E194: Navigating Business Success: Insights from Entrepreneur and M&A Expert Richard Tunnah

[00:00:00] Ronald Skelton: Hello and welcome to the How2Exit Podcast. Today I'm here with Richard Tunnah and we're going to talk about the, his life in the mergers and acquisitions world. He's created multiple businesses. He's sold them and, actually helps other people do some of that. So thank you today, Richard, for being here. From across the pond, actually. You're, uh, you're on the opposite side of the planet or maybe not the total opposite. I don't know what the opposite side of California would be. 

[00:00:23] Richard Tunnah: Thank you for having me.

At least they're at least halfway across the planet, right? So, Yeah, something like that. Across a bit of water, a lot of water.

[00:00:33] Ronald Skelton: Cool. I think we have the same weather as you. Usually I always think, if I think of London, I think of over, overcast, like a little fog and maybe a little misty rain. And, uh, I live in the Redwood forest, so we got the same thing going on here in the last couple of weeks so. At least we have the same weather, you know, outside.

[00:00:49] Richard Tunnah: Yes, yeah, yeah, exactly.

[00:00:51] Ronald Skelton: I always like to start with the, the origin story. Kind of, how did you get into mergers and acquisitions? What made you, come down this path? I joke around all the time and say, Hey, you were born and then you ended up on a show about buying and selling businesses. How did you end up here?

[00:01:05] Richard Tunnah: Yeah, I mean, my story is an interesting story. I mean, I left school with no qualifications. I struggled for the first 10 years of my life. Had very bad asthma and eczema and was in and out of hospital. At 15, my mother sent me for some English extra lessons, much to my disdain. And the lady said, while you're struggling because you're dyslexic.

And no one had said that to me. So yeah, I left school at 16. Really didn't have any qualifications. Went into retail. Worked in some high end men's clothes shops. Went my way up in a business. It got acquired by American business principles, which was a big chain in the UK of clothes for men and women. And at the time it was very good.

I was a manager movement way up from a 17, raw 17 year old up to a manager. And they worked out that it was better to have four part time managers working 10 hours or less for tax and, all those good things and reasons. So they turned around to me and said, we don't want you doing 40 hours. We want you doing 10 hours.

We can give you some redundancy if you want to do that. And I said, no, I'll take the full redundancy. Thank you. I've been here four and a half years. It's got a nice bit of lump sum. And then my plan was to go back into working for someone else. And I met up with a friend of mine and he said, I've got an idea to do something.

This was 93. And we set up a online classified site, not unlike Craigslist or Gumtree. And we allow people to post throughout the world under sections. They're ad free, but we wanted them to pay to be at the top of the listings. Now, I don't know if you remember those times when I was in the early 90s on the internet.

It was a crazy time. I mean, we were paying, I'll give you an idea. I mean, my, my phone bill at the time was about 700 pounds. So over a thousand bucks, probably equivalent. Um, cause I was paying per megabyte, believe it or not, or kilobyte I think actually it was at the time. My hosting was, I think that was about 500 pounds a month.

My domain name, I think they were 150 to 200 pounds a year. And we went to our local bank and said, Oh, we want to take credit cards online. Want to take payments so people can upgrade and they can have at the top of the listing. And they laughed us out of the bank. They said, internet, it's all a scam.

Never catch on. We're not touching that. We're not interested in providing you a merchant account to get credit cards online. So we looked around a few of the banks and pretty much that was the, the same everywhere. They just weren't interested. They laughed us out, said we're not supporting that.

It's a fad, you know, all the rest of it. Um, And eventually we hooked up with a new company called Worldpay, which is a huge company now taking payments online. And I think at the time they accepted us because they were new, but we were paying, I think about 39 percent of each in transaction fee. So we were getting killed on the transaction fees.

[00:04:17] Ronald Skelton: I remember those days. I remember those days. Yeah.

[00:04:21] Richard Tunnah: I mean, it was, it was either, we took, we either work with them or we couldn't take payments online. And I mean, this was at the time where everything was sort of very slow anyway. So, we wanted a simple process to do that. And we worked that for a couple of years and then we decided we'd take an exit out of that at a very early stage.

And then we moved into web design. This was in the nine later nineties when actually we could charge about 5, 000 pounds when we're charging for a very simple website. Probably something you can do on Squarespace now or something equivalent, to be honest, but we were, we had a coder that was hand coding each website with simple pictures, et cetera.

And our clientele was sort of the luxury end. It was people that wanted to be seen and jump in on this new internet thing that was prevailing. So we did that for a few years. And then we exited that. And then I saw an opportunity, to sell on eBay. End of line designer t shirts. And I used to buy in bulk from DKNY and Ralph Lauren t shirts. And then I would flip them on eBay and make my margins. Um, and that was a very good business for about 18 months. It got more competitive cause people saw what I was doing. Um, And then I exited that and moved into consulting. Consulting businesses to grow. Worked on that a couple of years, exited that and then moved on to consulting with in terms of getting published in books and getting your name out there. So brand, really our personal branding. Worked with that for a couple of years and exited that. And then, about eight, eight and a half years ago, I met a former investment banker who said to me, Why don't you start acquiring businesses?

And input your skillset into these businesses. Cause you've obviously got quite a history of skillsets. And me, like most people I chat to today said, well, isn't that only for, you know, the, the multi billionaires and the PEs with huge pockets, et cetera. And he said, no, no. And we acquired some businesses.

Most recently I've just exited a security company that we acquired. We acquired it probably at the worst time ever, this security business. We acquired it and completed, on the 28th of February, 2020. People there in the UK in March, our government went in complete lockdown. This was a consultancy business.

