Barbara has written a small shelf of books that help entrepreneurs -- especially small business owners -- start, grow, brand, market, and when they're ready, sell their businesses. She is the author or co-author of Small Business Marketing Kit For...
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Ronald Skelton 0:06
Hello and welcome to the how to exit podcast where we introduce you to a world of small to medium business acquisitions and mergers. We interview business owners, industry leaders, authors, mentors and other influencers with the sole intent to share with you what it looks like to buy or sell a business. Let's get rolling.
Hello, and welcome to the how to exit podcast. Today I'm here with Barbara. Barbara is a, has written a small shelf of books that help entrepreneurs, especially small business owners to start grow brand market and when they're ready to sell to sell their business. She's the author and co author of small business marketing kit for Dummies, branding for Dummies, business plan kits for dummies and the Guide to selling your business Small Business available for free for download at biz, buy sell the sights. That's the internet's largest website for business, business for sale, for most of you guys know that. And she was I think we said you got 3 million visitors per month. I didn't know that. That's awesome. Her current focus is on helping small business owners capture a final round of value by selling not closing their business. From experience, she's knows that most small businesses aren't in a sell ready shape when owners one out. Therefore most business owners never sell. Today she's here to talk about what a sell ready business looks like how to get your business in sell ready shape, and what's involved to present the business for sale, find the right buyer navigate and negotiate the sales process and manage a successful owner to owner transition. Man, that was a mouthful, thank you for being here. I probably I didn't I didn't get all the way through it, though, you know, mess it up a little bit. But I think we did a pretty good job of telling everybody kind of where you're from. So let's just jump right in. Let's get people to know you. What got you into this, you know, kind of you're an advocate or like an expert, and all the like buying, growing and selling a business. What got you into this space? What got you wanting to help other entrepreneurs?
Barbara Schenck 2:23
Well, I'll start with the fact that my husband and I owned an ad agency, and we owned it for 15 years. And then one day, we were both tired of it at the same time, usually one would want out and the other one would say Come on, you know, get get with the program. And one day we both wanted it for sale, my husband wrote a little four line ad for The Wall Street Journal. And we ran it and the business sold. And I'll tell more about that later. Because it wasn't you know, it takes a year to sell a business really to transition it. But once we sold it, I realized that the whole time we'd had the business, we'd had to turn down a lot of small businesses that came to us because what an ad agency has to charge would eat up the entire budget, before they even do anything of a small business. And I thought where are they going to go. And back then bookstore stores were a much bigger deal. And I would hang around the business section and talk to small business owners who are flipping through looking for something that would help them. So I wrote the for Dummies group and said you have nothing for small business. You have marketing for Dummies, it talks about $100,000 tradeshow budgets, you have nothing for small business. And remarkably, in those days, they used to give big advances. I got an advance, no agent or anything. And I wrote small business marketing for Dummies, which in its third edition became the small business marketing kit for Dummies because they started including at that time, CDs and now downloadable forms. And then they call me what I do branding for Dummies happily. So I co authored that with Bushra Valley, who did the FedEx logo on him. He's really a branding Pro. So he knew the real technical aspects and, and I knew the more marketing side. And then I teamed up with the authors of business plans kit for Dummies, because I realized if you don't build a strong business, you're not going to be able to brand or sell a business. And that's how I ended up getting to bizbuysell. I'm on a mission now. Only, I only do one thing the books are out there. I'm not doing that anymore. My mission is to have more small business owners not close. And they close. I mean when they get ready to sell and you know, they don't sell they close and they liquidate at rock bottom prices and it breaks my heart because that was their final chance to rip around a value. That's how I got into it.
