E128: Gia And Walid Helps Business Owners Sell Their Companies And Maximize Their Exit

[00:00:00] Ronald Skelton: Hello and welcome to How2Exit. Today I'm here with two guests. I have Walid Costandi, and Gia Cilento. Thank you for being on the show. We have a special guest here today. [00:00:08] Gia Cilento: I'm glad to be here. I know we're both really glad to be here. Let's see. Getting started in m and a I was, for me, part of a pivot, although I had bought and exited a couple of companies before that, and done several startups. The real jump into was, at the beginning of Covid. So it's actually passed my three year mark, when I started and, actively pursuing a role in the m and a world. [00:00:33] A lot of my business had been in person. Working with clients and in my, publishing company and then my, marketing agency. So that kind of, I had to find something else to do and I found this world, really interesting and very, broad spectrum of people and businesses and I jumped right in. I love it. I think it's fantastic. [00:00:56] Ronald Skelton: Awesome. Walid, how did you get started? [00:01:00] Walid Costandi: Hey, great to be here, Ron. Thank you also. Well, I got started, in the nineties. I started an I S P with a friend of mine, and that's when we used to have dial up modem. So that was the first company I started and we sold it in 2000. [00:01:12] And, I went off on my own. I got into real estate. So I've always been kind of an entrepreneur, but after having a stint of a full-time job as an IT director, I really want to get back into owning companies again. So I started looking at,buying companies. And I came across the Harbour Club and that's how I think we all met in the end. And I was like, oh, this is great. So then, since 2021, I've been deeply involved in that and helping people,profit more in their companies. And that's how, Gia and I decided to work together to, helping entrepreneurs, get out of their business and make a lot of money. [00:01:51] And at the same time, we work with them to make a lot of money too. But, we want them to, of course, make the lions share. It's their business they started. [00:01:59] Ronald Skelton: And full disclosure to all our listeners out there, the three of us have worked together before. So one of the things that's, unique and I like about both of you guys is, one of the things we jumped into right after taking a course on this and learning what this world is, world of mergers and acquisitions is, one of the more complex strategies, right? [00:02:16] We started a rollup, a more advanced roll up than probably most. And, we worked on that for,for a while together. No fear in, like trying cool things, complex things that would be considereda little more advanced in the mergers and acquisition space right off the bat. We all work together on those. Let's jump into a little bit about, what's happened since then. Now I know we worked together, I think that was almost a year and a half, two years ago. Now that we've finished that project up but, what are you guys working on now? I kind of know, but let's, the listeners kind of, let's start off with the, I guess, I don't wanna lead into anything. [00:02:45] But let's start off with kind of the big project you're working on together, in the rollup phase. And we'll talk about some other cool stuff you guys are working on. [00:02:54] Gia Cilento: Sure. we've been working on a chocolate rollup. We jumped into the rollup again, and we spent about a year or so, maybe nine months doing research on different industries, figuring out. actually we used one of your templates for identifying industries and, Walid with his love of spreadsheets, worked with that to, to make it something that we could use, for our specific needs. And then we, the chocolate industry bubbled up to be the number one industry that met all of our parameters and we had quite a few parameters. So, we started putting together, we've worked, in that for about six months, I guess. [00:03:33] Ronald Skelton: It's interesting is I love doing tools like that. I use Walid as a example. Somebody asked for a similar spreadsheet I had done on something else and I gave it to him instantly. Oh, you don't want any money for this or anything. It's like, Nope. Whenever you do to it, I wanna see on the other end. And the reason I give away spreadsheets and stuff that I come up with is I come up with a decent idea and then I hand it to people all eat and it comes back better. [00:03:53] Walid Costandi: We should touch on that for a little bit because if we're, some out there as entrepreneur listening to this, I mean, it's very important, besides being disciplined and focused. One of those things that supports that is, making the right decisions and, so Ron's sheet had things like, valuation, like a criteria for the industry. [00:04:13] We had valuation multiples.are there legal issues in the industry? Are there buyers available? We added stuff like ESG focus. Is it mature competition, that kind of stuff. And so, we added a few things to Ron's sheet, and then we sorted them by like higher priority. And then we just had check boxes. And then if you meet all the check boxes, you get a score. So we went through like literally 150 industries is what we looked at. And then, in this season, and then we came up with a score, a weighted scoring system, and then in the end we got a one number. From like 80 to 160 or something. [00:04:49] And then we just, took the highest ranking and then, I think,dental and home healthcare were near the top also. And then the chocolate industry was in the top. We were like, Ooh, that's gonna be,it's very fragmented. It's gonna be fun and interesting. [00:05:04] Ronald Skelton: And when you're done, you can, and when you're done, you can do the dental right? [00:05:08] You can do the chocolate roll up, create a bunch of customers for the dental rollup later. [00:05:12] Walid Costandi: Well, why not? Assume the industry hasn't shifted that much. [00:05:16] Ronald Skelton: I like to joke and how on stuff, but yeah. The cool thing was is I sent that spreadsheet with you, the first thing you said when you see was like, well, we probably should weight these. I was like, yeah, I wanted to weight, do the weighted average thing, but I didn't know how to do that at Excel. And that it came back with the weighted average. [00:05:29] Now I looked at your formulas and go, oh, yeah, now I know how to, like, now I can change the weights of them for myself and weight things, every one of us have different criteria. To me, it's more important that, and, what's important to me is how liable is something, right? Because I have other assets to protect. I have, a family and kids that I don't wanna risk things that I've, accomplishes I've already made by a purchase I'm gonna about to make. So those were probably heavier weighted for me than somebody that's like, I don't have any other assets and I'm not worried about the liability. [00:05:56] How much money does it make? The ability to change those weighted averages is gonna be good for anybody that sees that. Let's go on from there. I'm totally gonna resist any chocolate jokes, right? Like the chocolate rollup jokes. We're gonna move on from there. Somebody said, well, one of my other friends, why didn't you jump in on the chocolate rollup, with them? I was like, I'm already freaking overweight. I don't wanna work every day. I have to resist chocolate constantly. [00:06:14] I was like, I always ask the wife, do we have any chocolate in the house? Last thing I wanna do is work every single day on a project talking about chocolate. [00:06:21] Walid