E127: Kirk Michie Discusses His Role As A Business Advisor And The Secrets To Selling A Business

[00:00:00] Ronald Skelton: I'm here with Kirk Michie. He's a business advisor with Candor Advisors. I'm glad to have you on the show today. Thank you for being on the show today, Kirk. 

[00:00:07] Kirk Michie: Thanks, Ron. It's good to be here. 

[00:00:09] Ronald Skelton: We always start off with the origin story. I won't give you the standard old joke, but, kind of tell us style how you, got on, got into this space. I know you have a varied background of everything from PE to entrepreneur to PE to now you're in a, an advisory role. But, can you give us the details of kind of how that came about?

[00:00:28] Kirk Michie: Yeah. I would say at some level I've been an advisor, client facing advisor for, three decades. I've been in, in finance and, business advisory, financial advisory. For all that time for the past almost 15 years I've been in what you would call the mergers and acquisitions business or advising founders on how to exit well.

[00:00:52] And at about 57 years old, just three and a half years ago, I'd gotten to the point where I no longer liked being a financial advisor. I was no longer, a partner at a private equity firm for a variety of reasons. But I wanted to be in the M and A business. And, so I launched CANDOR Advisors to be what at the time felt to me like a unique, transaction advisory business. With the idea that, I was gonna help people get to the right investment banker, get to the right m and a attorney, prepare themselves for the things that would amplify the potential sales price in terms of their deal. And maybe more importantly, protect against the things that would hurt them when they sold.

[00:01:34] And it was purely gonna be just that. And what happened, very quickly is that we were overwhelmed with demand for what we did. And since I was already licensed to be not only an investment banker, but a general securities principle and whatnot, Candor Advisors became a boutique and investment bank in addition to everything else.

[00:01:55] Ronald Skelton: Awesome. Awesome. Now, do you guys, specialize in any particular industry or sector? Or are there businesses you don't touch? 

[00:02:03] Kirk Michie: Yeah, great question. I would say that we are generalists. What happens is that the market, or our contacts pull us into subject matter expertise areas. For instance,I've done two large cannabis services transactions. So not plant touching, not growers, but people that sold two growers.

[00:02:21] Those transactions have been a little over a hundred million, a little over 200 million. And the irony, or poetry there, Ron, is that I'm 17 years sober and I haven't smoked weed for more than 30 years. So I know nothing about cannabis. I can barely identify it. So on the other end of the spectrum, we worked on a business that, that manufactured synthetically ultrapure nucleotides. And I know nothing about genomics and life science. And told the entrepreneur that when her m and a attorney suggested she talk to me. I said, I don't even think I understand what you do. And she just started laughing. This PhD, organic chemistry,person, said, look, I can teach you that. I need a deal guy. So we've worked in a lot of areas, and there are some that would, it would appear that we have certain specialties. But frankly, I would say that our specialty is working with entrepreneurs who are willing to kind of develop a covenant with their advisor that says, if you do the following things, we will get you to the following place.

[00:03:24] So maybe a little more evolved entrepreneur. A little more receptive entrepreneur. But not a specific business sector. 

[00:03:31] Ronald Skelton: All my friends did it growing up, but I didn't know anything about it. But, when I was in Oklahoma, constantly got cannabis steels put in front of me. He was like, look, I just don't know anything about the space. It's oversaturated there. At one point I, I did, I joked with a guy who was trying to get me to buy into a dispensary and he said, you gotta do this, man.

[00:03:45] It's the hot thing right now. I was like, yeah, it's so hot. I live remotely. I do here in California now, and I live there in Oklahoma. I always kinda like to be out by ourselves, away from everybody else. And, so our closest grocery store in Oklahoma was 17 miles away. So I had to drive 17 miles away to go to a super Walmart to buy groceries. But on the way I passed seven dispensaries. 

[00:04:04] Kirk Michie: I'm not at all shocked. I will tell you that. We regulate cannabis in this country as if it's a schedule one narcotic, like it's heroin or oxycodone. And the reality is that,I mean, look, it's like wine. It's about that, potent. And frankly, maybe even less so depending on THC content. But the other thing too is that we've done a horrible job of regulating licenses. And Canada was a great example. They're federally legal, whereas we're kind of state by state. And,30 some states have some level of legalization.

[00:04:38] But what we did was not regulate the number of licenses well enough. And then the enforcement of both users and growers is unevenly handled. And so, we've got a situation where, we're heading in the direction of what happened in Canada, where they're now. So they have so much oversupply that they quite literally burned 25% of their crop per year because they can't sell it. It's a funny time. I mean, I think some of these entrepreneurs will be like the early, kind of Miller Beer, Anheuser-Busch, Seagram's. I have met some massively talented entrepreneurs in the cannabis space.

[00:05:15] And then I've met a lot of what, in the cannabis space they call Chad's, which I would certainly be a Chad. Somebody who is, like, wants to make money from cannabis but knows nothing about it and comes to capital and a viewpoint, and that has hurt cannabis probably more than helped it. 

[00:05:32] Ronald Skelton: It's what I kept telling him. I was like, look, I don't know enough about the industry. There's two things in a state like Oklahoma where everybody that you would wanna partner with that knows the industry was doing it before it was legal. So they still have the mentality of they'll cross lines that you don't wanna cross. I have a friend right now who has a chance of facing federal charges. 

[00:05:50] His business partner, he had, he swears he had no insight to it. But his business partner, when they had both a grow and a dispensary and when things were hot, he was shipping stuff to other states cuz he couldn't have enough buyers to buy his stuff up. And when things were like, they had a bad crop and they had, they had more sales than they had crop to, to deal with, he would go across the line and bring stuff back. And, not okay at this point. so, here he is a real estate investor who just put money in it. And I liked the idea and thought he was gonna make a bunch of money on this. Now he is, talking to the DA and other people going, Hey, I had no idea. And he goes, yeah, but you're on the license.

