E234: Helping Business Owners Achieve Successful Exits: Proven Strategies for a Smooth Transition

[00:00:00] Ronald Skelton: Hello and welcome to the How2Exit Podcast. Today I'm here with Christine McDannell, uh, who is the founder and principal intermediary of the Magnolia Firm. Thank you for being here today.

[00:00:11] Christine McDannell: Yes, Ron, thank you for having me for a second time. Excited to speak with you again.

[00:00:16] Ronald Skelton: Yeah, we, uh, we had an episode. You were one of my early ones. Early, but I think it was episode 90. I looked it up real quick. Yeah, it is episode 90. And that we really went into your background. We talked about all the cool businesses you started, you know, how you exited those, you know, why you created a brokerage, right?

Uh, so if anybody's interested in, like your entrepreneurial journey, I think they should go listen to episode 90. Today we're going to kind of focus on what you're up to now, the book you wrote, moving to Dubai, all these things. I'm super, super curious about. So let's just kind of, let's just kind of jump in with, you know, what's been going on in your space since the last show. And kind of give people a little, a high level view of kind of who you are and let it, let's let them go to the show for the details though.

[00:01:02] Christine McDannell: Got it. I can do that. Yeah. I looked at the calendar. It was a year and a half ago that we last spoke and a lot happened in that year and a half. And it's still a super hot seller's market, which is amazing. And so I'll have those fun stories of some recent transactions we've done. But yeah, so I relocated March of this year to Dubai. 

Always been my favorite city in the world. I visited 10 years ago for the first time, you know, it's entrepreneurs from around the world. It's 90 percent expats, but there's just this buzz and this energy of just everybody moving here, you know, and, and either owning a business already or starting a business.

A lot of people work remote like I do, because my clients are still US based, right. And I still, I'm available and work US based hours still. All my sellers are there. My buyers. I could do transactions any in the world, anywhere in the world, but I didn't move here for that reason because digital based businesses and software AI is just now, it's very nascent. So all, it's a lot of people starting, but they're not at the exit phase quite yet.

They're probably about 3 to 5 years out. So it's pretty unlikely I would do transactions here in Dubai. Not to say that I can't, but yeah, it's just, it's my favorite city in the world. It's super safe. It's a great energy. Everybody's positive. It's a very, very young city. It's only about 50, 60 years old.

Everything's brand new. Uh, yeah, so it's a fun time here and, I will be back in, I thought I would split six months, six months, like between San Diego and from San Diego. San Diego in here and now it looks like, you know, it's middle of the summer right now. It's a okay. I don't mind it at all. I just love it so much here.

I don't want to leave. So I'm just going to be two weeks in San Diego. I'm flying out actually in a couple of weeks. I left my car there because I thought I'd be there for the summer. And so, I'll sell my car and all that fun stuff. But yeah, I'll still split my time. It just happens to be 50 weeks here, two weeks there possibly.

[00:02:58] Ronald Skelton: You know, I have a friend who, uh, I won't, I don't, I won't say his name cause I didn't get permission to do that, but he's in Dubai and he's like, you know, he's raising capital for an acquisition. He said he met some people locally there and he's like, I can't do it here. And I was like, what do you mean?

I'd have to step my game way up here. And I was like, why? That they have, It's such a bigger play that at least the people he was talking to, if he's not, I think he's trying to raise like 10 million. And he's like, if I'm not raising 200, 300 million, they don't even want to meet in the room. Right?

That's like a, there's, there's the wealth of the pupil and the, like he's, he, he's got a history of working with private equity and family offices. So he reached out some family offices and stuff that happened to be there. And they're like, yeah, you gotta, we're not interested unless you're wanting a hundred million, 200 million. So

[00:03:45] Christine McDannell: Just last night I was at an event. I met a guy, um, that used to be in VC now he's from Cape Town and now he's PE. And yeah, he was talking about the funds he's working on and the deals he's working on and Abu Dhabi and Saudi to a really, really big places for that kind of stuff. So, uh, yeah, there might be buyers.

Here's what people are telling me. They're buying up a lot of tech companies out of the U S. So yeah, I've been networking, you know, I'm kind of seeing, seeing if that's possible out here, but yeah, it's fun regardless.

[00:04:13] Ronald Skelton: So, let's talk about some of the deals you've done recently. Some of the fun stories you have. We always like those, uh, my audience likes those. Tell us, I, we, we were chatting before and you, you, you mentioned it once before about doing a deal with somebody that was incarcerated?

[00:04:29] Christine McDannell: Yes. So, my seller happened to be in prison at the time and her daughter was working on selling the business. So she was, the mother was in prison for a different reason, didn't have to do with the company. It was white collar crime though. So now she ain't kill anybody. Don't worry. So, uh, yeah, in the business she had had, you know, since the nineties and the daughter was selling it on her behalf.

But then I had to disclose every time, you know, in order to bring this, I still needed this, the daughter was helping sell the business. So if a buyer was interested, we bring their daughter on and then we, we would disclose things. Then it got to the point where the mother was able to have one hour a day to use the phone.

So at that point, you know, she's still a great salesperson. It was the business she built herself. So, you know, we'd bring her on, but we could only schedule these seller interviews. Like within this hour and, you know, sometimes they'd even cut her off. She's like, Oh my gosh, I've got to hang up the phone there.

You know, I gotta get off the phone. So, uh, yeah, that was interesting, right? This whole business where the, uh, yeah, the, the mother is incarcerated on a, on a white collar crime. Again, nothing to do with the business, luckily. But, uh, yeah, I don't think anybody, I've never met anybody else. So I was able to do that.

And so, what other fun deals that we had since then. And we had a really great one where, you know, he's 27 years old. He had just started his business. Only had it for three years, which is pretty quick, rapidly growing. It was a CRM integration agency. We've already sold three of those. They are extremely hot.

We are doing so much cold outreach. Trying so hard to find more to sell because we have a whole list of buyers. But that one was unique because it had this AI component, meaning he, his company would be the one that would come into these large corporations, Pepsi, Experian, et cetera. They would hire his firm to implement Einstein, which is actually the AI component of Salesforce.