Costandi: And the companies we talk to in the chocolate industry, I mean, it's really predominantly dark chocolate. When you're looking at slightly higher priced or significantly higher priced chocolate, it just tends to be dark. Although there's a lot of fine, very fine, book chocolates out there. And with dark chocolate, you just need a bite or two and you're satisfied. It's like coffee if you don't mind the bitterness. [00:06:42] Or you can get even sweeter dark chocolate. Now in my case, I can eat like a whole bar of dark chocolate. So I dunno, I'm the exception. But generally you tend to eat less because it's, you get satiated, from that. [00:06:55] Ronald Skelton: So you've been working on that for a little while there. You guys getting traction? I know, last time I heard you guys had some real traction in that realm and you're actually, got people interested in it. So, are you looking at all 50 states or international? what's the search parameters for, the chocolate rollup? [00:07:12] Walid Costandi: Well, one thing we did is, and this was of course under security advice, is that we decided to stay a little bit more focused towards our half of the country. Cause it's just too big and it slowing up so many opportunities. So we did focus on the right half of the country and we have,we have a lot of, people that we're talking to and one we get very close to. The one we get very close to is out west. But we're at a point now where we decided to deep dive into each company more, so we can have better conversations with 'em. [00:07:41] So that's the stage we're at now. We're trying to build those deeper conversations, understanding their issues and concerns and growth. Because, the first step, for us in building the roll up is finding a really good, anchor partner. So, which company wants to be the heart of it? And it's these anchors we've gotta talk to. And of course these are multimillion dollar companies, so we're using the Harbour Club method. It's, everybody thinks, that they're Hershey, but you know, some people don't think that. So when we are talking to more close details, these are the companies looking for that are open to partner with us and want to grow, and know there's opportunities in acquisition and us working with them. [00:08:23] Ronald Skelton: So in, a lot of industries, they have their own language, their own, mindset and stuff. So if I think for instance, like if you're looking around, you're looking at engineering companies. They literally have their own language on stuff. Do the chocolatiers, what's the, like, the kind of psychographics and demographics of the, the typical chocolatier owner? [00:08:41] Were they originally blue collar? Who is it that you talk, I've got my mind built a, like a persona or like who a chocolatier owner would be. And I'm wondering if it's wrong. Like, so, what are the typical owners you're coming across? [00:08:54] Walid Costandi: So there's a couple of different personas. Number one is the general,worker person, like either employee or executive middle class, upper middle class, who just loves chocolate and decides, you know what? I love chocolate. I'm gonna become a chocolatetier. Now, there's two routes, like they aren't all chocolatier. [00:09:14] You have chocolatiers, they have chocolate makers, they're very distinct. Chocolatier, gets ready made chocolate. Even though it's very high quality from different places, but it's already made. And then they have the recipe on when they,when they add the combinations of, flavors to it and whether they convert dark chocolate, to milk chocolate, if they do that. Or if they, how they paint it and so forth. Or do they mass produce or not mass produced. And then you have the chocolate maker that actually buy either unroasted or roasted, cacao or cacao nibs, and then they grind it or cook it and then produce from that their own, their own chocolate. So the chocolate maker. So all demographics, they kind of move into one of these two. [00:09:59] And then you also have the, purely business type that, are took over business and are just, making tacos a business and wanna scale up. And,from the ones that want to scale up, many of them would fit into our idea of how to grow a chocolate company. And a lot of the chocolatier or chocolate makers that, that went in for their passion, a certain percentage of them also will have that mindset also. Although they tend to our conversations and they tend to want to stay small and just with their family and two employees and make chocolate. And those are, they're wonderful. They make amazing, delicious chocolates. Beating them at all the conferences. It's just mind blowing. [00:10:40] But they're not our, they can't be partners with us because they have no, desire. They don't have a preference to, to grow, right? So we want the ones that have the ambition to grow and are very business aggressive. And the language they speak is, the ones that own the business and wanna grow the business. They talk more like, business expansion and understand capitalization and, recipes, cost, marketing, expansion. We can talk to them more in that sense. [00:11:08] Gia Cilento: Yeah. And I think a lot of them, even the people who are business, more business focused, they're still passionate about chocolate. And there's a lot, there's some divisiveness in the industry. There's, different perspectives about how the growers are treated and things of that nature. Similar to coffee, because there's that raw product and then there are supply chain issues. So there, there is a definite lingo, as Walid said, there's chocolate maker versus chocolatier and bean to bar and, what do all these things mean? [00:11:40] So there's a, an educational piece that we've had to go through and,a chocolatier doesn't wanna be called a chocolatier and vice versa. But the passion for the cacao and for the end product and for people having, I think that, that transcends the entire industry. They're very passionate about it, very sincerely passionate. [00:12:02] Ronald Skelton: I know that coffee can be growing across multiple areas and stuff. What about cacao? Is it just limited to a couple or is there quite a few areas where the world it can grow? [00:13:11] Walid Costandi: All over, like West Africa is a major growing area. South America, Central America. Even as far as,Indonesia, India. [00:12:18] Ronald Skelton: That's interesting. You're naming off a bunch of places where it's very common to get coffee to. I wonder if it's the same climate that, needed to grow coffee as it needs to. [00:12:27] Gia Cilento: I think it is. It's a very similar climate. And you have to farm it and it has trees. So it's very similar kind of, industry in that regard. [00:12:34] Ronald Skelton: So I looked at the coffee industry a few years ago when you guys are like doing your rollout thing. I was like, okay, what would I do if I was doing it? And coffee was on my top of my list. Mostly for buying the roasting, businesses and turning 'em into subscription based models. But one of the reasons I kind of pulled out of it is there is a lot of corruption in the coffee industry. There's a lot of markup for the middle man where the farmers get nothing and stuff. Is that's true in the cacao? Is that, you gotta really watch out that the farmers being taken care of. [00:13:02] Cuz in the coffee industry it's very common. The farmers are taken advantage of. The majority of the money goes to the middlemen. [00:13:08] Gia Cilento: Yeah. I think it's, I think it's similar. I know that there are movements to, to treat the farmers well and there are some farmers that