
For the last probably a month or two, I've been
out of acquisition mode and more intro interested in trying
to launch something new, and then I'm gonna acquire things
to bolt onto it. So I'm writing software tools anyway.

(56:47):
That said, for all the people I know, the answer
would be it would just make it more affordable for me, right,
because the evaluation is going to go down if the owner,
if the owner can't tell the story, if the owner
doesn't know well right and the and if I can
fix it, then then I'm still interested. If I can't
fix it, then I don't personally, I don't do turnarounds

(57:08):
for a few guys out there that can that I
know that are really good at them. I would probably
just start calling those guys up and say, hey, man, here,
I think this is a turnaround. What would you do?
And if they say no, no, that's a great, Well,
that's gonna be easy to fix. I'll come on board
and to help you for ten percent of the ownership
or whatever. I might be interested still, but you're gonna
lose me if it's a if I can't fix it
or no a solution, you might you might lose me,

(57:29):
right But uh.

Speaker 3 (57:31):
And I think that's the thing that, especially if you're
trying to sell to pe or financial people, you have
to speak their language. And so I can kind of
speak their language. Accounting people, finance people can speak their language,
but to your point, the owner has to speak enough
of it to not say hey, yeah, and especially me

(57:52):
as a hired hand, I'm a hired hand. I may
not be around afterwards. It's kind of up to the
to the to the buyer. At that point, it does
not help the organization look good and sell it the
highest multiple.

Speaker 2 (58:05):
If I'm the only one that can answer those questions.

Speaker 3 (58:07):
That you know, hey, are you know look at our
turnover or our inventory turnover has increased, and here's the metrics,
and you can see that inventory turnover is increasing over time.
Some of that, in my view, the owner has to
be I can give him the information, but you got
to be able to present it and look at it.
And so many people are what's in my bank account?

(58:29):
Life is good? Right, my bank account goes up too much,
there's a problem. My bank account goes down too much.
There's a problem. But you got to be able to
have especially when you start looking at valuations ten million
dollars plus, they're expecting more than just that compliance that
just we got a tax return.

Speaker 1 (58:46):
It's interesting. I've seen so many of these where like,
well you had a great year. You go, yeah, my
wife wanted to move and get a bigger house, so yeah,
you basically he's the he's the main sells guy, so
he's right killed cells is like, or you know it
was time to replace my back. Well, the guy like
you doubled your revenue last year because yeah, I was
my bass boat died and I just wanted a new one.
So I basically pulled sixty hour weeks, got lots of sales,

(59:09):
and made sure I racked up enough cash by in
a year, I could just write a check for you know,
seventy thousand dollars bass boat I've been wanting, you know,
I was like, why don't you do that every year?
He goes because he's out on the bass boats where
the real story was, right, he can't do it every
year because he wants to spend time on that boat.
He just bought that said, you know, knowing this story,
Like the financial guy couldn't tell me this story.

Speaker 2 (59:28):
He had to.

Speaker 1 (59:28):
That's why I said, the stories have to match, yes, right, right,
you know the story. The story is like, hey, yeah,
we had a we had a great twenty you know,
twenty nineteen. Oh it was a dude to COVID I
guess probably because everybody stayed inside or like, no, it
was dude because the owner wanted something and we're willing
to put in a few extra hours. Right. That's why
I said, you gotta have this. You gotta hear the
story from both sides. I want somebody who really knows
the financials can tell me what they see, and I

(59:49):
want to hear what the owner things happened. And you know,
I want to see how I want to see alignments
and misalignments because those are the magic of things.

Speaker 2 (59:57):
Right.

Speaker 1 (59:58):
Where there's alignments, there's the truth and error usually, and
where there's misalignments, it's not necessarily the false.

Speaker 3 (01:00:03):
But there's room for improvement, yes, yet, and I think
there's got to be some My view of just M
and A in general is if you're a buyer, you
either have to get it at a discount or you
have to have synergies that are gonna make it better.
You cannot buy a company and do the exact same
thing that the other owner is because you either have debt,

(01:00:24):
you have equity holders, you have some type of bill
you now have to pay that they don't have to pay.

Speaker 2 (01:00:30):
And so you got to be identifying those things.

Speaker 3 (01:00:32):
And unfortunately, and I've dealt with this in corporate as well,
everything isn't a reason to walk away. There are some
things you have to say, guys, yes, this is they're
doing it this way and that is not the right way.
But you know the right way and you can get
that done. How much more revenue are we going to have?
How much more ebadad were gonna have? And even going

(01:00:53):
through the process, you should be kind of creating your
list of these are the synergies and this is how much.
There's documentation and studies that show that if you count
count those synergies and put a dollar amount to them,
they're more likely to happen than just say, hey, we're
gonna go in and we're gonna figure it out.

Speaker 1 (01:01:10):
Awesome. Well, I just realized what time it is. We're
a little over time here, So let's do a week
ago all day. The show is supposed to be about
an hour, so.

Speaker 2 (01:01:19):
I think we should Yeah, hey, no, this has been good.

Speaker 1 (01:01:21):
Yeah, So I don't want to I don't want to
kill a good conversation, but I do want to wrap
this up. So let's do a couple of things real quick.
How do people reach out? Let's do two things real quick.
Give me your top three takeaways. If somebody can only
remember one or two things, maybe three things from the
show today, what would you want them to remember.

Speaker 2 (01:01:37):
Your financials are more than your historical p and L.
It's a story.

Speaker 3 (01:01:42):
You need a team to help you evaluate any type
of sale or definitely any type of acquisition. That doesn't
necessarily need to be me, but it needs to be
people that you trust that can help you through it
and start early.

Speaker 2 (01:01:56):
Those would be the three that I would say, and.

Speaker 1 (01:01:58):
Then how do people reach out with you? It work
with you? What's the best way to contact sure?

Speaker 3 (01:02:01):
So best way to contact is email info at Palaxis
dot co. Not dot com but dot co. You can
also email me at Roscoe at Plexus dot co. We
have a website, but the best way to get in
contact me is email. You can also on the website.
We do have our phone number, but email is generally
the best. And we love talking to people. We're willing

(01:02:23):
to talk to you. It may work, it may not work,
but hopefully we can help you and get you to
someone that can.

Speaker 2 (01:02:29):
But we'd love to talk to people.

Speaker 1 (01:02:31):
All right, Roscoe, thank you man. It was fun. We
got a little carried away a little over time, but
we're gonna leave that all in there and we'll call
that a show. Hang out for just a few seconds
after it, Okay,