We work with a lot of, um, high profile banks and government agencies going in and checking their security. And suddenly, we couldn't do that. So we had to pivot to helping them work remotely. Basically to just have a business. And thankfully we managed to do that. Get back up again, and then, an investor that came in made me an offer, for my equity stake and exited, June I think it was that of last year. 

So that's kind of my, so I've, I've seen this, this journey from a few different points of view, to be honest. Starting off with a, you know, bootstrapping which is, I was in my early twenties when I started, but it's certainly not an easy route to take, I would say. And taking the early exits, you know, on those and then acquiring slightly bigger companies. And then looking at building on those and then exiting. So that's kind of my journey, I guess.

[00:08:09] Ronald Skelton: And if you're like me, there's probably a half a dozen businesses that were ideas. You kind of put a little time and energy to in the middle there that just never took off, didn't get product market fit. We always talk about the ones that grew and sold cause they took up years of our time, but we don't, we rarely talk about the, Hey, I tried this for three months. I couldn't get anybody to like it. Right. And,

[00:08:30] Richard Tunnah: There's a few Ronald. I mean, I remember one after the clothes business, I decided that there was a market on eBay for refurbished TVs. And I started to get in that, but I realized very quickly, the problem with that was that the capacity. You know,I had, um, capacity on my property at the time to put the t shirts, but when you start thinking about TV, even though there were much all in those days, a 32 inch TV, if you've got a hundred of those,

[00:09:02] Ronald Skelton: Yep.

[00:09:03] Richard Tunnah: you, you need space for delivery, et cetera.

So, yeah, I certainly, I've certainly had things that I've tried and realized, Hey, there's going to be some issues here in scaling, et cetera. And I, I realized quickly that, I needed a fairly big easy access warehouse. And at that point it was going to eat up quite a lot of my profit margin before I made any money. So that was, that was a quick in and out unfortunately.

[00:09:31] Ronald Skelton: So having so many exits, what did you learn in the first, you know, couple that, well, kind of walk us through the lessons learned. You did, I'm sure there are things you did in the first time you sold a company that you like, okay, I'm never doing that again. So what were some of the lessons learned?

[00:09:44] Richard Tunnah: I think, forward planning. I, this is something I always talk to people that say to me, Oh, I'm thinking of selling business. I said, well, okay. Have you planned this exit? Because, we know that the worst exit is the exit that has to happen because of health, divorce, et cetera. And I think I was guilty on the first one of not preparing the exit. Not having the facts and figures.

Um, there of laying it all out. So I didn't maximize my exit. I'll be honest. And I, I got better at that as I went on. And now I, from the other side, I understand completely the importance of that. And maybe I didn't really understand the importance in my twenties. And Hey, you know, why do they need all the bank accounts all lined up? Why do they need to know everything? 

[00:10:39] Ronald Skelton: Right. You know, one of the things that a lot of the first time sellers run into is by the time they sell it, they're, they're either burned out or there's a thriving reason for them to sell. And they get in this realm of, indifference because they're at the, where they, they don't, I don't want to say they don't care. But they're at the point where they're going to shut this thing down and they're only selling it because it's a better option than shutting it down.

Right. And that's, that, that plays to our side on the buyer's side, of course. But, it does it in the realm that if you watch, if it, you know, say a sale doesn't happen overnight. It takes months. If not, you know, a year or two sometimes. And if you look at the revenue and all the other, you can see that indifference on a chart. You can actually see things starting to drop over time. And that just, it's really hard to sell that. I looked at, probably four or five companies last year that were trying to sell where the owners are burned out and it's hard to buy something in a declining market. Especially a lot of times they're going in a declining market, I'm trying to put my hand in the camera here.

The market's going like this and the competitive, you know,the competitiveness is going here. So you've been indifferent and starting to go down. Other people are seeing them and making it works. And now there's more competitors than you had. And it's just hard as a buyer to look at, like, I don't, you did this for 10 years out of what makes me think I'm going to come in, buy your company, do better than you did against the more competitive environment that you had.

And,that's a hard story to sell. You know, that's what we're buying. 

[00:12:08] Richard Tunnah: I hear it all the time, Ronald. I hear it all the time. I mean, I've, I had a, I mean, conversations with a, a seller that I think I first had conversation seven years ago. And it was overflated in price and had a very blunt conversation with them. The business is terrible in terms of cash flow. It's an import business.

But he imports significant money, seven figures plus an overdraft. So for about 10 months of the year, that business is a negative equity. And I said to him, I said, this is going to be a real hard sell. I mean, you bought your revenue, your bottom line looks good, but when people look at the hard business that you're doing, you've got 10 months a the year, we've got no revenue. 

You've got either money out in China, producing the product, or you're waiting on two 40 invoices with the big supermarket chains in the UK and Europe to pay you. I said, that's, that's a big issue.

[00:13:05] Ronald Skelton: Yeah. I've looked at a few of those where they're direct to consumer and they make most of their money between Thanksgiving and Christmas. They're a gift based companies. And the eight months leading up to that, they're building up their inventory and everything. And they're negative, negative, negative.

I said, they have such a cyclical business and they're trying to sell it to you in January. Right. So the slow cycle, it's slow from January until like, this particular one I was thinking of was slow between January and like, honestly, June or July, it almost drops off to nothing. And they're like, cause they're spending all their money building up inventory for Thanksgiving and there's trickle sales, but not enough to even pay staff. So.

[00:13:42] Richard Tunnah: No.

[00:13:43] Ronald Skelton: If you look at the end of the year, they were profitable. But you're trying to sell, they're wanting to sell me a company and walk away with the, the cash that's currently in the bank and they don't understand that that cash is required to cycle through the rest of the year. Right.