have started, and that, that create their own bars. [00:13:19] So that they can have a piece of that part of the supply chain. And I think that there's a recognition of it throughout the industry too. To make sure that the growers are and the farmers are treated well. So it just depends on where they are in the world and how much of a voice they have. But there is an outcry, there is a stand. [00:13:39] Walid Costandi: Yeah. I mean, Ron, you hit the nail on the head with that. And what Gia and I have observed is that even the, totally business focused chocolate makers, like Gia said, they do have a focus on a passion for chocolate. [00:13:54] And almost every single one has a focus toward fair trade. The farmers has, have really been abused by monopolistic middlemen that pay them pennies, and then they sell it for high profit. That is, that has begun to shift so that a lot of chocolatiers and chocolate makers are actually buying chocolate directly from like co-ops with the farmers form co-ops. And then they get like, much higher rate for their chocolate. But the fair trade movement among chocolate makers and chocolatiers who only wanna source their chocolate from, large chocolate makers, that support fair trade is, it's really humbling. how much they have a passion for that. It is, it's quite a good thing they're doing. [00:14:41] Gia Cilento: And we have talked to, at least one farmer and, some growers too. So it's, and gotten that, that firsthand view, I guess. The firsthand, insight. [00:14:52] Ronald Skelton: So you guys are doing a roll up. The plan is to build a, chocolate entity that can actually help all the, business owners grow. And then within, what's your timeline? Three years, five years? Hit a certain performance metrics and then exit? Or what's the, overall timeframe? [00:15:09] Walid Costandi: As you get into this business, you realize that you can tell the timeframe and it's really hard to hit because you can't always force the growth in any industry. Certain industries, you can tweak the numbers. If it's digital, social, software, that can, be grown or adjusted. But in, and something hard, physical, like chocolate making. Our target is, it's gonna be a minimum of three year, Ron. [00:15:32] And then it could be up to five years. But, definitely our objective is to have an equity stake and we want the company owners to have majority stake,and grow it. We'll be making money along the way. We'll be making dividend and management fees, along the way. But, in the end, the point is to reach an exit. And then a lot of these companies we're working with, their goal is also to have an exit. If they don't have an exit in mind, then they're either not a good fit or we must have a, certain agreement that there's gonna be a buyout within three years or five years. [00:16:09] Ronald Skelton: Let's talk about some of the other stuff you guys are working on. Cause we got a lot of interesting areas to cover here. I mean, you did the, we did the marketing roll up together. You've both bought and sold companies. What have you learned over the years that you're applying to the current roll up and that you're applying to future acquisitions? [00:16:25] And we'll talk about your next project here in a second. But, what are some of the lessons learned that you're like, okay, I'm gonna make sure all these chocolate companies, they don't have to do this cuz I've already seen it. It's already hurt me and I don't want anybody else to get there. Do you have any lessons learned from prior experience? [00:16:40] Gia Cilento: Well, I mean, the main thing is treat everybody well. Be transparent, as possible. With the entire, stakeholder group, as much as you can legally and whenever. I mean those are some overarching things that, that come out of an anything. It's not always going, it's not always gonna work out the way you think it is. [00:17:00] So be prepared to be flexible and kind of try to keep figuring out what's gonna benefit everybody the most. [00:17:08] Ronald Skelton: What about, like their financials and stuff? Are you seeing that, when these companies are talking to you, they're put together, like their financials are really well put together? Or are you seeing this like any other industry where they're barely good enough to do their own taxes, but their financials aren't ready for any type of exit or anything. Are you seeing stuff in that realm? [00:17:25] Walid Costandi: Well, I mean, I just wanna go back to the first question, Ron. If you don't mind. Like when Gia was talking about transparency, we know one of the things we've learned is, and I've learned this, hard work up at time, is that you need to be upfront with all your deal structure. People don't want surprises. So it can make the first few conversations awkward. But you really have to be upfront saying, I want X, Y, Z. These are my expectations. What are your expectations? [00:17:52] Like, well, we want, Z y X, that's what we want it all. It's opposite. And then you reach middle ground. So either you walk away or you work. But if you've been working at it for months and then you're like, okay, let's sign the deal and here's what we want, then they bulk at it, it's like, you gotta be upfront with that stuff, right? You're not gonna give a referral to someone and then come back a year later and says, where's my fee? And you do their referral and upfront, and then you get your commission set up front and that's how you do business. So that was a very important lesson. And definitely,another thing we, I learned is that you have to deliver. [00:18:23] You can't not deliver. If you say something, it's as good as a promise. So then it's like, I'll get back to you next week and you, then that 10 days goes by, you already broke your promise. It's like you gotta deliver no matter how small or how big. [00:18:36] Gia Cilento: Integrity. [00:18:37] Ronald Skelton: Yeah. That integrity is and that trust is, it's hard to build and it's very simple to to ruin. [00:18:43] Gia Cilento: Easy to empty that bank account is, who is that? Seven Habits? I don't remember his name. Off the top of my head, but yeah. [00:18:50] Ronald Skelton: Seven Habits. Stephen Covey. I actually met the man and have a few autographs of in his books. Yeah. Let's go into, I know you guys are working on a pretty cool project coming up. I know it's not completely done. But let's spend some time on what you're building, why you're building it, why the market kind of needs it and stuff. [00:19:06] So I'll let either one of you kind of, make the, we'll leak it out here first type of a announcement of what you're working on. And, we'll go from there. [00:19:14] Gia Cilento: I'm really excited about this. in the first roll up, we did one of the, in the marketing industry, one of the things that became very clear to me was that, and also with the work I've done and the companies that I've acquired and then, accident, you don't always get the payoff, when you leave. [00:19:34] The payoff that you want or they think you deserve. So, there's a whole, a disparity. And part of what we wanna do with the immense amount of baby boomer business owners who are leaving, some of them have not gotten their companies to the place where they want them to be. Where they're gonna get that, where they're gonna be able to cash out with what they want. [00:19:56] And I think they deserve it. I think, if you're not at the place where you wanna be, if your company isn't big enough yet and you're not gonna get the amount of money you want for it, I wanna help and I can help. And Walid and I have come together on that. If you want that, the