And so, you know, and these are huge contracts and then even had 60 percent recurring revenue because we all know with CRM systems, there's always these little tweaks and customizations and integrations that you have to do over time, but we use Zoho. So where it was same thing. I think there's always a few, you know, few months go by and we're like, is there a way to, to make this automated?

[00:06:50] Ronald Skelton: Was it Einstein actually originally at the IBM supercomputer that everybody would license the technology from?

So, I'm not sure. I think, I think, I think Salesforce might be licensing a very advanced AI that's been probably one of the oldest ones. Been around for a long time. So it's a very mature, very advanced AI tool, uh, that was originally built out by IBM, but I'm not, don't quote me on that a hundred percent, but,

[00:07:15] Christine McDannell: Yeah. I went to Dreamforce this last one. Uh, Mark Benioff, which I'm already a huge fan of his and he's the CEO of Salesforce. He's amazing. He showed it in action on the screen. It blew my mind of what you, what they were using it for. It was so crazy. It's amazing.

[00:07:30] Ronald Skelton: It can complete customer data. It can do all kinds of stuff. Like if you, if you know the customer's name, their business, and maybe a URL and one of the social profiles, it'll go out and find stuff and put it in there. And it's, yeah, it's, it's pretty, it's like having a, a couple of VAs, you know, working on every account for you at all times, 24/7.

Yeah, it's, it's an impressive tool. So the CRM integration companies, I get it. Cause, uh, we just, for one of the projects we're working on, we're putting CRM and they're just, I think most CRMs, especially for the small medium business, are way over complex for what we really need, right? It's just way too many buttons, bells, and whistles for what a person needs.

So even the big companies, when they, you know, I was an IT director and running IT divisions of companies forever. That was always my biggest pain in the butt is when like a new sales rep would come in or the new VP of sales would come in and you want to switch from this CRM tool to that CRM tool, right?

Cause you know, the software and the platform was easy to install, but getting everybody, you know, getting integrated with all the other tools, right. All the other software that a company uses. So I could see where that, you know, would be a very profitable little niche of an IT servicing companies. So, I didn't even think about it until you said it, you know, on the show that there's those companies are out there and that, that they're, they've got value.

[00:08:50] Christine McDannell: Oh, yeah. Yeah. You usually need to hire an agency that specializes in that. Whether it's HubSpot, Zoho, Salesforce. And I've used, oh, and I didn't even talk high level about my background, but I've been entrepreneur for 20 years. Built, sold, exited, acquired, merged. Too many businesses to count and I've used a lot of different CRMs in my different ventures.

I never used, Salesforce is extremely robust. I mean, that's for banks, insurance companies, like, you know, you got to have a decent sized company to want to use Salesforce and it's pricey, right? HubSpot's a really good one, but I love Zoho. It's probably the best one I've used. I used Infusionsoft back in the day, you know, now it's 

[00:09:28] Ronald Skelton: Confusion, Confusion Soft? 

[00:09:30] Christine McDannell: Confusion soft. I know it exactly.

[00:09:33] Ronald Skelton: I called it all the time.

[00:09:35] Christine McDannell: That's what it was. That's what it was. I remember when I 

[00:09:38] Ronald Skelton: I've actually implemented that one and customized it to the point where it auto, like I automated that for one of my, from my real estate investment firm. And then, to the point where it would automatically send stuff to our, uh, like our mailers. And like, so we, we would clean up our list and when it was ready to mail, it would send them a list and they would print it and mail it.

And man, I was constantly, you know, I run this thing, I own it. And I was constantly being the tech on it because it was always breaking, always, something was always open to that. The second I switched over to a different team, we ripped that thing out and I started over. And if you think about something, it took you weeks, if not months to build to make that call to say, okay, we're going to go with something simpler. Uh, yeah, I'm not a fan of that one. 

[00:10:22] Christine McDannell: Can I say something super quick that maybe the listeners and viewers, this would help them. It helped me like, make millions when I had my spa. So, um, we were using Infusionsoft. It was a pain to set up. Not gonna lie. My mentor at the time was like, Christine, you know, we did massages, we did facials and Fred's on his clinics.

Um, so he's like, why don't you take your database of 15, 000 customers and why don't you tag them and segment them, right? So people that come in for massages, facials, et cetera. So we would run email campaigns specifically and actual sequences to each, you know, different spa, treatments that they come in for. And it was a game changer versus an email blast, like, Hey, come to the spa, 10 percent off.

We would just customize it based on that treat different, you know, service that we offered and that was massive. And then same with my firm now. Um, yeah. So anybody listening, if you could just kind of segment your list in any way, it helps really in a big way. So right now we have a database that's all sellers, that might potentially want to sell one day. And then buyers that are looking to acquire companies. So every month we send two separate newsletters. 

[00:11:33] Ronald Skelton: Awesome. Awesome. And I can see why you would segment that out, but you could also cross sell them, right. You can say, Hey, if you come in for your massage today, we'll give you 20 percent off of a facial. So there's, there's all that, you know, and now you've introduced that customer who was only getting massages, never knew they love facials.

And I bet once, uh, you know, somebody got one. I, I'm old and gray. I don't think I've ever had a facial, but I bet if I had one, I'd want to do it again. My wife made me do a mani pedi once. And now when she goes, I'm like, I'm always like, you want me to go? Cause they massage your feet and, and, uh, like, they, they trim everything up and it's so nice when they get done. Like a hand massage and a foot massage. But she doesn't invite me anymore. 

So, but I would do it, right. So, you know, sometimes you don't know you like something until somebody makes you do it, or it's like entices you to do something like that. So that would be a, another cool use for, for a tool like that is introduce them to the other cool stuff you do.

So, what's changed since the, like last time we talked, you know, it was a seller's market. It's a seller's market now. Uh, is there anything changing in the market from your perspective? Like now, and I, I guess with the political environment being an election year, does that impact things? But, I would say, I think in my gut a year ago, I think the market was be more defined as uncertainty than it is now.

It seems to be fairly smoothed out right now. Everybody's kind of used to the interest rate and stuff, but what are you seeing?