[00:13:56] Richard Tunnah: That was my problem. I mean, I looked at this business and I looked, okay, can I do a letter of credit? Okay. Then can I do invoice financing? But then I'm looking at the margins and thinking, well, we all know invoice finance is not cheap. A letter of credit from the banks, not cheap. So then you cut in your margins and then you sort of, so, I mean, he has done something I suggested.

Which is he now sells some products direct to market on Amazon. Cause I said, this is your problem. I mean, I had very honest conversation with them. I said, I really like your business. It's 40 odd years old, but this is the problem, your cashflow. And I said, for anybody to walk in and buy this, it's not just about acquiring your business.

It's about them having significant deep pockets. To maintain this period where you have negative cash flow. 

[00:14:49] Ronald Skelton: The one I was looking at that was really heavily towards that Thanksgiving to Christmas. I said pick one or two products that do well through the entire year. Something reoccurring, something people use and have to replace. And, or they buy multiple of.Because his product was, kind of a gift related product.

I said, it still can be gift, but do something in a passion niche. Like golf or fishing gear, something that people buy year round and use a lot of. And then, that'll even some of that out. And I don't know where he's at. It was, I was looking at a deal for a friend who was going to give me equity for helping him negotiate the deal type of thing.

I do that a lot where, you know, I, I'm coming in as just a partial cause I'm over, doing some oversight for them. But, yeah, a lot of these businesses, they just don't get that. Their cashflow matters. Not only just like, their EBITDA or whatever at the end of the year, the cashflow cycle, the cycle of money coming in and out of the business is important to look at.

[00:15:44] Richard Tunnah: Yeah, I mean the problem is that you couldn't acquire that business for 10 months a year because it's negative. And even the two months where all the money came back in, you're still juggling the balls for the next financial year.. So, that's the problem. And he did take my advice, but I mean, I don't know whether you find this Ronald, but I find a lot of the time when I'm speaking to sellers, I'm actually coaching them through the alities.

And sometimes I feel like a bit like the Grinch. I mean, I, I, last week I got referred three brilliant businesses. If you look to the top line, there was one revenue who's doing 14 and a half million euros. Had some blue chip clients, but he'd lost three and a half million. Because he just wasn't, he had some very experienced staff and he just wasn't controlling the costs. And then he turns around to me and says, well, I want 10 million for this.

And I'm like, well, I'm sorry, but I'm not sure what I'm buying.

[00:16:44] Ronald Skelton: So it's interesting that I approach it a little different. One of the things we do is I don't talk about price right off the bat. As a matter of fact, I don't bring it up until they do most of the time. I'm more interested in where is the owner trying to get, right? So, what are you, what are they trying to accomplish?

And if one of them says, I'm trying to read, you know, a lot of times it does come up, I'm trying to retire. Cool. What does that look like? I need half a million dollars for retirement. And, they don't get that and they don't make the connection that, what they need for retirement has no relation whatsoever to what their business is worth.

[00:17:12] Richard Tunnah: Oh, I heard that all the time as well, Ronald. Absolutely is, they bring up, well, I need X amount for retirement. Well, that's wonderful. But unfortunately, your business doesn't support that sort of figure. And I think that's, that's a harsh reality sometimes. I mean, I,I think it's sad in this day and age when we've got lots of baby boomers in both the US and the UK that are looking to you know.

They're now in their 60s, 70s, 80s looking to exit. And to me there's lots of bad advice on different advice they're getting. Whether they turn into their accountant or you know, they're seasoned lawyer who really doesn't know about M& A and will tell you wellthis business has got a great USP.

Okay. Well, what is it? Why am I paying, five times what somebody else is, you know, in industry? Well, it's cause it's got USP. Or to me, and I do work with some of the business brokers, certainly in the UK. I think should be named listing brokers because a lot of them seem to just put out a crazy figure. 

And then say, okay, well, I think I've got a stack of by, I know this because my, my brother recently sold his business and he got hit up and hit up and hit up. And I said, Oh, every day you're wasting, you're leaving 100, 000 on the table. We've got buyers out our ears for your business. We know that. And the figure started with this said they wanted 80, 000 to list it.

Then they went down to 50. Then 35. So I kind of feel sorry for business owners in a way. Particularly baby boomers that have worked so hard on their baby for decades. And suddenly like, Oh, I'm being told I have to retire or ill health, or I've just run out of energy maybe. And the advice that's around them just isn't very good advice, unfortunately.

[00:19:06] Ronald Skelton: So I try a different approach, especially early on in the conversation, before I have the full picture. Is when somebody says I need $2. 5 million for retirement. My instant response before I know all the numbers or anything else, is cool. Let's see how we can get you there. And the reason I do that is a lot of times getting them there is like, Hey, look, cause it takes me as the villain away.

And I become the guy that's helping them get there. So in a lot of times that like, you need two and a half million. Your EBITDA is 600, 000 in order to get to two and a half million dollars in your pocket. We need to get your EBITDA to X because the industry is paying two and a half times for a company your size or three times, whatever the number is.

And, that's just the reality of things. And I'm not going to make a bad investment.

[00:19:50] Richard Tunnah: Yes.

[00:19:51] Ronald Skelton: No. I don't buy unique selling points. I buy. and I don't know a seller, a good seller that does, right? You might get a few strategic buyers who are doing aqua hire. Where they're buying, you're doing something so well, they want your employees.

[00:20:06] Richard Tunnah: Yep.