time, if you're tired of, even if you're not a baby boomer, but if you're tired of putting your time into the business and missing out on that time with your kids and your family and, you just kind of want your time back. [00:20:25] Or you wanna retire and move on to that next phase of your life, you kind of have to grow your company to the point where you're gonna be able to ask for the price that you want. Where you're gonna be able to ask for the cash that you want. And that's why we developed this, company called Cash Out Wealthy. I mean, a program. The program that we've been working on, and it's all about, how do you sell your business? We've created a mini course called How Do You Sell Your Business in a Buyer's Market? And,we're both really excited about bringing this program to people, because we did notice a need in the market. [00:20:58] So, did I capture that well Walid? Or you, you have something else you wanna add to that? [00:21:04] Walid Costandi: I'm so glad I don't have to. No, you're really on point. I mean, that's exactly what we said. People own businesses for a long time and even though they may be delegating and they have people working for 'em. A lot of critical decisions they, that they, consider very critical, they think they can only do themselves. [00:21:22] So there's a process where you have to kind of unlink yourself and create a process or a procedure where the decision making can be handed off to someone else. And it doesn't have to be executive, it could be something as simple as doing quotes. Like company that produces a product and they normally produce quotes to the customers before they get the invoices. Well, you can teach someone to do the quotes and you're not gonna go broke. You just need to sit with them on the first few ones and they have to come back to you on the more complex quotes. But you can teach someone how to do that. And then, you don't have to go and hire an estimator. [00:22:04] Your assistant manager or the floor manager who knows all the products and maybe some of the vendors can help do the quotes. And then you start shifting that. And then all of a sudden you have 5, 6, 7 hours a week free. And then you've already, unlinked. Okay, now you have time to attend the, grandkids events Friday afternoon or whatever. I mean, that's a quality of life. Why do you wanna have a business if you wanna, spend your whole life there? And that's not, see you've already missed out on your kids. Now you gonna miss out on your grandkids too. So you wanna bring that value to people to show them, look, here's one way that they can start regaining your time. [00:22:42] And then, so, and that's just the first step. You just do it again and again and again until you have taken yourself out of the equation. You're focusing more on growing the business. You're finding new markets, then you can hire people to do more work. And then they can hire someone to take over for you as a director or CEO. And then all of a sudden your business is bigger. And you have an executive running it and you can sell it. And so that's selling it for 500,000, which is maybe equal to your, your gross profit or whatever. Your net profit times two. Now you can sell it for, two, 3 million and that makes a huge difference in your retirement. [00:23:22] Ronald Skelton: Very, very good. So, I've interviewed quite a few business owners and, professionals. Nobody ever set out to go, you know what, I'm gonna start this business and work 90 hours a week for the rest of my life. And honestly, most of the time they didn't start off on day one. They might have in the first few weeks, especially in certain industries. Like if you're a software company, it's not uncommon to start a company and expect to be like, excuse my French, but balls of the wall for, for the first six months to get the product. [00:23:47] What happens is that tends to never go away. So for them, they're always at that, long hours and trying to get, run their unicorn hunting. So they're trying to run out, run out the profit as fast as they can or the growth. The business owners in your typical brick and mortar, they never started off that way. To be honest, I always joke around, say they're usually accidental entrepreneurs. Meaning that they did something really good and a buddy says, Hey, I'll take one of those. They did something for themselves or or something on the side for somebody and they're like, realize that people paid for it. [00:24:15] So, the guy who owns a mechanic shop, he was a mechanic at his own office,at his own, job. And know uncle's car breaks down, rings it over to his house, he fixes it. The next thing you know, the next guy does, and the next thing he's got all these side gigs. He's making enough money. He's like, I should really do this on my own. Next thing they know, now they gotta learn finances, right? They gotta do, get their stuff, all those receipts to the CPA so you can do taxes. And then, it's like, okay, I gotta do my own sales. [00:24:41] I brought two employees on. If I don't get some more cars in here, I'm gonna go. Now he's pulling 90 hour weeks when he thought he was just gonna be able to like, replace his income with the side, a side hustle. [00:24:50] Walid Costandi: I mean, there's a gotcha or a caveat. Okay. And that is, if you are at the point where you're completely exhausted or you're, you have ailments or illnesses that are forcing you to, to sell the company, then it's just, it's too late to grow it. [00:25:07] Walid Costandi: I mean, this is like a one to two year timeframe that you have to look at. So if someone is, wants to sell the business at a certain time in the near future, the time to start developing it into a larger business and separating yourself from the business has to happen now. You gotta start now because you never know when something's gonna happen that's gonna. I mean, I say this very passionately because just last Thursday, a friend of mine called me. We were friends from a while back. I helped them acquire property. And, he is like, can you please just review this offer for my building that I got? he wants to sell it and his business is in it and he owns the building and the business. [00:25:50] And then I regret not being in touch with him cause I could have helped him. But he's at a point now where he's had an injury and he has like, he's developed some asthma issues, and he just wants to sell the business. But he's not selling the business. He's selling the assets the business owns, the production assets. And he's selling the, the building. Now the real estate offer he got was very fantastic. It was a good price and they offered him time to liquidate his business. So I told him this is a good deal and so forth. It was a very good deal. But, I was like, well, do you wanna sell the business? And that's when he told me about his health issues and so forth. If I was in touch with him, which is, my bad for not following up after so many years. [00:26:31] I mean, I'm talking 15 years ago, with this deal. I would've been able to help him transform the business, get people, hire people, keep it at, over a million dollar in net income and then, who would've done a lease the building to the business and sell the business. And now he just owns the building and then he can sell the building. So you could have made, a million in the business and a million on the building. So instead of just making less 700,000 or so on the building itself now. Can't wait too long to transform it. [00:27:03] Ronald Skelton: I've seen it happen. I've seen people, like one of the first companies I came across when I got