[00:12:58] Christine McDannell: Yeah. Interest rate for sure. So shockingly, I, not at all have I had that, you know, and I'd probably use that as kind of a negotiation thing or an objection of like, yeah, but the interest rates are higher now. And can you lower the price? Et cetera. I don't ever hear that. And those interest rates jumped since me and you talked, right. 

So, I don't hear that is an objection ever. And reason being is it's because the business, you know, the cash flow of the business is actually paying that interest rate. When you buy a home, it's you personally. That's like, well, I don't want to pay this much an interest, but if the business can properly cash flow it, you know, does it really matter?

You know, not really. So that is not an issue whatsoever. The higher interest rates. Um, it, I feel, I hear more and the word uncertainty recently because this election year. So that word, I, I didn't hear it at all last year. Everybody's, you know, having a good old time. And then now I think people are a little worried.

But again, it's not causing any issues. SBA is still doing loans. Um, you know, and again, I, they take forever though. So right now they're super backed up this summer. Um, so they're clocking like 90 days. Cause I guess they're running some special rates. If somebody does a real estate transaction attached to a piece of real estate, they have really great rates right now.

So that program has like backed them up. And then all of ours obviously, digital based businesses without any real estate attached. So yeah, those are, we've got three in escrow right now, all SBA. It's kind of a pain because underwriting they can come back. They hate the appraisal came in lower. We can't lend this much.

So we've had that happening lately, which is super frustrating. So, so we're looking at other lenders that it's like, I need to know, you know, you see the price on the yellow eye and that's the price that my seller's going to get wired. You know, at the end of the day, I don't want you guys to, to change the price or we need the buyer to come up with the difference, right?

And so we're telling the buyer up front now, so now it's just stuff that we've learned lately in some recent deals. Like, Hey, Mr. Mrs. Buyer, if the SB does come back and try, you know, say, Hey, we can't loan that full amount, then you, then you'll have to come up with a difference somehow.

These offers, we have multiple offers on these businesses. Otherwise, we'll go find another buyer. So yeah, it's been, that's been very recent the last couple of months it's been happening.

[00:15:19] Ronald Skelton: I know you're not a big fan of retrading and stuff, so you're not going to let the SBA bully you into a retrade either. 

[00:15:25] Christine McDannell: Yeah. They're willing, you know, the one quick retrade story, which had nothing to, they weren't using SBA. It was a family office. And so they, you know, it's funny because they agreed to the price so quickly. It was 1 million and they said, Hey, we'll give you 1. 3. So we'll do 300, 000 on a seller, you know, seller carry.

We'll give you the full price a million and we'll give you cash. And then I just get a fee, I just got a feeling. And usually I always, always talk to the buyer when they sign the LOI. I'm like, look, and I talked to my seller when I signed the seller. Hey, I'm not, nobody's going to bluff us. Like we're going to walk.

If somebody tells us a price, gives a price and tries to change the, change that, a retrade and when someone changes the terms of the price, right during the transaction, usually they wait until the very, very end when my, everybody's exhausted and you already spent the money in your head. Right? So I prepare my seller.

If somebody tries to do this, we're going to have to walk. Okay. And so I usually warn the buyer, Hey, just so you know, like if you do this, we're going to walk. And I didn't say it with these guys. They were such great guys, but my buyer or seller loved them. They flew out, you know, they spent a lot of time and money with the lawyers, with the accountants, with the due diligence.

Like I could tell, they're probably 30, 000 in. And so, yeah, I just was like, Oh, it's, it's fine. But towards the very end, just some verbiage, some things they were saying and questions they were asking. I'm like, they're going to read. I just knew it. So this is a week before closes I called them up. I said, guys, tell me right now.

Cause we're not moving on the price. And Oh no, no, no. I think, I think we'll be good. Like he just kind of hesitated. So I'm like, Oh, so the day before close, I mean, they dropped it like, yeah, I think 50 percent. and then that other, you know, half of that 50% was like, earn out crazy stuff. So I think when it was all said and done, they were just going to give 250, 000 in cash and the rest was all this, or, and it was 60 and they dropped it to 600, only 250 cash.

And again, they want, so sometimes a buyer will win over the seller, like become friends. And like, this is how we're going to treat your team, et cetera, et cetera. So we walked. So we're on zoom, my seller, my, yeah, both of us were on zoom with them and said, they we're walking. And then that's what happened.

The whole thing imploded. But you can't have people bluff you either, right?

[00:17:49] Ronald Skelton: No. That scenario you explained is fairly common in the real estate space. And one of the problems you're going to have going forward is quite a few of those real estate investors are being advertised to and marketed to is like, no, you know, real estate's cool, but buying businesses make more money.

So I know a lot of like, I came from that world. But, uh, I wasn't advertised to per se, but shortly after I got into this space, I started seeing those advertisements. A lot of people are running, you know, advertisements, Hey, you're a real estate investor? Have you seen this more profitable way to make money, buy a business?

Inside of the real estate community, there is this training methodology that I disagree with, where they go out and shotgun a bunch of offers to build, you know, to the homes. Usually a single family residential homes at full listing price, knowing that, that, that's not what they pay, that's not their model.

And then when they do a home inspection, they pay their, they have their own inspector go inspect it, but they paid them to find something. Your job is to find stuff, right? And as soon as they start finding things like oh yeah, we offered you, you know, $250,000 to your house, but we just found $50,000 of repair and we still have to make a profit.

And then we got it, you know, there's still the unknown. So yeah, we know we offer you 250, but you know, 105 is best we can do, right? And you're at closing when they do this.

[00:19:11] Christine McDannell: No. And honestly, and obviously, you know, I left out the part if they find stuff, you know, if there's stuff in, if the, if the, as it's an escrow, if the numbers started coming down, you know, the revenues start coming down while it's an escrow. If they find, uncover something in due diligence that wasn't correct, like, wait a minute.

Of course, the price is going to change. Like we are so on board and we'll be like, yeah, it's going to have to. Again, I tell my seller, you better put the gas on. If you're, you got to crank your sales up more than ever. If your sales start coming down because you're distracted by this process, and that's why you hired us.