[00:20:07] Ronald Skelton: usually to even get on,

[00:20:08] Richard Tunnah: the list area. All the IP. We all know that, I mean, this is a conversation I had with this gentleman the other week because it was,a digital agency type business. And I said, the only way he was going to get sort of seven figures would be to sell the IP and have someone like a Google, a Facebook or a PE thought. Well, there's some value in that, in the IP you've developed.

And we will prepare to pay a premium because we can sell it on. But I said to him, you know, I think, he was doing, I think, 200, 000 and he wanted 20 million, he wanted for his business. Because he said, Oh, me and my business partner of each put 10 million into this business, developing it, over the last seven years.

And I said, well, that's great. But I said, unfortunately, your business doesn't support that. And as I say, I said, you might get somebody that's going to come along and they're going to pay a multiple seven figure if they think your IP is so great that they can do something with it.

I mean, I know somebody that did very well from Microsoft buying the IP. They actually sold it back to him a few years later for a dollar because they never used it. But that's a different story.

[00:21:20] Ronald Skelton: It happens, that happens more often than they want to admit.

[00:21:24] Richard Tunnah: Well, they don't care, do they? I mean, if you've got a Microsoft, it's a tax write off. If they do something with it, great. If they don't, carve it out and sell it back again. You know, just,

[00:21:33] Ronald Skelton: Yeah, there's, the big boys like that, sometimes they'll buy IP, just their intellectual property or software or something like that, just to keep other people from using it, right? It's a competitive advantage to take it off the table.

[00:21:44] Richard Tunnah: Absolutely.

[00:21:45] Ronald Skelton: The other side of getting somebody there is a lot of times what happens, in my world, cause I do like you do, I do consulting.

So a lot of times I say, the way we're going to, you know, let's see how we can get you there. The end package, the offer that's made is like, look, if you really like your guy needs to get 20 million, if you really need to get 20 million, you're going to have to get the revenue. Let's say we can get you above $4, 000, 000 in EBITDA where, you know, where the PE firms are starting to look at you and they may pay 6X, right?

So, in order to get to, even at 6X, we're still gonna have to get your, you know, your EBITDA above, we'll get for most of the, most of these things that you, uh, PE, don't even look at you until you're at 4 million in EBITDA and at six, if you can get them six X at that, you're there, right? So, 

[00:22:27] Richard Tunnah: That's that's exactly the conversation I had, Ronald. I said that it needed to get a significant better EBITDA, and probably with two years trading at that. So it's it, attracted the PE's, VCs, et cetera. Exactly as you're saying, basically I said, that's

[00:22:43] Ronald Skelton: Fastest way to get. The fastest way to do that is to work with a guy like you or me, when we go acquire, you know, companies that are similar that we can tack on and, build a customer base that we can cross sell, up sell and add instant customers to us. And, so the conversation usually ends where, Hey, I really need to get out.

I can't go through that mergers and acquisitions things. Like, cool. I can't promise you two and a half million, but what I can do is I'll buy 75 percent of the company. I'm going to spit do, at the current valuation, I'll leave 20 percent on the tape, 25 percent on the table. Here's the plan to get you closer to your exit number.

That 25 percent could be worth closer to what you're wanting after we go through our process. And we've, we've got deals done that way. Like I said, I'm usually a member of the team on those. The real trick on all these things is like, like you said, exit planning.

What are some of the other lessons that you learned as far as making a business? I want the sellers to be listening to this. I want sellers to hear what are the process they need to go through to make themselves sellable to one of us.

[00:23:43] Richard Tunnah: I think there's a few key areas. So finances need to be order. The other thing could be problematic is not enough customer spread. And what I mean by that is one customer taking 40 or more percentage of your revenue because what that will do as you know, Ronald, is that most lending institutions will immediately discount you because they think it's too high a risk.

[00:24:12] Ronald Skelton: You're too reliant on one client or customer. So that's something that you need to be aware of if you're planning the exit. Can you get more clients or customers so that you're not so reliant on a client or customer? Because I say that the big lending institutions that buyers rely on possibly to acquire your business will walk away. They think it's too risky. I, we had the same conversation with a guy who, I'm trying to get on the show. We'll see if he ever comes on. He's afraid to come on cause he did, he successfully made the acquisition and they have all these NDAs about talking about what they did. He bought a company that had a, I would say very lopsided, customer base. Meaning that there were three customers that made up like 65, 70 percent of his in total revenue, out of 30. He only had the company only had about 30. They're doing two or $3 million a year.

They're doing, you know, close to pretty profitable company consultancy type of thing. Doing about a million in EBITDA. And, so I think they're running at 30 something percent. Uh, well gross margin. But, that said, they, uh, the way he funded is he went to the, he realized that two of those three vendors that used him, they were a significant portion of their business. Meaning that they did strategic stuff for them that would be hard for anybody else to step in and do. And they were big companies.

So he just went to them and said, Hey, I'm looking to buy this. The owners wanting to They actually helped fund the transaction and they got minority stakes in the company because they needed it to stay around. Right.

[00:25:46] Richard Tunnah: Yeah. That makes perfect sense. Obviously. Yeah. Yeah. Helping each other. That's fine. But obviously that's, they always had a unique product or service that kind of, they wanted them to stick around, but I'd say in most, most cases people don't. And even if, I mean, even if it's been a great customer or clients, I've seen it for 20 or 30 years. As we know, you know, lending institutes will say, that's great. 

But, we don't know that when you, when it changed hands, this business, they, that customer client is not going to walk away. And if they walk away, then that's a problem for you. It's a problem for us. And therefore we're not going to lend. I guess the other thing that I come across and you might do as well, Ronald, is overvalued assets.