in the space was an electrical company. And unfortunately their owner passed away. It was commercial electricians. They had 20, 27 trucks or something like that. And,have to see what they went through. By the time the court had made a decision that the wife could actually take over and sign something, he didn't have any second signature authority on any checking accounts. [00:27:30] Nobody had the authority to write payroll out of it. It was just basically he did the accounting payroll and run this company. And had a massive coronary and passed away. That said it, they sold it for trucks and assets. There was nothing left by the time that you get through probate court. And the probate court, issues authority to do something. And I pulled together a team thinking maybe we could solve this. Were a, fast action team. If something happens to your company, we'll step in and run it until, until we can get it sold and we'll come in, we'll learn real fast. Usually there's somebody there, like a general manager or somebody that's been there for 15 years that can do it. [00:28:05] But I talked to six different attorneys and none of them thought we could get, like, expedite getting the authority to, to touch the finances. So I was like, okay, there's the option. Like, we bring our own money, right? We raise funds, we bring our own money and we step in, we run it on our money until we get the court approval to switch over. And all the attorneys like, that's not a good idea cuz you only need one, one person on that probate court to not agree with you being the guy that ends up running it on the afterwards or acquiring it. [00:28:32] That you did all the work for nothing. So I never could figure out a solution for it. But I think there's a play out there, in the exit world to basically to be the, a company that has a fast action team that can just step in and run something and keep it going until, to save these companies. [00:28:47] Gia Cilento: I mean, if you're gonna try and do it on your own and just to bring it. First off, you have to get your ducks in a row, your legal paperwork. It happened to my mother. Her husband passed away. She didn't have anything in her name, not even the car. [00:29:00] And it took her a while, which was a burden on her because she had to take care of everything else. Burying him and all that stuff. You don't get your ducks in a row, anything could happen at any time. You have no idea. You at least have to have a will or a something. A power of attorney. I'm not a lawyer, of course. So don't take my word for it, but go to your lawyer, go to somebody. Get it done. Go online. Make a will. But the thing is, if you have your business and you know that you wanna set yourself up, it could take you several years to do it on your own. [00:29:33] And if you have, I'm making a, a pitch here, I guess, you have us come in, or people like us. We have this knowledge. We know how to do it. We can go in and do an audit in, very quickly. A few weeks time, get an audit. We know where the gaps are. We know what to do. And so instead of 3, 4, 5 years of you trying to do it on your own, you've got it in a year or two. Maybe if there's problems. And you're at a place where you actually can get that exit or you can get the cash out of it, that you deserve without being hung out to dry or losing. [00:30:09] Ronald Skelton: There's a side effect here that you guys could help people do also. There's a, I call it the,trade my car in effect. So you think about this, you get ready to like, to go get a new car. Right before you go trade a card and what do you usually do to get the highest trading value? [00:30:20] You either detail it yourself or you have it detailed. You make everything look thick and spanned. And then on your way there, you're like, well, this car isn't that bad. It's all clean and nice now. Same thing happens with these businesses. If they get in there with, they work with you guys and, two years down the road, they only have to go to work on Fridays to check in with the general manager and do, the,do the check in. And like or more of a chairman of the board mode. Right? [00:30:42] Gia Cilento: You're kind of retired, and you're still getting the benefits. You still might have even a leadership role in some, in setting direction, in setting vision. And one of the other things that just came to mind as you were saying, when a business closes, it's not just the owner, that's impacted. [00:31:01] Aside from the owner's family. You've got the whole community, you've got the employees, you've got all the customers that are adversely impacted because they have to go and look for other jobs. They've gotta look for other,sorry I was. They've gotta look for, they've gotta go someplace else. And the community loses out because, even if you don't have a brick and mortar. So there we go. [00:31:23] Walid Costandi: A lot of it's owners we talk to, a lot of them care about their employees a lot. So, I mean, what you're saying, they rather not, just do that. But sometimes they don't know any better. They're like, oh man, I'm just tired and I can't do this anymore. [00:31:38] Ronald Skelton: So, the next thing I think I wanna ask you or bring up is we talked about people trying to exit and getting the highest multiple for their business and stuff. What I'm currently seeing in the marketplace, and I've been talking to a lot of private equity and companies that raise capital. Usually what's going on at the PE level and the capital raise level is so, kind of, there's a little bit of a mirror going on in the levels below it. [00:32:00] The people buying companies with SBAs and stuff. Not fully, but whatever's true up there, you better watch out for. So here's what I'm gonna tell you. Right now there's still trillions of dollars of dry powder sitting in all these, funds. These people who have raised money to acquire companies. These private equity funds, private equity companies. And they're still buying. But they're buying things that are risk, adverse, or riskless or whatever. They're basically lower risk. That's the word I'm looking for. It's scared money. So when PE gets scared money, so do a lot of other people. And what I mean by scared money is they're not gonna, they're not unicorn hunting right now. [00:32:37] They're looking for companies that have steady growth. They're not on a declining market. They're looking at your, trailing 12 month,average for your 24 or 36 month average of your cash flows and your profits and stuff. Are you trending up or trending down? Are you well managed? All the stuff that you guys help people do, used to be a selling point. You'll get a higher multiple if all those are in place. Now, could actually kill the deal if you don't. The private equity and the guys out there, and a lot of times even the strategic buyers, your competitors that would buy you, they're gonna look at that too because it is a buyer's market. [00:33:12] Buyers can be a little choosier and they don't, I guess the best way I could call our economy right now is uncertain. With the uncertainty in the current market, they're looking for sure deals. They're moving to things like, things that are less impacted by the economy. So there's a lot of big dental rollups going on, right? Cause you can get your teeth fixed one way or other. A lot of pet stuff, veterinarian services, pets. I bet your chocolate rollup will do just fine. People are gonna eat chocolate, whether the economy's good or bad. [00:33:36] Right? It's a passion product, right. I've been in up times and I've been in, down times. I've been in good economies and I've been bankrupt. I