I don't want you to be distracted. Uh, then the, you risk the price coming, the offer is going to come down. So no, in those cases, not a retrade. It's just like, Hey, this is, we got to renegotiate.

[00:19:55] Ronald Skelton: That's interesting. And, and, finish the story, what happened to the business? You sell it to somebody else? Or they keep running it or?

[00:20:02] Christine McDannell: Yeah, no, no, no. It's still trying to find another, um, buyer right now. So, at the same, at the, you know, cause we were tempted to, we go 1.3. Do we now have it at 1. 3 instead of a million because it's sold at that price. But again, in the distraction, the sales went down because of all that, because you think the deal is like going to be done right then, and you just like slack off as an owner, it's really hard.

And again, I've been there, right? You know, I had my spa, was an SBA loan that was supposed to take 45 days, took 93. So, you know, I had to have the stamina of like, grow, grow, and I did continue to grow, grow, grow. But you're just in your head, you're like, well, this isn't my, this isn't going to be my business anymore, you know, next week. 

So who cares? But then it was like every week it kept getting delayed a week, a week, a week, all the way 93 days. It was so crazy. So I've been in that exact spot. So now I know how to prepare my sellers.

[00:21:02] Ronald Skelton: Without giving the name of the business, I mean, you can't do that. What industry is the business in? If somebody's listening to this and go, I'll buy it. What is it? What is the, can you like, is it CRM integration? What type of business is it?

[00:21:13] Christine McDannell: I wish it's a, uh, it's a coaching business. Yeah.

[00:21:17] Ronald Skelton: Okay, so business coaching or life coaching?

[00:21:21] Christine McDannell: And that, life.

[00:21:22] Ronald Skelton: Life coaching, okay So if you're a life coach out there and you want to treat somebody fair that she's got one on the market So, okay. Let's like, let's go, let's switch gears a little bit. Um, your industry is a little different than most and I'm suspecting here that uh, I'm gonna get a different answer. So I know when I reach out to like manufacturing companies, brick and mortar companies, the reason they're selling typically is retirement, right?

That's or, they're wanting to do something else. But they, you know these guys usually have been doing this 10, 15, 20 years. For the tech companies, I think it'd be something totally different. Why, why are, what is the typical reason your clients are selling?

[00:21:59] Christine McDannell: It is a different reason. So your exact, so tech, obviously it's a younger demographic. Our youngest seller was 21. Oldest right now, 47, of everybody that's exited. Most, most of, the mid thirties. Um, the number one reason, it's almost everybody, is they're either having their first or second child. Uh, majority of my clients are men.

Yeah. So, you know, they work their ass off. They probably, you know, they worked insane hours to build these startups and now, now they got married and now they're having their first and they want to be there for the, for the child, the first or the second child. Um, yeah, the ex, we just had one close that was, uh, digital marketing agency and he has two little ones. Like a two year old and a four year old.

So he's like, yeah, I want to spend more time with them. Then I'm going to, you know, launch. They're all going to launch their next business. Like, no doubt about that, but it's like, let's get some cash in. Maybe we'll buy a house, you know, let me take a breather before I start the next venture. So that's literally the reason across the board.

I've only had one, uh, digital business and they were at retirement age and they did retire, which was really exciting to see. She just sent me a note recently. Um, they sold last November. So that was cool. So yeah, that's, that's really the reason to be honest.

[00:23:12] Ronald Skelton: I would have never guessed if you just said, guess, you know, guess why these guys are selling. I would say, I would, I would more imagine they hit a certain plateau, right? Because it takes a different CEO to take a company from one to, you know, zero to a million. Than it does to go from a million to 10 or 10 million to a hundred million.

And I always, always thinking that these tech guys are mostly selling because they, they know that they're ready to do their next startup and they can take this as far as they could take it.

[00:23:37] Christine McDannell: Yes, that is, that's the other reason. And it's even the same, you know, I want to spend time with my kids, but I've realized that I, you know, I'm stuck where I'm at and I'm not, it's not fun anymore. So the fun part is 0 to, a million or 5 million. And I'm the same way, right? Once I hit a certain number, I'm like, and everything was chill, I'm like, this isn't fun anymore. 

I like the chaos of creating a business and building it from scratch. And so I get it. So you're exactly right. That is the very other reason. And then even, so one, she just got married. They're about to start trying to have a child. So that's one of them why she's selling. Um, the other one and he's, he already took off to travel the world, right? 

It's not even, it's in escrow right now. Took his two little kids and his wife, and they're now traveling the whole world for an entire year to find out where they want to live. They're in Virginia now, and now they're, they don't, they're gonna travel the world with the little kids, with little ones, and that's kind of cool. And so yeah, we love hearing kind of the reasons.

[00:24:34] Ronald Skelton: Um, let's talk about you do this thing called seven R's. What are the seven magic R words the buyers should look for when they're, uh, looking to acquire a business?

[00:24:43] Christine McDannell: And it's funny, it's just something that I came up with because I, you know, I kept, you know, I know the things that people are looking for in the perfect business. And I'm like, whoa, these all start with R and there's seven of them. They didn't make the book. I know we're going to talk about the book. I was like, darn it.

Like I didn't have all seven when we wrote the book. I think we mentioned them though, a few of them. So the first one would be, relocatable. So it's funny what we were just talking about that. 

[00:25:07] Ronald Skelton: Yep 

[00:25:07] Christine McDannell: So a business that can be re, you know, that you can relocate easier. Obviously digital based businesses, most of them are all remote. However, some are not. We have content studios, you know, at the location, New York. 

We have a graphic design firm with a, you know, a location in Portland because graphic designers want to work together and brainstorm together and look at the projects and the designs. And so, but we know it's going to be a, you know, the likelihood of the buyer being in the same city is very slim, but that's okay because there's team, there's management. So somebody can still buy it, leave this, this space or move it.

I think it'll be rough with the teams, but yeah, and in the New York, yeah, it'll be harder, but you can still run it, you know, if you need to relocate it or not. Second one would be remote based business. Okay, that's another R word, remote, which we just talked about also. Uh, third is recurring revenue.