Ronald Skelton 4:42
That's awesome. And I totally totally buy in that. There just wasn't a lot of resources, even college force, marketing small business. I have a master's degree in MBA marketing. I got out embarrassingly eyes, but pretty much every penny I can get on trying to grow a startup and market it myself, I had a master's degree in marketing, I could be able to do this. And I'm a little ashamed to say it but out loud, you know, everybody, I could get my hands on probably 750 to 100,000 of our money, I use trying to grow this thing market and learn through a very valuable lesson that was just engineers, software and everything else. But your even your standard MBA course doesn't teach you what it takes to take a company from $0 to say, five or $10 million, where you can actually have a decent marketing revenue, or budget. And I ended up out of that I ended up going out and getting retrained by local gurus and mentors and being a coach in this face, under Javed Khan, Ron Livingston. So I I'm on board with your story that like they're just not a lot of resource, at least there was now there's, you know, a lot more in the last probably 15, 20 years, you know, since I since I got my master's degree, right. So-
Barbara Schenck 5:52
But you know, still small businesses start with a dream and no plan. And you don't have to I tell people, you don't have to have a plan in writing, you have to have a plan, at least in your head. And one of the things that that plan needs to include is what is your funding runway, and it sounds silly, but my husband and I lived in Honolulu for seven years. And then we moved to Malaysia because we joined the Peace Corps, it was more interesting even than Hawaii. And the Peace Corps puts away a little bit of money for you every month. It's called a real real allocation allowance. And we got home when we had that reallocation allowance. That's about what we had. That was our runway, we knew we had six months that we could live on that. And so we had six months to turn that business into a success. We knew that we knew and you know what? We did it. But we knew our runway, and we do therefore that's all we had. So over those six months, we couldn't spend this this or that. We had to just go get clients and, and we knew, Okay, what kind of clients do we need, we need a bank because a bank gives you credibility. So we got this regional bank, I mean, but the point is, businesses start with a dream and no plan. And so that was I highly recommend business plans get for Dummies, because it actually has a temp template in the back that you can follow. And it is your whole business plan template. And then the next thing is to build a reputation. And that's branding for Dummies, because basically, businesses sell for what they make plus goodwill. And Goodwill is in large part your brand. It's your clients. It's what people think of your business. And you talked about a couple days ago, when we were talking you talked about branding, and you know all a brand is you have one whether you know it or not, it's what other people say about you when you're not in the room. That's what Jeff Bezos said once and he's right. Is what people think of you if they think that you're an also ran that your brand.
Ronald Skelton 7:53
No, I got it. And you know, a lot of people, they they look at where to start, I feel like we're talking a little bit here in this starting new business and, and most of our audiences they buy when it's already existing. But when you're looking at if even if you buy one that's already existing, a lot of times you're buying something that doesn't have a really good marketing plan, or even I've seen companies at the $1 million mark even as high as almost $2 million mark in revenue, that don't have a strong brand at all. Right? They've got three or four really good customers. And that's, that's scary in itself. So, right. So you just said that basically the brand is a story that people tell you. What about you that when you're not there, right? So how do you? How do you determine like what a great brand is if like if one of our customers or customers or our listeners here, are out there looking at something we we've been taught on how to do financial due diligence, we've been talked on how to do kind of a little bit of personal due diligence to culture, the environment. How do you do brand equity due diligence? How do you see the value of a brand? What would be a way to determine that
Barbara Schenck 9:01
There's two terms there's brand value and there's brand equity brand value is how customers value the brand. Brand equity is how investors value of the brand. So how you know your brand value is you look at you can look at pricing, what are people willing to pay you versus what they're willing to pay others and if they're willing to pay you more than your brand value is higher they value you higher than the others. I mean, in the ad industry, it was an hourly rate basically and if we could get 125 An hour and you know small groups were getting 85 We knew that that was I'm not doing the math very well but the difference was our brand value then you times that for brand equity you times that difference between how many hours you sell and that becomes a sense of your brand equity. The other way you value a brand is you Say what would it cost to recreate our presence or reputation? What would it cost in terms of getting a new name and trademark, getting online presence, getting market dominance, building the clientele we've built. And if that's expensive, you have a better chance of selling your business. If you don't have a good domain name, if you don't have online presence, if you don't, then your business isn't as saleable. And that's all part of getting your business ready for sale is well in advance, you start looking at those things and, and in the biz, buy sell guide, there are checklists of what you need to do, to be ready to sell your business. And you know, one thing is have profits and sales that are going up for three years, three to five years. And if they're not, people are going to have questions. Now the pandemic throws that off a little bit people understand the pandemic, you don't even have to explain that. Well, that was the year of pandemic, look at how already, we're bouncing back. And you can see the sustainability of our business.
Ronald Skelton 11:05
Most of the audience I know and the people I work with, we want to see the last three years. And because the pandemics there, if they had a bad year, a lot of companies surprisingly did well. But if they had a bad year, we want to see the year prior. So we would show me show me your best three years in the last five, but I want to see all of it right. You know, that's right, you know, put your best foot forward. I agree we can evaluate based on the best. But especially now we should be you should at this stage, I think people should be recovering. So you should do the recovery.