[00:06:26] Kirk Michie: It is unevenly regulated, unevenly enforced. And, probably a larger problem than we can solve in a, in an hour long podcast. 

[00:06:36] Ronald Skelton: Let's talk about the other industries you're working with. That can't be the only one. I know it was a fun sidetrack because it's hot in a lot of states. Here, I can't take my kids skating without having to smell it because it's, recreational legal. So they can hang out outside and do it. So I take my kids at skate park, I have to tell 'em like, oh, that's just what they do. Just want you stay over here with me. I have a six year old, sorry, a seven and 12 year old, who have no business being around it at this point in my own mind.

[00:06:58] Kirk Michie: Mine are all adults. So if they use it,they don't need to ask my permission anyway. And if I go to a cannabis conference and I happen to be in a text exchange with them, they'll say, bring home samples. And I'll say, I wouldn't know what to bring. Like, I have no idea. We've worked in automotive fitness equipment.

[00:07:15] I mentioned the life science deal. We've worked with a few manufacturers, contract and, kind of in-house we've worked with,definitely with distribution businesses. We worked with the recycling business, that was a, more of a managed services business, so they weren't actually a hauling stuff. We recently did a food ingredients deal. We've done nearly a billion dollars worth of transactions in the last 18 or 19 months. And in, several of those sold large private companies to public companies, US and European. And I think, kind of the through line is they're all founder led businesses.

[00:07:51] We've yet to find that we're the right investment bank for a hired CEO who's taken a company to market. I think some of the kinda lower bulge bracket middle market firms are probably better at that. For me, I need to be able to connect with the founder and get them to the right outcome. And I need them to have an open enough mind that if the data leads us back to the idea that they won't get enough on a net after tax basis to endow their life. The way the business does that they'll explore other alternatives. Look, we find all the time that private equity people and investment bankers seem to really dislike ESOPs or seller finance transactions.

[00:08:32] And, not being cynical here, I would say there seems to be an obvious reason that, you know, if you're the investment banker that leads somebody to an esop, you're not gonna get a fee. But look, if that's the right outcome, my own viewpoint, and I'm not, a little (inaudible) here, this isn't charitable activity. I need the money that we make, but, it feels to me like there are enough well run,solid private businesses that there will be plenty of activity for all of us to be engaged in.

[00:09:00] Ronald Skelton: I had a couple guys on here about ESOPs and I learned so much about them. I'm a big fan now. There's so much more to them than most people even know, from tax advantages to just way companies are run differently once they're employee owned. It actually opened up my doors to, I got to interview the, he's not the author, but the strategic trainer for the Great Game of Business. The book called The Great Game of Business. They're lead strategic, one of the VPs and the lead of like, strategic training.

[00:09:27] The guy that goes out and trains other corporations on that. He was on the show. And then, I also had the CEO of EOS on here.

[00:09:34] Kirk Michie: Yeah, we right here in our backyard, I'm in, Carlsbad in, essentially North San Diego County. University of San Diego has the Beyster Institute. Bob Beyster was the founder of S A I C, which is a, one of the largest private government contractors. At the time he transitioned ownership to his employees and, they endowed the Beyster Institute at U S. They're U S D and,will they act as a consultant? Then we'll show people that, like for the company and for the seller, there are pretty meaningful tax benefits. And that on a, if you compare it to the net after tax of getting, one and a half or two turns more in multiple for a fully taxable sale, but you then look at if legacy matters to you, how well companies performed when they're employee owned.

[00:10:23] It starts to be really compelling. So I think it's part of the reason we don't just call ourselves an investment bank, but a transaction advisor because, wherever the data takes us, we don't use hope as a strategy. If the data says that, you can get 14 million, largely tax free selling to an ESOP or 20 million fully taxable selling to a private equity firm with a bunch of structure. And the private equity firm may or may not keep some of your people, and they definitely won't keep all of your culture intact.

[00:10:55] It's up to the business owner to decide which of those transactions work better for them. We're not the ultimate decider on that. But they should at least have that in front of them. They should have that option. 

[00:11:07] Ronald Skelton: That's awesome. You talked about seller finance, ESOPs, and then, private equity. Do you do much with the, like strategic buyers, like going out to, the potential competitors or other people that would be a strategic acquisition? 

[00:11:21] Kirk Michie: Sure. Absolutely. I mean, I think it's the job of any good investment banker to create competitive tension. So that, the seller is in position to get the highest price, the best terms, and the most control of their legacy.

[00:11:34] And,we have a firmly held belief here from a collaborative standpoint that seller's price, buyer's terms. Buyer's price, seller's terms, and every single deal point works that way in our mind. If the buyer, he's willing to meet our terms, but they want more structure. We go through each of the structure points and figure out, which one adds, which one, does not accomplish business risk transfer and which one does. And we look at the contingencies and the likelihood which structure pieces are gonna be passage of time. And which things, are unlikely to be in the control of the selling founder. And so, when we kind of think about who we're selling to, I would say, there's no monolith.

[00:12:14] It all kind of comes down to one of the first things we talk about and our six secrets to selling is, the first one is determining your why. Like when you know what your why is in selling, like, look, if you want to retire, If you wanna spend more time with your family, if you've got another idea that you wanna fund and work on, the buyer has to be matched up with your why, right? I mean, if you wanna sell for maximum cash upfront right off into the sunset, either because you never want to go to the office or make a decision about HR or legal again, then a private equity firm's not gonna be the right buyer, cuz they're gonna want you to stay involved for a while and they're gonna want you to be enticed by the second bite of the apple.

[00:12:54] On the other hand, if you're in your forties and you think the business could be bigger, but it needs more distribution and it needs, more professional management, then, taking some chips off the table in the first bite, de-risking a bit and building towards the next outcome with the right private equity or financial sponsor partner could be exactly the right why. You just gotta nail your why first before we as an investment bank can help you get there. And we help our sellers get to their why. We dig in pretty deep. 