So the more recurring revenue, the better. That was another, my brilliant mentor back in 2012 when I started my spa said you need some sort of recurring revenue and maybe you do memberships for your spa. And back then there was no like massage or any membership like pay every month, back then. There was for gyms, but not, not like a wellness spa.

And yeah, we had annual membership, 

[00:26:23] Ronald Skelton: They're common now, right?

[00:26:25] Christine McDannell: Oh, super common. Yeah. And even in my, even in San Diego, nobody did it. And then after a few years, like people saw we were doing it and started doing it, which is fine. So when I sold, what was it? Like 37 percent was recurring revenue. Uh, and that's a big chunk, right? And so a buyer, it was very appealing.

That's why I got a higher multiple. So if anybody can put some sort of layer of recurring revenue in their business, great. Number four is removal of the owner. If your business is wrapped around you as the owner and you can't, it's just not going to work. So sweet, the sweet number would be like your, I mean the owners, you can't tell me, Oh, I work zero hours a week.

Like that's not, that wouldn't even be believable. The sweet spot seems to be about 15 to 20 hours a week. You know, if you tell somebody that then we know, okay, you're probably still doing sales, biz dev. Let's try to train, you know, that's the hat, the last hat, all of us, we're always going to be the best salespeople in the business.

Like that's a known fact. That's the last hat we got to hand off. So we try to get a biz dev person in place while it's listed, um, and trained up. So removal of owner. Fifth is retention. Retention of your clients and retention of your team. So, I mean, you know that, right? How important that is, right? Yeah. So, and then the sixth would be, yeah, go ahead.

[00:27:45] Ronald Skelton: I was, uh, you know, mostly interested in the changes to your evaluation when you have that reoccurring revenue. So, finish your R's, we'll circle back around to that, because I think there's some things in here that really actually get you more money for the business too.

[00:27:59] Christine McDannell: Oh, without a doubt. Um, and then the sixth one would be revenue growth, right? Again, we want to see it trending up and that's why I'm so picky about the businesses we take on. We're boutique. I only do five listings at a time. I probably turn away 98 percent, because again, if they're, well, I will not take a declining one.

Nobody wants a falling knife, right? On top of them. So, uh, down, not gonna be not, you know, if they're stable, we'll take them, but growth is even better, right? That revenue growth looks really good. Um, and people get excited about getting on board with that. And then the seventh would be repeatable processes.

So sales, marketing, like everything's kind of flowing. You could repeat it. Uh, yeah, so those are the seven magic R words.

[00:28:43] Ronald Skelton: I can see where most of those actually contribute to a higher valuation too. If you look, even in the brick and mortar space, having standard operating procedures, having the owner operator, not be no, have the owner not be the operator to where the owner is, like you said, 15 hours, 10 hours a week, uh, having, recurring revenue is huge, uh, maybe it's because I have a real estate investment background. I've always had a thing for membership sites or something where your recurring revenue covers everything.

And then your one time gigs and stuff like that are bonus, right? So if you look back at your spa, if you looked at 37 percent of your income was recurring revenue, if a month happened and that's all you had, you probably paid your employees, you probably paid your electric bill, everything was still running, right?

There's something critical to say that my recurring revenue that comes in every month covers everything. The one time visits and, uh, you know, the bonus, you know, I want the deep facial as opposed to the one that comes with my standard package on that spa. Those are just icing on the cake. 

And I, and I know in like some industries, like, you know, like especially things like SaaS and stuff like it's expected, but other, other industries in our space, in the brick and mortar, if you can show us recurring revenue, your multiple goes up. Right? We'll pay a different multiple on the recurring revenue as a buyer.

Then we do everything else. We'll break that out. So you'll have two mathematical equations. We'll, okay, the business is, you know, small business is worth 3x, but we'll carve out this recurring revenue piece and give you 4 or 5x on the recurring revenue. And then you add them back together. All kinds of things can happen when you show somebody you've got a steady, well-ran business that's got, you know, that recurring revenue model.

How well does that affect your ability to just, to sell these things? If they have, out of those seven R's, you know, are they all absolutely critical or some of them like, Hey, this is going to make it easier. My job is here to sell it. You're going to make more money if you can only focus on two or three of them, which ones would you focus on first?

[00:30:44] Christine McDannell: Yeah, great question. Remote based without a doubt. You know, most of the buyers right now are first time business buyers, believe it or not, because it's kind of "Entrepreneurship Through Acquisition" is getting really popular and that's exciting, right? Everybody saw startup world blow up into pieces. You know, non cash flowing.

You put a bunch of money in. You don't have anything the end. So, you know, you're buying a cash flowing business, that's why, you know, for us, we do ask for at least 200, 000 of EBITDA or SDE, seller discretionary earnings. Like $200,000 of profit can replace most people's salary at corporate. So like, okay, great.

I'm going to buy this cash flowing business, you know, leave corporate hell. I got, you know, I got to work from home during COVID and now I'm back in the office and I hate it. So that remote based, and I want to travel and work from my laptop by the beach. I don't know, whatever they want to do, or I want to move to Dubai and work from there.

So that's, I think that's the most, like pivotal, important one, right? Remote based. And that's why we only do really remote based businesses. The other one would be recurring revenue. And again, I love working with agencies, but a lot of agencies, they don't, you know, these are one off job, you know, graphic design firm. 

You know, they don't have necessarily, some of them do, right? They do have monthly contracts with these big companies doing all their design, graphic design work and content work. Uh, so, yeah, I mean, and again, the CRM agency at 62 percent recurring. The other ones were big projects, one off projects.

So it's not that it's impossible for these non SaaS businesses, these agencies to build in some sort of recurring revenue.

[00:32:23] Ronald Skelton: You know, you said earlier, you mentioned the, um, startup world kind of employee. And I think there, what we haven't seen yet, I think we're going to see, and I'm going to want your opinion on this, is the acquire to startup, right? So I'll explain what I'm talking about. I think, and I just talked to, uh, uh, I listened to a kind of a sales pitch and they might want to be a sponsor at some point, but they came in and they have an AI tool that helps in, you know, it's kind of a CRM, uh, with AI, and it helps do some stuff in this space of buying and selling companies, as far as I'm going to go.