This is a big, a big.

[00:26:40] Ronald Skelton: Always forget to depreciate the value of the asset. They pay $10 million for this and that's what it's worth now. It's 30 years old. That piece of equipment's not worth that anymore. Right.

[00:26:49] Richard Tunnah: And I always explain, Hey, we can get a lend against these assets, but what the lenders are going to do is they're going to send somebody in that's very experienced. And they're going to look at every bit of asset. And they're going to work out the current market value and we will get a loan against the current market value.

Not what you bought it for two, three, four, five, 10 years ago. It's what it's worth today. 

[00:27:15] Ronald Skelton: Yeah. I had a, we were looking at a heavy, heavy manufacturer. They made things extremely heavy things and they used big cat, front loader type of equipment. These, I'm talking huge ones look like you would see on a, like in a mining operation and stuff. They were giant forklifts and stuff, but they had to lift these big concrete pillars and stuff these guys made.

And they're like, well, these guys like, well, that machine was 700, 000 and that machine was 400, 000. And I'm like, that machine is five years old and that machine is 11 years old. These things depreciate really quick. Right. And I said, here's what I want you to do. So every one of those, he basically said, I've got 7, 000 or $10, 000 worth of machinery.

I think I want you to, it was like, it was probably a dozen pieces or two dozen pieces of machinery. I should take all of them, put them in a spreadsheet and go look online, look at eBay and look at other places and look that you'll be based with, you know, find what they're actually selling for. Right.

Call, call your broker that sold you the equipment asking what they give you a trade in value for those. And somewhere between what they're selling for and what they worth their trade in value is what this appraiser will come in and appraise that stuff at. It's nowhere near what you think it is. Like I said this is not, he's like he goes I don't think that's how it works. I said when you drive a car off, the car lot how much value do you lose? He said, thousands.

I said the same thing happens when you drove that, that forklift, you know that $700,000 cat front loader that they put a forklift things on, when you drove that off the lot over there, it dropped. It's no longer, you know, no longer shiny and new.

[00:28:44] Richard Tunnah: Story Ron, about that actually a few years ago, probably not actually pre pandemic 19. I looked at a very good business. The main sort of widgets for better, where they made all sorts of bits of steel fabrication. And had a big factory fire, unfortunately, yeah, previously. And the insurance had come in and they put these wonderful machines where they put the stealing one and program it in and it produced whatever you wanted.

ATM, um, cash point there, the bit where you put, that was one of the things that produced in the sort of from hundreds to thousands. And he said to me, he said, Oh, these machines were a million quid each. There was two of them. He said, so I want to sell a business and I want you to give me a million quid for each of them.

I said, well, hang on. It's huge, huge. They were probably, I don't know, 30 foot each. Huge brick things. I said, anybody that, that wants to buy these, if you want to sell them, you've got to take your roof off your business. Cause that's how I got it in. They've probably got to be too. You've got to get them onto a load and ship to somebody and they're quite unique. 

So I said, I appreciate that they manufactured for you at a million pounds ago, 2 million quid for both of them. But unfortunately, any appraiser comes in will take in the fact, A, as you say, they're not brand new anymore. And B, to sell them off comes at some considerable cost. So I said, they're going to take all that into that. So, and I said, if you take those out of your business anyway, you don't have a business.

[00:30:19] Ronald Skelton: You know, the other thing I come across is, especially in that same realm where equipment needs to be replaced, so they know they need to sell and they don't want to replace the equipment. And then you're looking at it like, just think of those two, you know, million quid devices that needed, you know.

If he hadn't replaced him and he comes and he tries to sell you the company, you look at and go, those things are, if you really do your due diligence and realize that those pieces of equipment have to be replaced. Now, you have a capital expenditure. You have to put you have to bring equipment in at two million.

That still has to come out of the price. So a lot of times they go, well, I wish I had never bought those because then I, then I wouldn't be in the holes. Like, no, I would still have to calculate, you know, that your business needed them to operate. One of us would have had to buy them. It was still going to come out of the bottom line. 

[00:31:05] Richard Tunnah: It's amazing that the stories you hear on, I mean, I, like you would probably look at, I mean, now I probably look at three to 400 businesses a year. In terms of deep dive financials, et cetera. I remember when I went, I'll be very careful how I say this, about five years ago, I went to a wholesale bakery that was listed with a broker, good broker that I knew.

I went to see him. The EBITDA I think, was about four hundred thousand. And I got there, and he said, Oh, that isn't the real number. I said, there's another 800 and something that goes into the table. He said, it's great. Everybody works on cash. I went, Oh!

[00:31:48] Ronald Skelton: There's a lot of that. 

[00:31:52] Richard Tunnah: Walking out of the business rather quickly. I said, well, here's the problem. I said, when businesses change hand in the UK, certainly that can trigger a government inspection. I said, that might be a bit of a problem. And suddenly we've gained all this money. Oh, there's a big black hole in your accounts for the last 10, 20, 30 years. I said, and I'm the owner of that business. No, thank you.

[00:32:20] Ronald Skelton: Yeah, I've seen him where they, uh, the guy says, well, I have, if you look at a payroll, he's like, I've got 13 employees and I go in there and I'm taking a look around or something else happens. He shows me pictures of his like, factory and stuff. A lot of times I just have them do a virtual tour cause I'm on, I'm remote from them.

I like take a video and walk around and I count like 25 people there. And I'm like, like, well you're, who are the extra four or five people that are in the factory or, you know, what I see, you told me you had, three people that work behind the counter. I seen five. But he goes, well, the other two guys only like, this is a guy who did sold radios and, um, did installation. They did a, we call it the attended windows and stuff.