[00:13:22] Ronald Skelton: You mentioned your six secrets to selling a business. I'm interested in yours. I, everybody I've met actually has their own like 5, 6, 7. But you have such a breadth of knowledge and history in this space. What were the common threads that lead you to the six secrets, selling your business? 

[00:13:38] Kirk Michie: Yeah, thanks Ron. That's exactly how we came up with them. I read a lot, so I love alliteration. The fact that it's six secrets sounds cool. But it's really, look, so finding your why is number one,and then, the second one is matching your buyer with your why, right? There is just no amount of financial analysis, that is gonna overcome a buyer who's wrong to match up with the why. The third one is professionalizing the financials. You need your financials to tell the true story of the transferable economics of your business. and I'm not talking about just painting yourself in the right light.

[00:14:11] I'm talking about making sure that the buyer,who wants to look at your adjusted EBITDA or your annual run rate revenue,understands the true picture of your business. And sure, in diligence, they're gonna pick it apart, but it need, which is why you need it to be professionalized. Look, if it's in QuickBooks, it needs to be CPA reviewed. If, it's never been audited and you're gonna be a pretty big transaction, you probably need a sell side quality of earnings from a reputable CPA firm. If it's already audited, you're probably fine, but professionalizing the financials is the third one.

[00:14:43] And then don't give up too much too soon. Most great selling founder entrepreneurs are great at selling. They are usually the lead kind of salesperson, customer service person. So when they get outreach from a buyer in order to keep rapport, they wanna get an NDA in place, or don't even worry about an NDA and provide a whole bunch of information. Some of which might be used against them when the IOI or L OI comes through. So don't give up too much too soon. Which then leads to the fifth thing, which is don't try and do this yourself. I'm not saying you need to hire a business broker or an investment bank or go find a top flight m and a attorney right off the bat. But minimally, at least go back to your Vistage group or to your CPA or to another entrepreneur who's been through this before and say, what are my risk factors here?

[00:15:38] And then the sixth is not intuitive, but that is the number one deal killer. In our view and our observation is seller expectations, right? So don't argue with the market. If the market says that a business of your size and your growth rate and your industry trades at four times adjusted ebitda, don't argue with the market. Just accept that, that's where it is. If you don't want that number, you don't like that number, come up with an alternative path or find a way to grow the business to the point, where at that multiple of EBITDA, which might actually rise as you grow the business, you can live with the sale. But you know, that's how we came to the six secrets. Those are the things that we see both optimize and penalize businesses. 

[00:16:19] Ronald Skelton: So I think this is a people business. And I love, there's a joke I always like to tell people is like, what's the number one cause of divorce? Well, the number one cause of divorce is marriage cuz you can't get divorced unless you're married, right?

[00:16:29] So the number two cause of divorce is unmet expectations. And, both sides go into this relationship with some expectation that have non communicated or not communicated well with the other. That's the same way with all these business deals. Both sides walked into this transaction with some set of expectations that they were gonna get at this. And very often the reason that fails is unmet expectations. The seller expected certain things, the buyer expected that they'd be okay. A lot of times the buyer expected they would, what they were gonna do next, and everything was really motivated until it was time to come down and sign that thing and walk away.

[00:17:03] And they're like, oh my God, what am I gonna do next? Their identities tied to it. But it's always gonna be, it's a people business. So funny is we're working on book right now. I've got a collaborative with a lot of the guests from the show and everything called not Two Sides, and it's about negotiating, that's the title of the book. The title will be called, not Two Sides, but it's a, just basically about negotiating any type of business deal. That it's not you versus them. It's not an us versus them. It's a collaborative. You both have expectations and on the soon as you can put those on the table and figure out what the other person's expectations and needs are.

[00:17:33] Like there's expectations, there's wants and there's needs. And there's some people that, a lot of people don't realize that stuff's different. 

[00:17:40] Kirk Michie: Right. Yeah, that's a fantastic insight. Look, when I say that, ideally you're working collaboratively with your buyer to get to the right answer, it doesn't mean that we're all,holding hands singing kumbaya. But it does mean that, like, look, there's a reason that, transactions advisors need to be in the mix, right? The corporate development person at a public company, or, the buy side investment banker working with the sell side investment banker.

[00:18:06] LeBron doesn't sit down with Genie Buss and work out his contract. His agent goes in there with the general manager and says, okay, this is what LeBron adds to the team. Here's the expectation, here's his market value. And then they start chopping it up, right? And sometimes somebody needs the designated a-hole in there to, kind of, say, no, we're not gonna sell for that number. Especially when the buyer. comes in with an unsolicited offer to the seller who has been thinking about selling,and doesn't understand that like, look, the buyer of your business is a full-time predator. And you as a seller or part-time prey. You need to armor up the junior person at a private equity firm.

[00:18:50] Somebody who doesn't even have a VP title yet has worked on more deals this year than you the seller who's built this business over the last 35 years will work on in your life. They know so much more than you. That you just need to balance things out. And once you balance things out, then you get to that collaborative outcome where you get to the right valuation, you get to the right structure, you match up with your why, and you get the right deal. Right? 

[00:19:17] Ronald Skelton: Yep. Thanks to, many years ago before I gained all this weight in those car wrecks stuff, I used to, fight full contact m m a, right? So I, I hold multiple black belts in different styles. And anyway, one of my favorite analogies in that realm is like, look, there's just certain people I would never walk into the ring with.

[00:19:35] The same goes in the realm with the business owners. You don't wanna crawl on their ring, especially an in invest, somebody who has an m and a attorney or investment bank and you don't have any, anybody in your corner. It's a really bad idea. If you wouldn't jump up and go, like, crawl into the UFC ring with one of those trained fighters and put on a pair of gloves and go at it with him. Because you just don't have the skillset set for that. You don't know what you're doing in that ring. Same thing goes, you don't what you're doing in that ring of that, of that office, sitting across from that boardroom table with four people who have, spent 10,000 hours, training those skills.