But the first thought I had is, you know, and they raised capital to build it and everything. First thing I thought is, why didn't you go buy, you know, a small SaaS CRM tool that had the same tech stack that you wanted to work with? You know your developers, you know your tech stack. Go find something that has the same tech stack that's making, you know, a million, two million dollars a year.

Acquire it and now add your A. I. and your other technology to it because you've already got a, your, your employees are paying. You're just adding features on to address some market you want to get into. And I think that are going to be more of that. Like if somebody has a cool idea for a particular product, instead of raising capital, doing the startup route and being without cash flow for the first three years, you know, it almost makes more sense to go, I'm going to go buy a company that's up and running and has a customer base that would buy this thing.

This is a logical next step for them. And then I'm going to use that revenue and create my R and D department to create this product idea I have. And I already have an existing customer base to sell it to. I think we're going to see more of that. What do you think? 

[00:34:03] Christine McDannell: Oh, yes. I was just hanging out with a friend and he was talking about starting his first business. And I explained, it's like, you should acquire business and here's some amazing, you know, just search on Flippa, search on these platforms for what you want to do and you're probably going to find one. Um, actually another girl too, she has a hair extension business. 

She's trying to scale it. And we found one on biz buy sell. Like I, you know, we're at a coffee shop. I'm like, let me look right now. And she's like, Oh my God, I never thought to do that. I'm like, here's one cashflow already, right. Just grab it, merge it with yours. And so I'm a huge, huge fan.

I think you nailed it. It's easy to find that you, like you said, customer base, already there, maybe a team already in place. Like you just shortcut. You know, and then some of these sellers are desperate and they will take seller finance, you know, they just want out of there. You know, a lot of engineers about, built really cool, like apps and tools cause they geek out on that, but then they're not salespeople and they're not marketers. So they don't know how to sell it at all.

And they're just like bored and they want to build the next thing, you know, cause they're builders. So, yeah, I'm a huge, huge fan. And you know, I loved starting mine from scratch, the chaos. And there's just something to say, I have a lot of pride and like, you know, oh my God, I started that from scratch, right. 

It was my idea. And that was cool. But now, you know, down the 20 years of entrepreneurship, lately, I was buying them and flipping businesses. I'm like, Oh, this is so much easier. It's already cash flowing and just buy it, sell it. But, you know, during COVID, I flipped two spas. They were in, in the heat of COVID.

Like these people were like, I'm out of here. And I was like, Oh, okay. Like I could totally, you know, more time general, like I'll take it. I'm not worried about this whole situation. Cause it's, you know, it's going to clear up eventually and it did. So yeah, definitely buying, acquiring businesses is, I'm a, I'm a fan now.

[00:35:54] Ronald Skelton: Yeah, I get that. I did the same path. I was a solo entrepreneur, I guess you could say. You know, when I was young, entrepreneur, most of my life, but, uh, it went from solo entrepreneur to business owner to, for a while there before, uh, way before flipping those guys, I flipped websites. I find websites that would, you know, be making five, $10,000, you know, a month or just really low, uh, grossing websites, but they still had, this is old school.

They still had like, you know, the early internet graphics and stuff. They were really clunky and stuff. And I had a graphics design engineer and a usability engineer from overseas. I was one of the, probably the very first people to really outsource, you know, global talent. I would have them redesign the whole layout, make it look nice, bump up the, you know, pay some ads, do some things other people didn't do, get some more sales in, and then turn around and sell them in triple or quadruple the cash I put into them.

So unfortunately I got burned because the, the fraudsters got into that space and they learned how to spoof all the financials and stuff. That's why there's cool tools like Flippa and some of these other stuff. They do a lot of good stuff about logging into the actual PayPal or the, the Stripe accounts and verifying income.

And you can do things now that I did, we just didn't do back then. You know, somebody was really great at Photoshop. Sent me a bunch of PDFs that had all those documents, you know, they buttered up all their documents that look great. I bought something. It wasn't huge. I think, I want to say it's 40, $50, 000 or something like that, you know, acquisition price, but it was enough to know I'm not like, I'm not doing this again, it's the day I bought it.

Like within, within 48 hours of me buying it, all the traffic went away. They had a private blog distributed, like network. They had their private, they had all their own websites and servers that were pointed at it. And that's where all the traffic was coming from. And once they sold it to me and they pointed all that traffic at something else they owned.

[00:37:44] Christine McDannell: And they're probably trying to sell that too. No, Ron, I'm so glad you brought up this Photoshop thing. So I am blown away, you know, so most of the buyers are actually unrepresented. But again, I love, you know, intermediary is mediator, right? I love working both sides of the deal, right? And holding their hand, even though seller's my client, but I like helping buyer also, right, and making a win win.

And so just either the, even this week. So the buyer, super cool guy, like getting long gray, he's unrepresented, you know, buying the PPC firm and he sent the due diligence, first time buyer, obviously, real estate background. Due diligence checklist, he's like, Hey guys, is there anything missing? And I saw this list and it had everything except for that.

I was like, I told him to add it to the list. Like we need to add you as a user on my seller's Stripe account, because I want you to log in and download, well, he didn't even ask for the reports of the merchant account. Like at a bare minimum, just match with the bank statement, right? You guys need, everybody listening, watching, you need to match, you know, the bank deposit, the, those deposits with the merchant account statements. 

But you need to actually get either certified, you know, transcript of the statements. If it's some other merchant account, but you know, Shopify, Stripe, PayPal, like you can, you can be added as a user to go pull reports. So this Photoshop thing, I mean, nowadays with AI, you just stick it in ChatGPT and be like, Eric, Photoshop this thing to say this. So it's getting even, even harder. 

[00:39:15] Ronald Skelton: Yes, scary, yeah. I had one not too long ago. We were looking at I guess it's been almost probably almost a year ago. It seems, it seems sooner, but I just said on the call is like his numbers seem fishy and I said, hey, could you just lock, log into your Shopify for me? I just log in. Like, you know, share your, you know, log in and share your screen.