Barbara Schenck 11:36
Some businesses did better. I mean, this buy sell is showing that the fourth quarter of last year was like way, way more business sale transactions than previous years. And you know, what did best service businesses, liquor stores, restaurants? I mean, why are we not surprised liquor stores. Anyway,
Ronald Skelton 11:59
The way the world's going, we should all own a couple of liquor stores are gonna be pretty profitable. When there's this much trouble,
Barbara Schenck 12:06
Most really small businesses are in those categories, particularly service. And for some reason, service businesses usually are really presented by the owners and they think they can't sell. And so I think that's another reason why small businesses closed, they simply think they can't sell which is it may be an overinflated sense of self. But, but when I tell them, they need to get their business ready for sale, they say, Well, what does that mean? I say really, in a sentence, Ink Magazine once had a cover that I've cited 1000 times, and it was do you want to be the business or run the business. If you are the business, likely you can't sell it. If you run the business, you have a good chance. That means getting the business off your shoulders, getting the finances out of your head, getting the clients as happy to take advice from someone else's from you. Sharing decisions and you know how you know, take a three week vacation. And don't call in constantly give people know who's responsible know what two people can sign checks in your absence. So that, you know, that's what we used to do when we were gone. The CFO could sign but somebody signed a second one so that you know you know that you're protecting your finances. You have systems and processes. So you don't worry how people are doing things. You have a business you can walk away from that means it's transferable. Which is a key key ingredient in successful business sales. If people think they can't pick up and keep the wheel running, they're not going to pay for it. And you know what, to a lot of small business owners, there's a sense of pride in that. And what you want them to do is say Don't say call Barbara, say call the agency. And they know that who's ever at the agency is well trained and superior to other places they could call. If they're saying call Ron, then you don't have a business. It's as easy to sell not that you can't sell it. But that's my whole point. Get your business ready for sale. Ideally, what I want you to do is start your business knowing you're going to sell it someday. So it's not Ron's podcast. You know, it's, they're ready to exit I'm I'm sorry, I hope, how to exit. But that's that's a saleable brand.
Ronald Skelton 14:36
You know, that's why I called the podcast I don't think we ever even said this on the podcast. The reason I call it how to exit, we're taught when we really talk about buying growing, running and selling is, in my mind, everything that you own as a business you should be considering like in the long term, you're going to exit at some point, right?
Barbara Schenck 14:53
Ronald Skelton 14:54
So you know how to exit is a conversation about how to acquire something, how to grow it, but all Just keep in mind that at some point, this just needs to be sellable. And you should be rotted at managing and treating it as if it's you know, like, you know, it's for sale, I honestly believe that I have this for the companies I have right now is keeping a deal room I actually have a marketable like all the financials, everything I need, if somebody said, Hey, I'd like to take a look at buying your business, I can give them a link to a dropbox folder and 30 seconds is ready. It's ready. And that's the that's the goal that everything that you know, I'm acquiring and everything that you know, like anybody on my team is looking at is once we own it, we maintain that dealroom As if it's ready to go. And it if that mindset is huge. And I believe in what you were talking about earlier, this misconception that small businesses and service businesses are not sellable. I run into a lot, I'm not ready to buy, but that's because they haven't done their homework. So let's talk a little bit about that. What does it take? If you you say, say we've got listeners out there, you own, you know, a service company, pest control, consulting, whatever it happens to be, and you are the center of it. You're the head sales guy, you're the accountant? What are the steps to get that to where you can retire out of it, sell it to somebody else?
Barbara Schenck 16:17
Okay, let me back up before I answer your question and say the reason this question is important, is most people who get ready to sell their business, don't do it. Because they're ready to sell. They do it because they all of a sudden have to sell somebody is sick. They need financial they an opportunities come up to make way better money somewhere else they need to relocate, they hate their partner, and all of a sudden they want out. And so the point is keep it ready for sale all the time. So what does the sale ready business look like? It has strong financial condition, clean, legal condition. And there are checklists I have in the books of go through and rate your business, one to five on each of these ratings. Is are your finances strong? In other words, not only is our sales going up, but our cost of sales staying consistent? Because if cost of sales are soaring, then you're eating up your profit right there. What about operating expenses? Are they staying steady, and then profit. And the reason profit. So important is it is the baseline for pricing your business, and we'll get into that. But you need strong financial condition, You need strong legal condition. You need strong image and reputation. So I tell people go to Google or whatever and go to private browser, so they don't know what you and Google your business. And look at what comes up, if what comes up is a bunch of bad reviews, or nothing, you know, you got some work to do. And branding for Dummies goes into what to do with that. You need strong operations in organization. And that comes down to you can't be the only one. You need strong market and industry. So if the market you're in is really declining, or the industry you're in is really declining, you need to start moving away from maybe if all of a sudden you have an irrigation system in California saying you can't irrigate anymore, maybe you need to move into zero escaping, you know, you start to go where the market is leading you. You need competitive products. Are your products really competitive look at who you're up against, and what are they charging? What are people willing to pay for them, if it's way more than you then your products aren't competitive unless they are price competitive, which is rarely a premium position. You need a committed and growing clientele. And by that I mean as you said not one to two customers and commitment. So if you can get contracts if you can get in income that comes in every month, you know that you know every month you've got $120 from coming in for from 100 Landscaping clients and you need transferability and that means all the contracts have transferable clauses your employees have transferable contracts, your leases long lasting that type thing. That's a saleable business.