don't ever remember giving up chocolate because I didn't have any money. I think that one's okay. That said,how do you guys address that? How do you guys like, look if you're considering the possibility of a sell or you just wanna run your company more efficiently. So that when you're ready to sell, it's there. How do you guys address the fact that you almost have to now? Cuz like, it's not a difference between, it used to be the difference between a two x multiple and a strategic purchase of a five or six or seven, seven x multiple. [00:34:09] Now it's a difference between that six or seven multiple or not getting any offers at all. You're just not ready. [00:34:15] Gia Cilento: And I've seen that. I've talked to people who are in that position where, they're not getting, I think the point that I'm thinking about is that when you try to value your own company, and this is a mistake that I see people do. Especially if they're working with brokers, because they get an unrealistic valuation. [00:34:32] And they haven't taken the time to, and they can't, you can't really be objective about your own company. So you have to get someone else to help you because you see it one way, it's your baby. You could see it as your life work. It's your legacy. So you have a lot of vested interest in it and some filters that, stop you from being able to be objective about what's broken. What's working really well. Where do you need to shift? Who needs to go? Who do you need to promote? What products do you have online? And, maybe you have a pet product that just,it's making everything lag. So, bringing somebody else in is kind of vital to, to do that audit. To see where you stand, and where you need to fill things in. [00:35:17] First off, like Walid was talking about earlier, if you're running the show, nobody's gonna want it by you. I mean, just flat out they're not going, maybe you'll find a relative. [00:35:29] Ronald Skelton: If you're an operator, you're only gonna sell to another operator. [00:35:32] Gia Cilento: But it's not an easy sale either, because you're still gonna wanna, they're gonna want you to be around teaching them for a good several months. Three, six year. And then they need to be paid. [00:35:42] Ronald Skelton: That having that third party looking is critical. I grew up, my father was a painter. He worked in a paint factory during the day making paint or selling paint at the counter. I worked there from, as summer jobs when I was probably 14, 15, all the way up until I joined the military, until I was 20. [00:35:56] And then we painted houses on the side. And I call it painter's vision. When you paint a house, especially if you're doing rollers and brushes and doing a lot of it manually, you'll paint one side. Like I would paint one side, one of my crew members or my dad would paint the other side, the other wall. We'd go and we'd switch and we'd look at each other and like, look at all this stuff you missed. But if you looked at that wall and stepped back, I used to try to like, I would try. I was like, okay, I'm gonna, it's time to tell my dad to come by and check my side. I'm gonna go check his, but before I do, I'm gonna make sure I didn't miss anything this time. [00:36:22] That way he's got nothing to do. Because he'd give me a hard time. And I would go over that thing left and right, and then sure enough, every single time he would come over like, look at all this mess. And when he pointed out to, you're like, How did you find that so fast? I stared at this freaking side of the house for 20 minutes. Your mind believes something's done correctly and there's some trick it plays inside of there. It sees what you want it to see. And it's almost optical illusion level. I mean, a lot of people don't believe it exists, but it exists on anything. If you write a paper, you don't see the flaws until somebody reviews it, edits it. [00:36:49] Cause your mind will actually put the words in that you think are there. They'll fill in the gaps. And same time this happens with these business. You go in there, you've built this as your business as your baby. It's your legacy, it's everything. The employees, your family. You've got blind spots. You've got things that are happening on the day-to-day basis that you either can't see or refuse to see or don't realize that are important to see, that a third party's gonna be able to look at and go, any buyer's gonna want this fixed. [00:37:14] Walid Costandi: Yeah. I mean, like, in the valuation aspect of things in the lower market, and the smaller companies, there's, I mean, I don't wanna be digital business brokers. Business brokers, many of them do a great service in helping companies sell. But there's so many cases I've seen, like, I looked at one just yesterday. I got some feedback about potential company and, this is in our cabinet roll-up project. This company that's offered for sale had little under $200,000 in net profit before taxes and whatever. [00:37:49] And then they had a hundred thousand dollars in as, I'm wanna call them aspects from now on. In add backs. The add back owner's income, seller's taking, but the add back car utilization and a bunch of other stuff, which was a hundred thousand dollars. So now the seller's discretionary income or, seller discretionary benefit is 300,000. So now they, okay, let's buy this at two x, so now it's 600,000. And then let's add a little bit for negotiation. So the price is 620,000. Well, no, if you wanna sell your business, that is you're selling a job. But most people aren't looking for job to buy. They're looking for a business to buy. So if I wanna buy a business, I wanna put someone to run it. [00:38:34] So the cost of someone running it and being there full time needs to stay in there. And the better stay in there. So the net profit is 200. 200 times two is 400,000. That's the value. I know it's a very small business size I'm talking about. But when these boomers or baby boomers or other people wanna sell their business and they go to business broker and they get this unrealistic price that they can sell their business for, it sits and it doesn't sell. They just get disappointed by that. So you gotta value it properly. And then I think that's disservice some business brokers do, and that's a service we wanna provide. You wanna say, look, there's kind of almost a slap in the face, but they come to Jesus moment like, it's value is this much. Are you okay with this? [00:39:15] It's like, they may say yes, but they're like, no, I can't retire on that. Alright, well then here's how we bring it up to this. [00:39:21] Ronald Skelton: I'll tell you what I've been seeing. And, I haven't looked, I've been doing only online right now. It's a totally different world. I'm only dealing with single operators. [00:39:27] One or two people things. But the last full size business I looked at was a broker based deal. And we did the, we got to the point where we, like, I looked at their evaluations, their offer. It was interesting. Signed the nda, started getting paperwork, got to talk to the business owner. And within an hour of it, a conversation with him, had to call back the, after talking to the business owner, broker let me talk to him on my own, which was cool. [00:39:49] But, when I called the broker back, I was like, look, you really didn't do this guy of service. He says, why? And he says, you've got an ad back on the,for his salary. But you didn't take away the fact that this guy's doing four jobs. Like what do you mean doing four jobs? He's pulling 90 to a hundred hour weeks. He's the CEO. You added $110,000 in the salary for CEO to