They were doing five, $6 million a year, fairly profitable. Cause they did all the car dealerships and he goes, Oh, the other two guys are the car tech guys. You see coming up to the register and paying,or cashing out their customers. I was like, why aren't they not on the payroll? He goes, well, they, we paid them on a cash basis.

I was like, what do you mean? They take a commission off of everything they do. I was like, cool, why are they not on the payroll? He goes, no, no, at the end of the day, we, when we take the cash register down, they figure out what their sales worth a day and they get paid everyday on cash. I was like, it still has to show in your accounting.

So all he was showing on his accounting is his money he received from allowing them kind of rent the space out to put the windows in. I was like, yeah, that's your, I mean, to tend to stuff. And, uh, it was under his brand, his company, everything else. These guys had no paperwork or anything. So it wasn't like they were renting space and sub leasing from him or whatever.

I was like, this is not how this works. Right. And the reason you can sell some of this other stuff is people are coming in to get that stuff done and see the others are a lot of walk in traffic that came in to get one business and selling the other. So if they leave, right, the other side of your business is damaged.

Quite frankly, they made way more money than his other side of his business. Probably two thirds of the money was coming in through the window tending business because the guy, there was all kinds of problems inside of this. I was like, when we started talking about how he got his customers, he's a semi pro golfer and he's a golf pro for one of the local golf courses in the area. And most of his clients are car dealerships. So he basically gives them free lessons, walks around and he gets, now he gets a tint all the windows for their cars. I think number one I don't play golf. How many of you, how many of your customers like to fish too?

Because I like to fish but I wasn't planning on going there and working every day like he was but i'm just saying, the guy that replaces you that I put in as a general manager needs to be a golf pro is what you're telling me? That adds a level of complexity, you know, to the whole picture.

[00:34:47] Richard Tunnah: Kind of limiting the opportunity somewhat.

[00:34:51] Ronald Skelton: Just for fun, the third part of this one was, I asked him, I was like, well, what do you really want to accomplish here?

He goes, you know, I'd stay around and do, and still book sales and stuff for you guys. I'd just like to cut down the number of hours I'm working. I was like, okay, what does that look like to cut down the number of hours? How many hours a week would you like to work? He goes, man, 40 would be great.

I was like, Damn, dude, how many hours are you working?

[00:35:09] Richard Tunnah: Yeah. I

[00:35:10] Ronald Skelton: 70 to 80. And I said, okay, what, whoa, whoa, whoa, stop. What roles are you doing? It turns out he's doing, you know, not only the sales payroll, he's behind the counter half the time. He's there from, from an hour or two before a close until an hour or two after. He's going out, you know, he can, he considers all these trips where he's going out and taking people out on golf trips and stuff like that.

It's part of those hours too, but I was like, It's like you didn't do your books and it was just him. He had no broker. It's like you didn't do your books right? This is why because I have to replace your you're wearing three hats minimum, maybe four. And three of those positions need to be paid sixty to eighty thousand dollars a year. Right. Which you're not paying. You don't make enough to cover, what you paid yourself in seller discretion or earnings last year, doesn't cover all those roles right, that I have to replace because i'm not wearing all those hats, right?

[00:35:55] Richard Tunnah: Think that's really common Ronald, and I've seen it a lot of times, because, they've sort of grown with the baby. They don't want to relinquish control and they end up, as you say, doing a bit of HR, a bit of admin, a bit of accounting, you know. And sometimes I say to them, you've got no systems and processes in place, which is a problem because I've got to put it in place if I'm buying your business.

And I said, really, you need to step back at least so you've got one role. So that, any buyer can see the fact that, okay, you know, there's some people that are doing the HR, the admin, the accounting. I said, what I don't want, like you're saying, and what I don't want to do is acquire business and suddenly think, I've got to find three or four people. Even before, as you say, the cost, and you start looking at the costing. And then you start to look at, okay, I'm going to find those people.

Okay. There's no systems and processes in this business. I've got to start putting it down. And I think, I think a lot of business owners just don't get that. They say, Oh, the good thing is I don't have a lot of management. I do everything myself. Well, no, as a buyer, that's not great because you're walking, if you're walking out the door, then all those roles are walking with you and we've got a problem. And a lot of the time, a lot of the information is in their head. I mean, I you probably see all the time and it's

[00:37:20] Ronald Skelton: I the same thing. Yeah,

[00:37:22] Richard Tunnah: I need to know that information. What do you do? What do you do with the admin on a day to day basis?

What do you do with the accounting? What's the HR look like? How does it work? Well, I know how it works. I say to you all, which is great, but, I say it, it's really got to be, presentable to the buyer as a sort of pick up and run with it. The more problems from day one you're presenting, the less likely a buyer is going to, A, think this is a great business to buy. Or reach the figure that you hope to reach. It's just going to be a killer in many ways.

[00:37:59] Ronald Skelton: Do you find the same thing I find in, that a lot of times if you walk through a either on paper or a mental org chart, there are people that are not on payroll. Other than the owner doing a lot of the tasks, there's a brother in law doing financing or my, my, my dad's brother. My uncle is the attorney. 

[00:38:16] Richard Tunnah: I'm laughing

[00:38:17] Ronald Skelton: My wife's doing the accounting, right?

[00:38:19] Richard Tunnah: I've seen it. Oh, I looked at a bake, another wholesale bakery where they were doing seven figures. It dropped and it really wasn't very profitable and I had a conversation with them. Payroll was crazy. I mean, it was, I think it was doing something like revenue about 600, 000, 400, 000 in, payroll.