You don't, don't share your screen before you put your username and password in. I don't need to see you type your password, but I want to see inside. And, uh, he's like, no, I don't want to do that. And his business partner said, well, you know, okay, we can do it. We started digging around. It's like, where's the numbers you were mentioning earlier?

Like, as your sales aren't, I should don't, switch that to 12 months. I was like, show me your 12 month report. Their numbers were nowhere near where they said they were. Right. And you could tell, I could just pick it up by the way they were selling it. One of the things I do on zoom is if I have, especially if I'm, this was somebody else's deal I was looking in on.

I have what, I have one of the guys, I trained my, my team on one of you guys are a dedicated listener. And what I mean by that is your job is to listen to what people are saying and to watch, your screen is always going to show everybody that's on the meeting, even though sometimes you might set it like a zoom call to see the person speaking to you directly.

But my dedicated listeners, their job is to watch for everybody because a lot of people don't think that, if their screen is set up to where only the person speaking is in focus, they don't think they're on camera. And you'll see, what was going on was this guy was talking numbers and one of the guys that worked for him was sitting there doing this. And nodding his head no. You know, I was like, and when my, my dedicated listener guy sends me a message on Slack and goes Hey, I don't think the guy that does the finances agrees with the CEO what he's telling you on the numbers. He's sitting there nodding his head no and the, off camera, what he thinks is off camera. Whenever the CEO is bragging about what they're making. So I said, hey, can we just log in?

So, you know sometimes looking at live accounts is the only way you're going to see some of this data.

[00:41:02] Christine McDannell: And I'm glad you said because so I, when I take a seller on, I do more due diligence on the seller before taking them that I think buyers do. So it's like if I see something fishy, I'm like, hey, you need to log into your bank and like, I hate to ask you to do this, but I need you to log into the bank account.

Just like you said, and we're going to do a screen share. Like, is this, these deposits really coming in? Same with tax returns. I never hear a buyer, SBA does ask for it. I never have a buyer say, Hey, I need certified transcripts of your three years of tax returns. Again, tax returns can be super like Photoshopped in two seconds.

So again, everybody listening, you know, jot some notes down about making sure you guys are doing this because I've never once had a buyer even do that.

[00:41:45] Ronald Skelton: Let's jump into, I don't want to run out of time before you spend some good time on, the fact that you're now a published author. Uh, you have a cool book. It's called Get Acquired. Uh, and I was looking at the, uh, like the notes on Amazon or whatever it's talking about.

You know, maximize, uncover, attract, navigate, and negotiate, right? There's these, these steps or actionable steps. Tell me about your book.

[00:42:08] Christine McDannell: Yeah, it was eight years in the making. Big credit to Lauren, who's, you know, works in the team and is also, she's an amazing writer. Writing is not my forte, but information is. So what was happening was there's so many clients that are too small, you know, clients we can't take on for whatever reason. And a lot of them are too small.

And so, there won't be an advisor that will take them on, unfortunately at all, right? But, even with my first company, I didn't know you could sell a company on your own. I thought you had to have a broker. And so, you don't. You get like a for sale by owner, like a house. So this book, I was like, I want to write a book that somebody could take and literally step-by-step, sell their own company. 

You know, I see the other books that other brokers have written, but they like overcomplicate stuff and then they leave stuff out on purpose. Or they're like, oh, you, they like plug their firm through the whole book and like, you know, there's some good ones out there.

But yeah, most of them, that's what they do because they want you to use them. But mine is like dumbed down. A 10-year-old can like take my book and go sell their lemonade stand. It's like, uh, you know, that was really important to me. And then it also prepares somebody and teaches them the whole, like prepares them on what to do with their business, before an exit. Like get it ready for an exit in a couple of years.

So all those strategies, tips and tricks. And then, yeah, so that was also important to us. And then the process. So these are questions I always get asked, like, Christine, can you tell me the process like A to Z from when I list my business to when it sells? Can you tell me every little thing? I'm like, Oh my God, there's so many things, like there's so many like pieces.

We have like a four page doc of like every single step of like, taking a listing all the way to close. So then it's like, here's my book. And then I recorded the audio in January, actually here in Dubai at a studio, because my pet peeve is always like somebody writes a book, but then they hire a narrator. Even though it's a pain it was like, not easy to do the recording. Um, but yeah, it's a 4 hour, or 3 hour, 3 hour audio book. Anybody watching or listening to this reach out, we give it away. We don't charge. So you'll get digital version and the audio version.

[00:44:17] Ronald Skelton: So my pet peeve on audio books is that they don't follow the book. So you might not, I may, may have never said this. I don't, I don't even know if I've ever said it on the, uh, the show. I'm slightly dyslexic. So I love to read a book and listen to it at the same time because I only have to go through it once.

I have a extremely good memory. And if I, if I hear it, I'm pretty, pretty good with it. But a lot of times to really solidify it, I'll actually buy the physical copy and listen to it and I read along and for some reason hear it in my head, it stops the dyslexia where I'm mixing words up. And mine's a little strange.

I'm really bad on numbers. I mix numbers pretty bad. But if you ever watch me write something on a whiteboard, or if I ever do a whiteboarding when we weren't doing a seminar or something, you'll see me actually skip letters or words even. So I'll like, I'll write L O, I'll leave a space and put a K and then I'll come back and write a zero.

But my mind gets ahead of that, you know, put another O in there and it'll say, look. And you're like, why did he do that? And it's because my mind gets ahead of the, uh, thing and I just, I've adapted to it over time. Let's talk about the topics there. I see that, you know, there's a, there's some points that you put in, in the ad for the book, I guess, on Amazon. It talks about maximizing, um, the company's value. I think those are the R's you were talking about. That's probably some of those are that maximizing value. But, uh, there was something in here that says, uncover the proven tactics to make your business irresistible to buyers. What makes a business irresistible to buyers?

[00:45:42] Christine McDannell: It is those 7 words. I can't think of anything else.