replace an operator. But he's also the lead sales guy. They only have a junior sales rep. It's him and this other guy. So he does almost 85% of the sales that come into this company, are with him. [00:40:17] You didn't ask him what his wife did for the business, but she's an accountant on the side and she comes in, in the evenings after her own accounting job, and pulls 10, 15 hours, a week doing his books and accounting. So now you need an accountant. That's not on the paperwork, right? I don't have that. Is his wife gonna continue working for me for free? We had this long talk about all these different roles he's done. So yeah, you added back $110,000 in salary or 125 or whatever it was, but you didn't take away that there's four, three other missing roles, that are $80,000 jobs each. [00:40:47] You added back 140, but we need to subtract $240,000 because, they're doing the job of these other people and I don't have that. And that happens a lot, right? A lot of the times a business broker won't look at all the different, look at the org chart, figure out what's supposed to be on the org chart and go, this is a business. Somebody has to be doing the accounting. So who's doing all the bookwork? Oh, my wife does that on the, nights and weekends. How many hours does that take? [00:41:11] She goes, oh, 10, 15 hours a week. Okay. There was just a list of stuff like that. He didn't have a janitor. He came in on the weekends and cleaned the factory floor and cleaned the whole place up himself. Scrubbed the bathroom, him and his wife. We'd scrubbed the bathrooms, mop the floors. It was kind of a, brick and mortar type of, manufacturing type of place, but they would sweep the floor. They had people on, on the, during the weekdays for safety reasons. They would do certain cleanups, but the deep cleans, they would come every weekend and clean the office themselves. [00:41:37] Like, I'm looking at running this thing remotely if I want it. My complaint in the hole in the business broker world is they don't look at the org chart. Most of 'em won't look at the org chart and go, okay, who fill these roles. To run a business, X, Y, and Z needs to happen. Who does X, who does Y and who does Z? And do we account for that in the financials? [00:41:54] Walid Costandi: That's spot on, Ron. I mean, that is, that's exactly right on that point. Then this multiple, like we said, $200,000, maybe it's worth 400, but then if you, if you increase the income and the business is now netting, let's say a million profit, now it's not direct anymore. Maybe it's gonna be four x. So now it went from a 400,000 to $4 million valuation. [00:42:17] Ronald Skelton: It's even more beautiful than that, Because now you got, so you know you wanna leave, so now you got a full-time sales guy. If all he had to focus on, do you think if you brought a full size sales guy, take him out on six adventures that you, your next six calls or whatever, he sees what you do. If he's really a rockstar performance, if you hired right, do you think that, and you've been pulling 90 hour weeks, who do you think's gonna do a better job? [00:42:37] A guy that spends 40 hours a week minimum to, to land new deals. Or you who had five different jobs that you were trying to fit into 90 hours. So the company's gonna grow that way. The second thing is like, okay, you get your financial team, and now the books look right and you got guys like you, like, what can we turn in the, how can we do things to increase revenue? There's higher multiples on certain types of revenue, right? Is there any recurring revenue model we can input into this? Can we put people on service contracts? Like, if you're a heat and air company, service contracts, the reoccurring revenue on service contracts is higher than the standard multiple for the actual ebitda. [00:43:11] They split that out and they give 'em a higher multiple for the recurring revenue. The big PE guys do anyway. So if you look at this stuff and you look at, like having somebody come in and look at your business from an outside point and go, what did the buyer want and how long did it take us to engineer that? I think it's a no-brainer to bring somebody in from a third party view. [00:43:28] Gia Cilento: Oh, yeah. Yeah. Because those, all of those things you talk about, they all have to be looked at and how many of them, if you're doing four or five jobs. Even if you're only doing two or three, you still don't have the time to put into, if you have the expertise. Which is doubtful for most business owners. [00:43:45] Just because you need to know so many things. You're not gonna have the expertise to go deep on any, especially like creating recurring revenue. That's not a minute. That's gonna take you some time. How do you productize something that you're charging one time, one-offs for? How do you keep clients coming back for more on a regular basis and create subscriptions and referral plans? And how do you increase your sales and how do you enter other markets? [00:44:09] How do you enter other product lines? How do you do all of these things that need to be done? How do you acquire new businesses to, to bolt on or boost your business or merge. How do you grow in all of these other aspects, when you're spending, even if you're only spending 80 hours a week. That's still exhausting. I'm just saying. Say you're spending 60 hours, you're still tired and you're doing something. Do you have an extra 80 hours to put into doing another acquisition? Or adding another product line? It's a lot of work. [00:44:42] Walid Costandi: And I would say this is, that's a second caveat. We said, the first caveat is you can't start doing this right when you want to exit. You gotta do it a year or more ahead of time. Second caveat is you have to stop thinking that you have to go it all yourself. Sure you have employees and sure you have people you can delegate to, but you can't be alone in your mind. [00:45:04] You have to open up and let a team come work with you to work on the company with you and get you across the finish line. I think we may sound depressing to some and, overwhelmed to some people about this valuation issues and the lack of profit and how you can bring it up. It's a lot of work. But the rabbit is get outta your head. You don't have to do it alone. Like, you have to open up, let a team work with you and, share some of that profit, but you're still gonna make a lot more than you're gonna do it. Try and do it on your own before you have that heart attack. [00:45:36] Ronald Skelton: One of the first businesses I looked at was a big concrete manufacturer, and it fell apart at the very, you guys heard the story because I told it during the, our roll up together. One of the reasons fell apart, we actually got our LOI signed and it was a like,a dollar down type of deal. [00:45:50] Like we weren't given any money up front cuz they were in big debt, in trouble with the IRS and a bunch of other stuff. But that's what stopped it from going through. On the other end was the IRS and one of their bank loans said, no, you can't transfer the assets. We have to, you have to settle with us first. That said, One of the things the owner kept saying to me along the way was like, Hey, this thing doesn't run without me. Like, I don't know how you're gonna phase me out. And she's like, it just won't work without me. Like she, she knew everything. She was third generation. Her dad had worked on it after her grandfather built it. [00:46:19] Grandpa built it. Dad ran it. Now she's running it. And, she's like, I don't know how this is gonna work without me. I'm always putting on fires. And