And I said, what's the payroll? Oh, all of my sister works here. My brother works here. My auntie works here. My cousin works here. I'm like, Oh, what do they do? Well, you know,they like working. Well one, I'm sure they do. And not only were they working there but he was paying them, way over what the equivalent job would pay working for somebody else. 

[00:39:05] Ronald Skelton: And if you look at that, you can look at it one in two ways. I can either come in and fix all of that. But the problem is you lose, let's say it's got 50 employees and 10 of them are a family. You don't lose to 10 family members. You lose the 10 family members and everybody they were close to that are mad that you're lost to 10 family members.

A lot of people don't understand that they think too logically. They go, okay. There's a little bit of nepotism going in here. There's six people that you know are connected to the owner. They may or may not stay anyway. They're overpaid. I will replace them. They don't realize those six people are connected to three each.

So there's 18 people impact. There are three people you know for almost every person in a company that somebody's close enough too, that is either going to be impacted to the point where they're not performing as well or absolutely leave if you let somebody go, right? And it's going to take some turnaround. 

Then there's going to be, I always say there's at least 1 or 2 people that if you let them go, the whole company works better and they're all happy and they actually become more productive because they think the owner should have got rid of them 6 months ago. There's always those guys there too. But, um, there's a little bit of, I always think that kind of a humble thinking, like, who am I to think I can come in here and run this company better than you did. You've been running it for 30 years. And a lot of business owners don't think that our buyers don't think that way. They think they're going to go in and day one and make a list of changes.

And I think it's dangerous. I think it's dangerous to go into something you don't know. Nothing that's built organically over 30 years is built logically, right? There's this, there's a thing you know, what's logical now in today's day and time, wasn't logical 30 years ago. The same tools and same systems and processes and things that could be done now weren't available.

Like, that's one of the, one of the risks we all run is we just want to run in there and start changing things so we think we can do it better. And, I use that as a little bit of ego check. Who am I to think I could do something better than you've been working on for 30 years?

[00:40:56] Richard Tunnah: Absolutely. Yeah. I mean it. Yeah, that is true. I think we're, we all are guilty of that at times. As you say that, that the fundamentals of business that's been running decades is, it's a good fundamental because they wouldn't be here if not. So it's about tweaking rather than, as you say, running in there and trying to change everything at once.

So, I mean, I tend to work on a sort of 90 day program where once I'm in the business, I look at, I do another deep down and dive on the costings and the other side, obviously marketing and how they're getting out there. I mean, the security business, we realize guy, nice guy, nearly 70, been working in the business for 40 years.

Very successful. But he was persuaded to get a website by one of these people that were monitoring it and doing all sorts of fun. And he was paying, I think it was a thousand, it was at 1500 a month just to host a website. A static website that really, that it was there just as a presence that didn't really get any traffic from. So, I'm like, wow.

[00:42:03] Ronald Skelton: Something you or I could put together for 19. 95 a month, right?

[00:42:07] Richard Tunnah: Yeah. Yeah. He just didn't understand it. I mean, he was, they were doing that and then they were selling a domain. His domain was about 200 pounds a year, which I say is kind of going back, decades for me. But he just didn't understand it. He thought, right, I need to have a website.

These guys sought it all out for me. Great. But, as I say, it was just, you know. So we immediately saved sort of, I think it was 20, 000 pounds just by moving it.

[00:42:35] Ronald Skelton: And I still get pitched those. Those guys come to me sometimes like hey, you need another website? Like we'll do it. We'll build it out for 10 grand and we'll maintain it for 1500 a month and it's on our custom platform that only we could ever do. And I was like, yeah, 99 percent of websites out there especially static ones can be done off of some form of Wordpress. Which I can get for free as software and host for 29. 95 a month on a decent hosting service. 

I'm not interested. Maybe I'll pay a, a grand to format it, set it up and stuff my content in it. But other than that, I don't need you. But I'm also a tech nerd from previous trade. Right. So

[00:43:09] Richard Tunnah: Yeah, yeah, yeah. I mean, it's what you don't know. He realized that he needed a present because the type of clients he was getting approached by and they wanted to see him have a web presence. He didn't really understand it. So, they were solving his problem, but just at a quite a high cost.

[00:43:24] Ronald Skelton: I seen one of those. And one of the problems we had is like, they had a five year contract with him too. Right.

[00:43:31] Richard Tunnah: yeah, yeah, yeah, yeah.

[00:43:32] Ronald Skelton: Five years left on the contract. And I'm like, you signed a five year contract. You know what technology does in five years? Like it just doesn't logically make sense to me that we'd ever sign any kind of software or technology contract for five years. I think from this second right now to two years we won't recognize what technology looks like. Today with a with what AI is doing and how fast it's moving, right?

[00:43:56] Richard Tunnah: Absolutely. I mean, I,I say when I was first online it was kind of the way you got a line of text and you could go and have a coffee for ten minutes. And do you remember the sort of the old, beeping noises it downloaded everything and oh my goodness.

[00:44:12] Ronald Skelton: So let's go back to mergers and acquisitions. Let's talk about it, we're close to the top of the hour here. Let's talk about what are you doing now and how can people work with you and, kind of, what are you looking for? What's your, uh, current, what's your current career look like? What are you up to?

[00:44:29] Richard Tunnah: Yeah. I'm helping people grow via acquisition. A lot of people don't understand as I say, the thing to grow their business into a group. They have to have significant monies to buy other businesses. Whether that's competitors. And they're going horizontal or maybe they want to go vertical and buy their suppliers.