[00:45:45] Ronald Skelton: Okay. I, I figured that's where I was going because that, you get, if you find me a business that has all seven of those. I might be wanting to chat with you right, because that's a, that's a heck of a thing to live up to and it can be run from anywhere. It's profitable. It's growing, you know. It's easy to raise money to buy stuff like, it even if it's outside of your buying scope, if you have all seven of your, your R's there, you can tell that story to any other investor and they'll come in with you. So, how, I'm a big fan of the negotiates and stuff. Uh, how much into that negotiation tactics and where do you, where do you think you pulled your negotiate, there's different styles of negotiations. Uh, what, what is your style that you covered in the book? Is it kind of like the Chris Voss, never split the difference, tactical empathy, go for no type of thing? Or is it win win or what's your, what's your thought process on the negotiation, uh, strategies?

[00:46:37] Christine McDannell: Yeah, I love Chris Voss by the way. I love, love, love him. And so, and that's a great book. I'm glad you mentioned it. Uh, so I do want to, so I think when people come up against me, they're like, Oh, it's a girl. I mean, it's fine, right. Actually probably works to my advantage because they're not expecting me to really negotiate.

I love negotiation. I love sales. It's my two favorite things to do. So in my company, I'm lucky. Like those are my parts, right? My team is amazing. I have to give them all the credit in the world. They're doing all the admin, you know, they're packaging the deal, all the copy, all this. Of course, I review every single thing. Of course, I'm on every single email.

Of course, you know, I'm going to answer the phone any time of the day, weekends, holidays. Um, so I'm there to support them and my clients, but I'm only coming in when we do the seller meetings, right? So my seller, I come on. We come on together. There is no, no, and we just had one the other day. I kind of prepare my seller and the buy-, you know, we're not going to talk about money or any. I'm like, if they do that on the zoom with you, like I'll jump in and I'll say, Hey, you know, Mr. and Mrs. Buyer, like, Hey, let's have a call right after this meeting. 

You know, that's why Josh is paying me the big bucks. So, you know, make a joke about it. Like for me to talk about that with you. And so, and I do love win wins. I really, truly do. Like I don't want any walking away feeling like they got screwed. I want everybody to be happy.

My sellers love the buyers they end up with. I'm more proud about that than any sort of dollar amount, okay. And that's super important to me personally to find a great buyer. And a lot of them become friends with buyers and, you know, it works out great. But yeah, my negotiation, yeah, I think I'm lucky they don't see it coming.

And so like, it's a little bit like, throws them off maybe, but I just stay, again, I don't like people bluffing. I'm not gonna like, I don't know, it's just always been, I don't know where it came from either. I will not lie here, here in the Middle East, because you, you have to negotiate your rent. So it's weird. Like there's not fixed, like in the States.

The rent is what the rent is. Okay, you're not coming in and it's a little hard to negotiate usually. You really can't, like most places here, it's like you do. Like it's known you're going to negotiate. Oh my gosh, I cannot go up against these guys. I've tried. I was like, woo, it's so different here. It's like a hobby for them.

And I don't, and they're very, you know, I don't know. I can't, I've already, so I have friends here that are Middle Eastern and I have them do for me and I just watch them argue and kind of like, um, just like the raised voices and all that stuff is not, I'm not a fan.

[00:49:14] Ronald Skelton: Yeah, it's a different style for me too. I, I'm fairly familiar with the process. That's what I did for a long time. As a matter of fact, is I taught it to real estate investors for a long time. And then I, I did Chris Voss' book and I ripped out my training out of our scenario and I just made everybody read the book.

And then we kind of, not that I say I would, I would train them on Chris Voss' book, but 85 to 90 percent of the strategy I use come from it. So I say, look, 85 percent or 95 percent of what I'm going to teach you is going to come from this anyway. You want, you want a good basis in it, go read the book, go listen to the audio.

And then, uh, we'll go from there because then when anything I say is going to make sense, right. And I think there's tweaks you can make in any industry. For the real estate industry, there's certain tweaks I can make to, to the way, you know what he did. I think a lot of it was just knowing, knowing when you got a deal, right?

Like a lot of times people keep negotiating after you already hit your number, right? But in your mind, you're still got to go through this process. Like, why are you, why are you still talking? The guy said, yes. Right? 

[00:50:16] Christine McDannell: Yeah. Even my clients are like, Christine, just take the deal, like, it's fine. It's fine. Just take it. I'm like, no. Like, I know they can pay more. Like, you know, again, it's not at the asking quite yet. We need to get it there. And like, I just, and they're like, no, it's fine. It's fine. Cause they don't like negotiating. And I'm like, well, that's my job.

And even some friends, my friends kind of picked on me because I'll negotiate, you know, like a $20 item. It's actually a muscle. So people should try to do this. It's a muscle that you build. So you should, you can negotiate something, a $20 item, a hundred dollar item, like you start getting comfortable negotiating, right. So some of my friends are doing it now, even though they used to tease me about it. But, 

[00:50:54] Ronald Skelton: I know we're running out of time. I want to talk to you forever. You're, you're, you're so fun to hang out with and stuff. How do they find, let's run through how do people reach to you? How do they find the book? Let's, we just talked about the book. Where do they find the book? How do they find the book?

[00:51:06] Christine McDannell: Yes. So the best way would be LinkedIn. If you want to get a hold of me personally, you can message me there. I'm great on that platform and try to post a lot of content, uh, all different types of content, but mostly trying to help you guys get to that exit. And then the Magnolia firm. You can check us out, Instagram, LinkedIn, our website, magnolia firm. com. 

We just got the .com. It was .co forever. So they both work, but we got, we found the guy and got it for $500, which we were super excited about. We just redid the website. So yeah, website. And then that's how you get our free books. So if you go to the homepage, you scroll down, it's right there. Um, you could download it and yeah, so those are, those are the ways you can get ahold of us.

[00:51:51] Ronald Skelton: Awesome. Awesome. And you definitely want to reach out to her. Uh, you definitely want to listen to the rest of her story. Uh, go back to episode 90. Listen to all the stories, stories of the businesses she created and how she sold them, and it's kind of the origin story of how she created the Magnolia Firm also and why she created it.

So don't miss out on that. I want to thank you for being here today and hang out for a few minutes. We'll call that a show.

[00:52:14] Christine McDannell: Okay, bye everyone. Thank you.