[00:20:07] Building those muscles and. I don't get it. I've had small business, owners reach out to me cuz I, I always tell everybody what I'm looking for on the show. I always tell people, I'm looking for e-commerce, content sites. I give 'em my whole list a lot of times on the show. Newsletters, podcasts, that type of stuff. So I have people reach out to me and I was like, cool. Who's helping you out on your side? And I'm like, well, do I need that? I said, well be honest with you, before we get this done, I'm probably gonna have an attorney look at my side. I would suggest you have somebody, work on your side. And you don't have to have it right now.

[00:20:35] We can look at it. The reason I asked you is I need to know what to expect. If you tell me you have an advisor or a broker or somebody helping you on your side, I can expect clean financials. I can expect good sets of reports on stuff. I need traffic and, things we need for e-commerce. I mean, website stuff,all that type of stuff. You're on your own, I know I'm gonna ask you questions you don't know. That, I'm gonna speak a language you don't know, right?

[00:20:58] Kirk Michie: I mean, look, you, sorry to interrupt, but I mean, you're spot on. You're nailing it. I mean, so part of it is the,first of all, I can't imagine, training for MMA because I don't like to get hit. When I, like early in my Pop Warner career, they wanted me to do a fullback cuz I was big and for my age and I was fast and, and I hit hard on defense.

[00:21:16] So they figured it would be great. But I closed my eyes every time I was about to receive the handoff. Because I was afraid to get hit. I can't imagine the MMA thing. But I will tell you one of the things that's common among entrepreneurs is that, they get to the point where advice bounces off of them. And I think some of it is guy behavior. We think somehow that we're weak if we need help. as opposed to standing on the shoulders of giants. As opposed to the idea that if I have your knowledge and experience added to mine, I'm much better off than I go without it. There is no, you don't get extra points or an extra gold star because you did your deal on your own.

[00:21:58] You saved 150,000 in legal fees, but you end up with all the risk in your transaction and the whole thing's got nothing but earnouts and rolled equity and seller notes and contingencies such that, you thought you sold your business for 25 million bucks and you only got 8 million after tax and you never see any of the contingencies. But you did it on your own. But there's an element there in that the, when we reach out and we ask for help in the areas where, I mean, we always have the opportunity to say, okay, now that I've heard what you have to offer, you're either not the right advisor or, I don't need that help. I'm good. 

[00:22:35] But it just makes sense. We network for everything else. We build our businesses by, kind of reaching out, bringing in resources. It just makes sense to pause that stubborn instinct that makes you a successful entrepreneur. Ignoring well-intentioned advice, and taking the advice when you need it most.

[00:22:53] Ronald Skelton: Yeah. You said something earlier, you have a theme or a motto, something about a gladiator. What was that?

[00:22:58] Kirk Michie: Yeah. Well, so this comes from, one of the guys on my advisory board, Kevin Hoffberg, was the venture partner at Ulu Ventures and has done a number of impressive jobs. And, early in his consulting career, he coined the phrasing that the best advisors are guru, guide and gladiator.

[00:23:18] He never trademarked it or protected the IP. So he's had to see people write bad books using that framework, not getting it quite right. And, I think it captures what we do. Look, most people that hire us as a transaction advisor think that they're paying us because we're gurus. We know more than they do about that area, and that's part of it for sure. But the guide piece, the helping 'em with every inflection point, using the benefit of our useful scar tissue to say. Well, here's what I've seen other founders do well, when faced with this set of, problems or issues or opportunities.

[00:23:55] And here's what we do. Here's what we recommend. The last piece, and probably the most important piece is gladiator. And I'm not talking about MMA fighting. I'm talking about, and I'm also not talking about squaring off against the other side in a deal or negotiating fees lower from an attorney. I'm talking about me fighting with current you on behalf of the future you that you've expressed to me, the guy who wants to have this outcome and this legacy, because your fears or your anger or something like that is getting in the way of that.

[00:24:28] And part of the reason that we don't make our fees at Candor Advisors purely based upon successful transactions is I don't yet know enough about any client, even when we're engaging them, and we kind of pick and choose. We're thoughtful about it. But I don't know how they're gonna react at certain inflection points in the deal. And,I'm gonna bring this back a little bit to, an earlier point you made about, when you're thinking about buying a business, you advise the other side that they should probably get some advice, at a right moment in time. The private equity firm I was part of never looked at a proprietary deal, meaning never looked at anything just because we'd sourced it.

[00:25:07] We only looked at deals that were represented by professional transactional advisors because we didn't want the seller to think that we were insulting them by asking questions about their financials. And we didn't want to deal with the fallout of having them not understand that many of the things you go through in due diligence are invasive and seem accusatory, but if you're the buyer, they're risk control. So there's just certain things you need to accept. And if you've got a good transaction advisor, he is gonna be able to say, look. They need to see three years worth of financials. And if you haven't been audited and you haven't done a QV,and they wanna look at, your bank recs for the last three years, that's reasonable.

[00:25:48] Cause they wanna make sure that, kind of the financial statements they're looking at tied to the bank statements. So, but if you're a seller and you don't have somebody advising you, you take that, as an insult to your integrity as opposed to recognizing it for what it is by the buyer, which is just risk control.

[00:26:06] Ronald Skelton: Yeah. And I tell potential buyers all the time, like, look, if you're going, cuz they asked me cuz I know I'm a marketing nerd. I was, Master's degree in marketing. All my experiences that I know how I know how to find outsourced deals or, off market deals. And I said, if you look before you go down that path, understand. If it's off market, you're now taking on two hats, right?

[00:26:23] And I said, what do you mean? I said, you're the buyer and the advisor because they ain't gonna know half the terms. it's, they're great. I still look for 'em, mainly cuz there's just not a lot of market for what I'm looking for. and if it is, it's finally combed over. But, But I still look for 'em. But I understand when I go into that, it's like, look, I'm gonna have to explain to you what an LOI is, right? I'm gonna explain to you why I wanna see, more than, two months worth of your web traffic. I wanna see the last 12 to 18 months of it. I wanna see the last three years of your bank statements.