on the after the IRS told us no, and we had to shut down. My last exit interview was like, I told her, don't ever tell another seller that. You ever tell another seller that this thing won't run without me? You either got a business that's not sellable, right? Or they're gonna want you to stay on forever and you're wanting to retire. [00:46:43] Gia Cilento: And you're gonna be an employee. [00:46:44] Ronald Skelton: Yeah. So, and I told her, I said, you're gonna have to work for the next two and a half years to fix, cuz they were working on paying down the IRS and do other stuff. And what I did is I gave her the attorney that like we knew we could reduce the, I had my guy, one of my guys on the team gave her our attorney cuz we, we knew we could reduce that bill. They never challenged it. And she just didn't realize she could. So we had a tax attorney lined up to, to help rectify the 970 something million dollars, or no, sorry, a thousand dollars, almost a million bucks. $978,000 or something. She owed the IRS. [00:47:15] Walid Costandi: And then people think that it's gonna hurt them completely when they open up the problems. But when open up the problems, you flush everything out, that transparency is gonna help you. [00:47:23] Ronald Skelton: Yeah. I told her two things. One, don't ever tell anybody this thing won't run without me. And two, now that you have to work on this for the next two years, fixing the IRS thing. Three years or whatever it's gonna take,with these attorneys helping you, work on getting yourself outta that mode. Cuz you, that's the reason I had to offer you a dollar down and take over your four and a half million dollars of debt on a company that's doing 13 million in revenue a year. [00:47:44] The reason I had to do that is so much risk upon this. day one I was coming in with, forensic accountants to fix their accounting cause it was messed up. And, a lawyer team to help negotiate the, the tax debt down. I was like, you fix those problems and you've got a business here that should sell, for millions, right? I mean, it should, it's very possible. But, we'll see where she goes. She's still working on it. But, last I heard, I haven't checked in her on it or about five or six months. I say I, I've got one of my guys on the team that calls her every once in a while. [00:48:13] But the whole point of that is business owners don't understand that, if you're in their day to day, the only person that's gonna,and you're pulling 60, 80, 90 hour weeks, the only person that can buy that is somebody who's looking for a different job. They're sick of, they're working for somebody else, and they're wanting to come in there and work 60, 80 hour weeks. And it's such a small pool of the buyers. They really are just shooting themselves in the foot. It's a luck game, to find that buyer. [00:48:40] Walid Costandi: You need to have someone come and look at your paint job and see where you're missing a lot. Open up and get that exposed. They can be fixed. [00:48:48] Ronald Skelton: And you guys know so many more exit strategies than they ever would able to find. Even a broker, right. Because you guys can come in and do everything from looking at ESOPs, employee stock auction programs to just a dozen different other things that a broker would probably never offer. [00:49:03] I think a lot of people think they can just go to broker, help 'em fix it, and get 'em ready to sell it. And there are broker advisors out there, but they're two different things. There's advisory groups that can really help you do what you need to do. There's broker groups that can actually help sell it at the end or, and a lot of brokers try to put the advisor hat on, and quite frankly, most of 'em don't have the credentials for it. [00:49:22] Okay. So how do people find this? I know it's not totally ready yet, but give us a, give us some ways that people can reach out to you, find out more about this. Coursework you're doing and work with you guys on helping them sell. How to exit their own business. [00:49:35] Gia Cilento: I think one of the best ways, if you wanted to get, a hold of our mini course when it comes out. If you wanted to go to cash out wealthy.com and sign up. We'll also have some more information on there to help you understand what we're doing. You can also reach either one of us at our names at LinkedIn. We have our Chaco Thrive page on LinkedIn also, which is our, chocolate roll up. [00:50:00] So I think those are the best ways. If you wanted to reach either one of us at, our names with a dot. Gia dot Cilento at cash out wealthy.com. If you wanted to email me, I'd be more than happy to answer any questions. And I'm sure Walid, Walid is, has a dot in the middle of his name at cashoutwealthy.com. We can put that up at the end, Ron. [00:50:22] Walid Costandi: We'll make simpler emails. Walid@cashoutwealthy and gia@cashoutwealthy. [00:50:27] Ronald Skelton: Okay. Awesome. So, I'll put that up in the end and make sure it's in the show notes. For you guys are driving you don't have to write that down. We'll put it in the show notes. [00:50:34] So last question here. Now this is, individually, if somebody, so Walid, we'll go with you first. You're on the spot. If somebody can only remember three things from the show today, what would you have them remember as far as, mergers and acquisitions go? [00:50:50] Walid Costandi: Alright. Number one, start preparing now when you wanna sell. Number two, it's okay to open up and, think about your business in terms of that you are not the most important person in the world for it. That you can delegate everything you do. And then, number three is you really don't have to go alone. [00:51:11] Ronald Skelton: Okay. And what are yours Gia? You can't use the same ones. [00:51:14] Gia Cilento: The good ones? No. [00:51:15] Ronald Skelton: Nope. You can't use the same ones. Three takeaways that you'd want them to know. I made it harder for Gia. She has to go after you. [00:51:22] Gia Cilento: Yeah. there's a way to do it. And keep your options open. Don't close your doors because you're frustrated. Reach out and ask for help. [00:51:34] I think, is that one? That's probably one. But it really, that is the main one. Ask for help. And I know a lot of people don't like to ask for help. I hate it. And they say men are worse at it than women. I don't think it's true. I think everybody, nobody likes to ask for help. Maybe some people do. [00:51:49] But, number two, you have to be,I hate to say it this way cuz I, it sounds kind of pessimistic. But you have to understand that right now, it is a buyer's market. And, don't have the exit dictate to you. You choose what kind of exit you're gonna have. Don't be sitting, don't have your exit be at your desk, failing your family. Decide what it's gonna be and make it happen. [00:52:16] Ronald Skelton: All right. So one more time. How do people reach you and we'll call that a show. So, Walid, if somebody just wants to like, Walid's a really cool guy. I want to connect with him and see, keep track of what Walid's doing in the world. How do you want him to do that? Where do you hang out? [00:52:29] Walid Costandi: Cashoutwealthy.com. That's what we're, we would, sure people will find us. [00:52:33] Ronald Skelton: Okay. How about you Gia? Is that where you want 'em to go to your email and cash out wealthy.com or? [00:52:37] Gia Cilento: Yeah, it's simple. G I A at cash out wealthy.com. In case they're not reading, in case they're listening. G I A at cashoutwealthy.com or Walid, W A L I D at cash out wealthy.com. [00:52:54] Ronald Skelton: Awesome. And we'll call that a show.