And that's kind of what I'm helping businesses do at the moment is grow quickly via acquisition. Explaining to them that, we can add six figures, seven figures via acquisition by looking to acquire. And certainly in the UK at the moment, it's a good time to acquire. I was reading a report where the reckon, I think there's 2 million businesses, official or unofficial, will be coming to market this year. Particularly from the baby boomers who,started in the seventies and eighties.

So it's a great time to sort of look at those businesses and say, can we grow via acquisition, rather than organically? And I think it's the fastest way to grow. I was, um, listening to, Gerald right now, which is at a big, he had the biggest jewellery chain in the UK, Ronald. And he grew via acquisition.

Never spent a penny out of pocket. He grew a business, I think, that originally had 300 stores, retail stores. This is in the sort of 90s. To, I think, at their peak they had three and a half thousand stores. Just by merging and acquiring competitors. I mean, he acquired them statically with some share swaps and agreements, but it never cost him or his company a penny out of pocket to acquire them.

[00:46:16] Ronald Skelton: And it can be done. It happens. It happens all the time. The big guys do it. And the little, you know, us, us medium or little guys here, I don't know if I consider myself, I'm a pretty good size guy. But, uh,in the realm of mergers and acquisitions, yeah, in the realm of the mergers and acquisitions, I would be considered a small fry.

We can do these low cost transactions. So you can get creative. There's ways to finance things that don't come necessarily out of your pocket. I'm not a 

[00:46:39] Richard Tunnah: A solution that works for everybody, isn't it, Ronald? What does the seller want? As you say, you know, what's the number? Can we get there? Can we structure a deal that works for them and us? It's always about thinking, how can we get a deal where everybody walks away, well, we can acquire the company, they walk away happy. 

That's the main thing. But as I say, I think it's a great time to look at M& A and people sort of really understand the fact that it isn't just for the P. E. s, the V. C. s, the Globals, the Nationals. The Fortune 500 companies that, have got deep pockets.

This is for your businesses on the street that the mom and pop businesses that can still grow via acquisition and quickly.

[00:47:24] Ronald Skelton: I agree. I think if, a lot of people think they need the big wallet, they need to raise a fund of multi millions. I would say you need one of the things, right? Either you need a lot of money or you need to have knowledge. If you look at the, I would back somebody that has knowledge and tenacity, over somebody that has money.

It's really easy to fail with a lot of money. You could be a multimillionaire, go out by company and just miserably fail. To where if you have the knowledge of mergers and acquisitions, you have the knowledge of running a business and you have the tenacity, somebody who would be on the financial scale, fairly broke, could probably have more success in this realm. Than somebody who has money, but no experience or

[00:48:04] Richard Tunnah: That reminds me of a conversation had last week, actually, sorry to cut cross you. A gentleman that's approached me and he was telling me a story about 15 years ago in Ireland, where he, had done very well and he spent his life savings. I think it was 150, 000 euros buying a barbershop. And he didn't get any legal advice. He acquired this barbershop.

And the next day, the guy set up a new barbershop about four doors down. Took the staff, the customers, and he was left thinking, well, what have I bought? Because he thought that was the way it worked. A gentleman's handshake, exchange of significant money. Well, not, you know, for him. And just, I said, well, as a bare, obviously a bare minimum, he didn't get an on competitor. He said, Oh no, I didn't bother with any of that.

[00:48:57] Ronald Skelton: Yeah, he bought the guy out of his lease is what he bought.

[00:49:00] Richard Tunnah: Yeah, exactly. Exactly. Yeah.

[00:49:03] Ronald Skelton: Was trying to get a better facility and, just, uh, you know, couldn't get out of his lease and he thought I'll just sell the whole thing and move. Yeah, those come up, you gotta watch for those. I've had people tell me like, I want to sell this.

I was like, cool. What are you going to do next? Well, we don't need to talk about that. It's not relevant. Yeah, it is kind of relevant, right? Because you understand that when we do this, I'm going to have you sign all kinds of legal agreements. And, that says you're not going to compete with me, right? You go, I ain't signed anything like that.

[00:49:28] Richard Tunnah: And I'm like, okay, we're done here. Because you, you, they're, they're people, but they do this. They think, my wife wants to move 40 miles away. I'm just going to set up shop over there. Well, depending on the business, especially in today's climate, people can order stuff online and everything. They could take a lot of that customer base with them and they intend on it right. There, They've already downloaded and have their rolodex, you know in their phone and on their personal computer they have that excel spreadsheet that has all their customers on it. They think they're going to go over to shop and just start shipping things to people instead of having them come and pick it up at the office, you know. Yeah, you got the you know maybe somebody will buy this, but it ain't me. So, No. No,It's a shame, you know, being around business owners and chatting to them and chatting to people interested in selling business. You hear these horror stories, unfortunately. And I think that's why it's so important that if you are looking to buy or sell your business, you are taking professional advice or someone that knows what they're doing to protect your interests.

[00:50:30] Ronald Skelton: Yeah. I always joke around and said, do due diligence happens a hundred percent of the time, every single time. It either happens before you sign a check and send them the money or after you own the asset and you start working in it. You're going to, you're going to learn everything about that company at some point. It's just better to do it prior to actually stroking a check and signing contracts.

So how do people reach out to you? How do they get ahold of you? How do people work with you?

[00:50:53] Richard Tunnah: Yeah, sure. I've got a website richardtunnah. com. Simply reach out on there and I'm happy to have a confidential chat and we can take it from there.

[00:51:03] Ronald Skelton: Awesome. Well, I appreciate having you here today. I learned a lot. We had fun. Thank you for being here and hang out for just a second. We'll call that a show.

[00:51:11] Richard Tunnah: Thank you