[00:26:48] If you've been around for three more years. The standard due diligence stuff, and I have to go and like, explain to them cuz they do get offended. Like, you know what, you don't trust me. I was like, no, this is just standard. Like I can show you, website, after website, after website. Like, here's a list of the standard things you're gonna be asked or who are doing diligence. This is what this is called. It's me verifying that, I am getting what I'm buying. But if you don't, if you can't play that mediary of handling their emotions, you really like, like your PE firm probably shouldn't be talking to people who are not represented because you're taking on more than one hat.

[00:27:21] Or you're gonna have a lot of busted deals cuz deals just aren't, they're just not gonna make it all the way through. I always joked around in the real estate world saying that, you can't say the wrong thing to the right seller. If they really wanna sell bad enough, there's nothing you can say to mess up the deal. Now, the real question is, do you want something that somebody wants out of that bad? Where's the skeletons in this closet? With real estate, you can walk through and find them, right? And business deals you don't know about pending lawsuits and all kinds of weird stuff that could be why they're trying to fire sell it.

[00:27:46] But I'll go back to what you were saying is, having advisories on both sides, is critical. Like I don't do my own due diligence on, on these transactions. I look at the stuff, I'm gaining the eyesight of what I refer to as my own BS meter. I wanna know enough about every subject inside of this, and it's one of the reasons I started the show is just to learn. But I wanna learn, know enough about every subject, including the legal documents, the law, the, reps and warranties, all this stuff. What's normal, what's not normal, and stuff that something can raise my radar and say, go, wait a second.

[00:28:17] The last four deals I looked at had this, why is this one different? But, I don't wanna do that stuff myself, cuz I don't wanna spend the 10,000 plus hours in each one of those respected fields to get the knowledge I would require to do it right.

[00:28:30] Kirk Michie: Yeah. I look, I think,one of the challenges if you're a business owner,or you're,a professional buyer of businesses is that, at a certain point there are things that, we could cobble together and do okay on our own. 

[00:28:44] Like I've marked up enough, um, LOIs and enough purchase agreements that, you know,you could say that I do a great job at that and can substitute, for the attorney on that. But I would tell you that I missed a hundred percent of the days in law school. And so I don't know if I'm marking up an LOI and you are a Utah based, LLC and you're buying the assets of my California S-Corp. I don't know by the time it gets to a purchase agreement. Whether there's things that the different states and entity types are like how much of a difference that might make and the tax impact to me as a seller. And then by the time we get into reps and warranties like, I can't draft disclosure schedules.

[00:29:32] I don't necessarily, like, I know what excluded and included assets are. And I know how to talk about 'em conceptually. But,I mean, look, you've got, it's not just legal mumbo jumbo. There is risk transfer that happens and there's proper ownership of assets that need to take place. And look, you and I decide business person to business person on the terms that'll work for us, right? It's not like we're gonna go down to the DMV and just fill out a form and have this stuff transferred naturally. If we're not gonna have rep and warranty insurance, or if we're not gonna have tax insurance and we're not gonna kind of go through a full blown process and we're not gonna get attorneys involved, it might work out okay.

[00:30:14] But chances are one of us is gonna miss something to either or both of our detriment. And so, it's just, it's critical. Look, if you spend, decades building a business,it's a little bit of a bummer that you've gotta sell it off of trailing 12 months or last year's financials when you spent decades building it. But I would tell you if the last 12 months worth of financials don't represent the best 12 months you've had, you might wanna revisit whether it's the right time to sell it or not. And, that's just the way it's done. and, similarly, moving from an IOI to an LOI to an executed LOI to, a stock purchase agreement or asset purchase agreement and going through disclosure schedules and kind of nailing down all the pieces, Hey, look, it costs a lot, but there's a reason.

[00:31:02] There's a reason. that's the way you need to do it. 

[00:31:05] Ronald Skelton: What do you say to business owners that, I've kind, kind of come across a couple businesses right now where they transferred from generation to generation. They're on the second or third generation. And, to be honest, the books have never been right. They just operate based on what they need to get by to get their taxes right every year. And everything else is kind of done on,maybe they're in QuickBooks now, but you know, only in the last four years, everything before that has been done on those green tablets, right?

[00:31:31] I actually walk into company and it's like, I don't see any records in financials, past three years old. And I, they pointed at these file cabinets and they had row after row, after row after row of those big,green accounting notebooks. You know what I'm talking about?

[00:31:45] Kirk Michie: Yeah, I do. I do. And I'll tell you that the advice is different. If I'm talking to a seller, all of our clients are selling founders. We get contacted by private equity firms and even wealthy individuals that want our help in buying businesses. And, when we talk about,buyers being full-time predators, that doesn't mean that they're not nice people, and that doesn't mean that they're, they don't love their kids and their dog and all that other stuff.

[00:32:08] We're just talking about, kind of evening things out. And we've picked a side, if you will. But look, as, as a former partner, private equity firm, I can tell you that, some of the things, that, kind of these multi-generational, kind of chewing gum and bailing wire businesses do, will hurt them in a sale. Because if I'm a buyer and I see that you don't have organized financials, then I am definitely going to expect a discount. I'm gonna take a half of full, a turn and a half off the multiple because I can't really figure out the transferable economics of your business because your financials are just a mess from year to year, right?

[00:32:46] Similarly, if you've got a divorce or divorcing couple who founded or built the business, well that's an exploitable thing if I'm a buyer. Because it's a bad model for governance, fora divorced or divorcing couple to continue to try and run a business. It will eventually have problems, even if it's just, lower revenue and profits and maybe it'll just fall apart. Well, if I'm a buyer, I'm looking for dynamics like that because, look, I'm a value buyer in anything else I do. Once I decided on the car I wanted, I didn't wanna pay the top of the market to get it. I wanted to get the best deal possible. So if I'm a buyer, and you as the seller want eight times, and I think I can only either swing or I think your business is really worth six times and I'm gonna put three turns of leverage on it.

[00:33:36] And so if I pay above six times, it's not gonna work in my financial model. I'm not gonna be able to produce the return I or my LPs need. Well, I have to do something to get you from eight to six times to be able to buy your business. And I'm not insulting you. I'm not trying to steal your business from you. I want your business. It just doesn't work in my financial model at, it certainly now at current cost of debt. At that higher multiple. So the sides coming at it for different reasons is not, cuz you know, one's bad, one's good. One loves the business, the other one is in different, the business. It's more like, like they're coming at it from different directions with different stakeholders.

[00:34:15] Ronald Skelton: One of the first questions I ask, when I'm getting to know people is like, we talk about why they're selling. But else it's like, what do you wanna get out of the transaction? And I'm open for that conversation to be peace of mind and all the different things. But most of the time what comes out is a number, right?

[00:34:30] When I ask somebody, what do you wanna get out of the transaction? What are you looking to get out of selling your business? 1.2 million. Like, cool. Let's see how we can get you there. That's my response every single time. It's cool to see how I'm gonna get you there. It's cuz I don't know enough about their business at this stage and know whether or not they're already there or not there. And to be honest, more often than not, the way to get there is like, look, you need to go find yourself a team, an advisor. You're gonna have to grow this a little bit. Yeah, 1.2 million's possible. But we gonna have to double your recurring revenue, right? You're just, the industry multiples are X and you're at, you're at two x where you know. Not two X is multiple, but then you're two times what the industry's asking for.

[00:35:03] Kirk Michie: Absolutely. That, I mean, look, and that makes you a thoughtful buyer. One of the things that's been happening, which I think is good in the sense that because so many boomers and Gen Xers have been entrepreneurial and they're getting ready to exit either for retirement cuz they wanna do something different. It's great that there are so many, independent sponsors, search funds, family offices that wanna buy businesses.

[00:35:28] But it's also, if you're a seller, it just emphasizes the idea that, look, financial people, come up with ways to make sure that they look like the solution to every problem. And so, the numbers of pings we get from,founder friendly, buyout firms or, we wanna find a seller, who really wants to, de-risk right now and get the second bite of the apple down the road where we bring in our capital, our strategic guidance and our operating expertise to build the business together to another outcome.

[00:36:04] I mean, look, there aren't too many public market assets, and I don't want to get into NFTs and cannabis and crypto and all that. There are not too many public market assets that are gonna get you north of, high single digit returns over the next call at 10, 20 years, right? So the best way to generate 15, 20, 25% or more on your money is to find, a business that's probably a lifestyle business or a big lifestyle business. Put together the right structure and buy that business. It's a great way to generate a return. And if you're trying to create the return for limited partners or stakeholders that are backing you, the best way to make the highest return is to buy it cheaply, right? 

[00:36:47] Ronald Skelton: Oh, definitely. Right. 

[00:36:48] Kirk Michie: So, there is a, there's a good tension that's growing here. I mean, the idea that there are, some estimates are that there're as much as 2 trillion in private equity, private debt and venture capital out there that's committed and uninvested that dry powder. That's fantastic news for entrepreneurs thinking about selling because then if you add the buying power of all the strategics, that's great.

[00:37:10] That means that there's plenty of money out there. It also means that you don't marry the first girl you kiss. It's useful to, to sort of say, okay, what do I wanna really do? If last Friday you left the business and said, oh my God, honey, I don't know how much longer I can do this. This one's got an HR issue and that one wants to work remotely, this one wants to work back at the office. And,our biggest supplier is trying to grind us on price and our biggest customer isn't happy with, the speed of our, fixing problems. I don't know how much longer I can do this. If your decision after all that and a little bit more introspection is, I think it's about time I sell.

[00:37:52] I think I've lost my passion for running this company. Well then don't sell to a private equity firm. Or in some structure because they will say to you, what do you really want to do, Ron? And of course, the right answer is, whatever is best for the business. And they want you to stay involved in the business, right? So that's not the right outcome, even though that might shut off a source of potential capital or one of your exit paths, at least inwardly and with your closest advisors, you gotta be honest about that, right? Because then, as the path gets narrower, the best outcome gets more obvious. And as long as you, you can have anything you want, but you can't have everything you want. 

[00:38:37] You just gotta go through the deletion of the distracting things. Become an essentialist to get to the right outcome. 

[00:38:44] Ronald Skelton: Yeah. I like the, the approach of, when I look at these, and I haven't done anything in the last few months. Cause I've got, we moved here probably in the last six or eight months, haven't made any offers. I'm looking out there. but when I'm actively out there talking to business owners and stuff, the thing I like to do inside of the realm, especially I'm looking at small projects too. These are cash flowing blogs and stuff.

[00:39:03] A lot of 'em are six figures. Not even up into the second, the offer is. So not even up into the seven figures yet. But, I'm looking to create a little portfolio of stuff I can grow and I'm still learning the space. I might buy something bigger, like I own a pest control company and stuff like that. That would be a much larger purchase if I bought another one in Oklahoma to marry up to mine. That said, my favorite thing to do is like, like I said, what are you trying to get to? Let's see how we get you there. But the offers I typically make are,it's an LOI, but it has like three different things.

[00:39:31] Like, look, I know you wanna get the X right now, I can offer Y right here. I can offer half of what you want, right this very second. When I can arrange it, we can get the investors pulled together, we can get you taken care of. But it's half where you wanna be. If you fix X, Y, and z, my offer, and this operating, like if you get a new operator in there, you fix your accounting, this is done, your revenue hits this number, my offer still stands, but I can, all increase the offer price to, to, a little bit more. And then like, contact me when you're out where you want and if I, you know where you wanna be when you've got all, everything fixed.

[00:40:05] If that's six months a year down the road, I'm probably still, I'm only 51. I'll probably still be buying when you get there. Contact me. I'd love to, you built something incredible. I'd like to see you get there. I've even, I'm very honest though, a lot of times I, if they built something credible and I wanna look at it again, I tell 'em. It's like, when you're ready, go find yourself an advisor, get this ready when you're ready. Don't think you've burned a bridge with me. I can't get you where you want to be, but I'd love to have it if you get there. 

[00:40:27] Kirk Michie: So that's a really heads up way to approach it. Because what is behind that, what's not said is that, look, I will buy the business from you now. I just can't buy the business from you at the number you want. But if you find that continuing to operate the business, is either giving you more stress or less joy or less purpose than you'd want, I'm here. I'm a buyer. I'm just not a buyer at your price. So I'm gonna be passionate about my price discipline.

[00:40:57] Not about your business until I own it. And I think as a seller, like when a buyer gives you that kind of heads up, like a lot of times we get contacted when somebody's been watching our videos for, we hear like, I've been watching your videos for a year. And, I didn't give up too much too soon. And, I didn't provide them with information until we had an NDA. But now we've got an indication of interest and they want to go exclusive. And here's the list of things they've asked for before they put together an LOI. Right? We get contacted like that a lot.

[00:41:33] And one, it's neat to know that the videos are getting spread enough. People are visiting the website that they're going to the insights section of our website and like learning about the m and a business through stuff that is in my head. And it's not valuable unless I get it out there anyway. And we give it away for free. The what we give away, the how we charge for. But in those cases, many times I will say like, let's send an email to your buyer and say, Ron, I'm intrigued by our conversation last week and I'd love to continue the discussion. I've never done this before, so I'm copying the transaction advisor I've hired.

[00:42:12] Kirk Michie, Candor Advisors. You're gonna go to my website, you're gonna look me up. You're gonna see what my deal is, right? He'd love to jump on the phone and talk about your request list and see what's really necessary for you to get to a letter of intent. Okay. Well, there's gonna be three different kind of responses to that. One, will be hostile. The hostile one means we're chasing away a bad buyer and you don't really need to retain candor advisors. Not being me on that email is probably, you won't even have to pay our first month's fee. Because this person will respond hostilely. They will reveal who they are and we won't need to go into exclusivity.

[00:42:48] We'll just keep going. Plan A was running the business. We're gonna continue with Plan A. The second kind of response is sort of, neutral. It's professional, but you can tell that they're not thrilled. That there's a transaction advisor involved. So they're gonna go at least one or two more rounds of this before they might bail out. Well, that's great. We may or may not need to be retained, or we may only be, need to be retained for our minimum contract. And we might even forego that if in the first, call with the potential buyer, things devolve pretty quickly and we, find out that there's a bad fit.

[00:43:24] The third response, and quite frankly, the right response if you're the buyer is fantastic. That's a great idea, Ron. Kirk, nice to meet you. Look forward to jumping on a call. When are you available? If you're a legit buyer, that's always the right response, whether you like the fact that there's a transaction advisor inserted. And it changes your trajectory or not. Because you're absolutely gonna lose the relationship with that selling founder if you react hostilely. And so your best chance of buying the business is, to be able to proceed forward and see what's on my mind, right? 

[00:43:58] Ronald Skelton: Right. And, from the buyer's perspective, I'll tell you, I've never reacted hostile to that. It's happened for somebody, we were talking and they're like, okay. Cuz I encourage it anyway. At some point you probably gotta get an advisor cuz you, you really don't know. Like, I've only been doing this, I'm just all honest, like, hey, this is kind of the blind leading blind, right?

[00:44:16] I've only been in this space for two years. I've acquired some small stuff but nothing really big. I'm gonna bring an advisor and I've got, I've got a bunch of, I've interviewed over 150 people at this stage. I've got people I can call to ask questions, right? Who do you have that you can call and ask questions when you don't understand I'm something I'm talking to you about and you want a third party answer, right? I can respect that the answer shouldn't always come from me. So inside of that conversation, I'll tell you that I've never responded hostile. For one, a couple different times because I think, and the buyer barely had a little bit of cold, I mean, the seller was kind of cold feet to start it with.

[00:44:51] When we talk, cuz these are cold outreaches, I'm usually reaching out to. Like, are they even motivated to sell at this point? Like they're talking to an advisor, they're maybe talking to one or is this just a, another thing like, Hey, just talk to this guy and if he finally passes you, you get past all his stuff, I may still sell to you. Once I start talking to you, I wanna know, one of the first things I'm gonna ask you is, what do you think the seller game plan is here? Is he really gonna sell to me if we go through all this work? If you and I put all this time together, and he's paying you. And that's another thing. I ask all every time, are you commission only? Or do you get a monthly retainer? And he's like, why is that important?

[00:45:24] Well, if you get paid monthly, that I understand that he may or may not, close with me at the under end, but he's a lot more likely to be motivated if he's cutting you a check every month to get this to the other end, if he's only having to pay a success fee. He doesn't have to pay you unless we both win, you and I. Then there's a good chance he's not really considering selling. He just wanting to see how high you can get my number up to. I don't have time for that game. So I do have a bit of a pushback when I hear somebody's bringing in an advisor, cuz it, it changes my mindset, as are they truly motivated?

[00:45:53] Do they want to get to the other end of this? Or are they just trying to play the auction game, get my number up as high as possible, and then yet, you never hit my number. 

[00:46:00] Kirk Michie: Yeah. That's smart. That's really smart. I'll tell you, I probably should have put it in the proviso that like we generally work on pretty big transactions. So it's reasonable that the buyer, who's usually gonna be,a strategic, a company that's in the same business looking for a geography or an adjacency or a new product or an aquire. We're usually working on pretty big transactions, so the buyer should reasonably expect that a investment banker or something is gonna be hired at some point along the way.

[00:46:26] Smaller transactions, a lot of times, the business broker or investment banker is gonna muddy the waters. If one entrepreneur is buying the business of another entrepreneur, then probably all that's really necessary is the right attorneys get involved. And I agree with everything you said about the dynamics of the, kind of the fees and the success fees and all that. And the other thing too is that,what generally happens, is the, usually the most hostile responses, are from a slightly larger competitor, or from an independent sponsor. Like big private equity firms will say, Hey, let's jump on a call and let's see what your client's thoughts are about valuation.

[00:47:03] Like, they don't wanna waste outside resource money or time working on a deal that's not gonna fit. I got a client, kind of off and on client. each time he grows to a new level, he gets a little bit more outreach. He retains us and I engage with the potential buyers and they find out what his price expectation is and they eventually, go away. Because he has the rare software business that's got 50% net margins. So, most software businesses sell at a multiple of revenue. Well, his revenue is like four and a half million bucks. His net is two and a quarter. And so, like, when you have a net of two and a quarter and you're in a California pass through entity, you could be paying yourself over a million bucks a year.

[00:47:50] We are you're not gonna sell at two or three times your revenue because your net after tax will not reproduce that million, million and a half a year that you can pay yourself, right? So what the buyers are typically saying is, look, you're looking for a non-market deal and we're willing to do a heads up market deal, but your guys' expectations are too high. And when I say they are, here's the math on his side. And then they say, yeah, that, that makes sense. I don't think I'd sell the business either.

[00:48:20] And so in that case, nobody's mad, right? But you know, I think it, it kind of comes down to, if you as a capital provider or a buyer, are looking at the right size deal with the right seller chemistry and you're really clear on what you're looking for, size, sector, seller dynamics, then you will help somebody get to the right transaction for them. As long as, they won't be as clear as you, but you'll help them, to get to, Hey look, this is the kind of deal I can do. And, usually if there's an advisor,whether it's us or somebody else who says, so listen Ron,we're happy to provide you with following information to get you to an LOI. And feel free to make the LOI a range with a whole lot of qualifiers.

[00:49:07] Around what you need to see to validate this number, to be in that range, feel free to do that. Because we know you as a buyer don't want to develop a reputation as a guy who looks to re-trade things. So we wanna give you the latitude to give us like a range. We don't expect anybody to pay top of market, and throw an LOI out at, especially not in,in an environment where it's tougher to finance deals if you're a financial buyer because interest rates have, doubled and tripled.

[00:49:34] Ronald Skelton: So you mentioned videos, you mentioned the ebook and stuff. Where do people find these resources? And let's, let's talk about what resources you have available for people to, get started in knowing you and your firm. 

[00:49:46] Kirk Michie: Yeah. So we're at candor hyphen advisors.com. That's candor-advisors.com. The insight section of my website, has 70 or 80 videos on various topics.

[00:49:59] Most of the things that you're gonna run into as a buyer or a seller. At some point, I think if you hover for 10 seconds, it's gonna ask you to sign up. What that means is you get, a copy of the Six Secrets of Selling Your Business. That's a ebook that we shoot right out to you in a pdf. And then you'll get kind of a heads up when we're doing anything special promotionally. We send out a weekly, email newsletter that highlights a few things. We'll certainly publicize any recent deals that we've worked on. And we are about two months away from launching a more educational platform that'll be, my goal is not to scale our business so that there are seven more Kirks. But you know, cuz I, I want leverage, but not necessarily a bigger firm.

[00:50:44] But the way we can help more people is more of an educational platform. So we're gonna do, a curriculum that covers six months, every other week. We'll meet for 60 to 90 minutes and go through one of 12 factors that are pretty important to get to, whether you're selling in six months or, five years. So we're gonna roll that out pretty soon, and if you're already signed up for Candor Advisor stuff, you're gonna get that. And there's a look, there's a call to action button on the website that says talk to Kirk. That came actually from, one of the m and a attorneys who, referred me into that life science transaction I was talking about.

[00:51:21] The client had, a really heads up market-based engagement agreement in front of them from an investment bank. And he said this might be the right investment bank for you, but before you sign it, you should talk to Kirk first. And, talk to Kirk first didn't fit on the button. so just talk to Kirk is on the button.

[00:51:42] Ronald Skelton: Okay. 

[00:51:44] Kirk Michie: So that was our call to action. And that brings up a form that you can send me, a note that says, I'm Ron, here's what I'm interested in and would you please contact me at the following, email address or phone number. 

[00:51:56] Ronald Skelton: Now, are you active on social media, LinkedIn, or anything like that?

[00:51:59] Kirk Michie: I am. Candor Advisors and Kirk Michie both have, feeds on LinkedIn. We post weekly. We post the new video weekly. And then we are also on Instagram and, we have a Facebook page. I couldn't tell you necessarily how to get there. It would just be candor advisors if you search it. Yeah, so we're in a few different spots. And chances are if you're an entrepreneur, you know that does more than five to 10 million a year in revenue and your business is licensed and registered somewhere, you're probably getting our emails or you're sending us the spam, but, chances are you're getting our stuff.

[00:52:36] Ronald Skelton: That's cool. One last thing real quick. If somebody could only remember two or three things from the show today, what would you want 'em to walk away with? 

[00:52:42] Kirk Michie: Yeah. So focus on that why. Make sure you understand whether it's, retiring or getting rid of the stress or funding your next adventure that you're clear on why you wanna sell or have a capital event.

[00:52:56] I would focus your business always on purpose over profit, not because I think that you need to serve some social good, but just, you need a compass,for those inflections points. And then the last piece is if you get reached out to by,a financial sponsor or strategic buyer, just don't give up too much too soon. Don't give away your leverage cuz they, they're not bad people, but, they're gonna ask for as much as they can possibly get and it might not be in your interest to provide them with everything they're asking. 

[00:53:24] Ronald Skelton: Awesome. Awesome. Well, I appreciate having you on the show today and, if you got anything else to add?

[00:53:29] Kirk Michie: No, just thank you. Really, really enjoyed talking to you Ron, and, and love what you do. Thanks. Keep it up. 

[00:53:35] Ronald Skelton: And we'll call that a show.