Ronald Skelton 19:19
Yeah, I actually looked at a company that had a bunch of service contracts and everything and read through them. I couldn't find that in there handed it over to attorney friend of mine who was helping me out with this. I say help him out. I paid him but it wasn't free. But he is he's like it doesn't have them and we'll have to do new contracts. So he had 225 clients and I asked him how often you interact with these clients because pretty much twice a year I build them when I install like new pumps and you know, and new equipment, and then they just they go on AutoPay all year when I refill it and at the end of the year when I when I winterize this is an outdoor pest control system for my pest control company, when they winterize it, I get a hold of a lot of them and tell them if I see anything or what's next year sounds like you talk to these guys two times a year. And you're thinking I need to go to all every single one of them and say we need a new contract. You know, so I had to structure a deal that he didn't accept is basically based on how many people stayed, right? You know, because
Barbara Schenck 20:20
This gets down to structuring the deal. And that is a very common thing you just did. Like, a lot of times when you sell a business, it's called seller financing. If you offer seller financing, you're gonna get more money for your business. And if you don't, now, this takes out the chance that you have such a great product that somebody wants to just, you know, this is the tech world, we're not talking tech we're talking. But you're going to sell it for a downpayment. And then you're going to sell it for and that down. First of all, you're going to price it by your assets, and buy your blue sky and part of your blue sky is future earnings for five years. And you can put a ceiling and a floor on that. So you can say, because if they completely botch it, you as the previous seller should get your your floor. And if they just soar, beyond expectations, you as the seller shouldn't get that. So you have a ceiling and floor for that future earnings. And usually it's a percentage of so that's exactly what you are aiming to do.
Ronald Skelton 21:22
Right. I wanted to, you know, in my world is all about minimizing risk, right? I want to give everybody a fair deal, but I don't I can't pay, you know, I think he only wanted to under 50k for the whole business. I kept hitting the check on you know, it plus, it was two weeks before he winterized it right. So you wanted to check for the full amount. And then he wanted to winterize that and I wouldn't talk to those customers until spring when we when when everything stalls out, we activate them. And then I had to go get new contracts from every single one of them. Like, that's that's not how this was gonna work.
Barbara Schenck 21:53
This is a not transferable business. And guess what it didn't most biz Buy Sell will tell you, anywhere from 60 to 90% of businesses that are for sale don't sell.
Ronald Skelton 22:04
So what do you think, what, what are the key factors in that? Because I've heard that statistic a lot. And I've asked almost every expert this and we've got some different answers. What do you think, are the key factors that keep 60 to you say 90% of those business from selling?
Barbara Schenck 22:20
And the 90 does not come from bizbuysell. It comes from other sources, they say they say 60 to 70, I think, really basically, and this minimizes the importance of a business sale. But a lot of business buyers are looking to buy a job. They're looking for good income, and it used to be 100,000. And they now need in a lot of markets more than that if your business if they do the numbers and it doesn't deliver at least that they're not going to buy your business unless it's a hobby. If you have a yarn shop, and you're selling to somebody who just loves fiber arts, the money is less important.
Ronald Skelton 23:06
The next room we got to talk about no talking about yarn, she hears that she'll be in here trying to join
Barbara Schenck 23:10
Flying a hobby, a love interaction with people who love what you love, that's different. You can you can probably sell them, but you're not going to make much money, but you're not making much money now. So that's okay. I just looked up built this Buy Sell before this, and they're showing the median revenue of the sales in late 2021. Was the revenue from the business was 625 to 690. Okay, 1000, and the median sale price was $325,000. Now, backing up again to that 100,000 Most people want to know so let's say you can show that your business for its owner makes $100,000 Which let's say 150. Because I think that's what more people are looking for now and in a minute, I'll tell you how to get to that number. The average business sells for two to four times average earnings, average owner earnings, it's called seller discretionary earnings. SDE you'll see this a lot. So if you look at it, if the average business is selling for 325, you can kind of bet that it is most of them go for two times be honest. So it's making about $150,000 for its owner, that is not the bottom line on the income sheet. The income statement the balance sheet, or the income statement is showing legal taxable income. It takes out absolutely everything legally it can to get as low a tax impact as you can. When you're selling you start with that number but then you add back in everything that benefited the owner directly. So you add back in the owner salary, the owners car if the owner gets a Car stipend. And if the owner owns a car, you usually sell it beforehand, because that's or the owner buys it out and gives, anyway. Anything that the owner got for their car, any memberships that the owner had that aren't essential to the business, but they were taxable and tax exemptions, you back out everything and that becomes what the owner takes from the business. And that's the number that you times from two to four and in my books, and and on, on the BizBuySell site, I have a little chart, you go through all the attributes that owners look at, and you give them a scale of one to four or one to five, and then you add up that the marks you gain, when that becomes what you hope will be your earnings multiple.
Ronald Skelton 25:44
Okay. So we, they know now the process of where to go look to see that we talked a little bit about like, the small, small to medium business, a lot of those guys on bizbuysell are gonna be in that category where their owner operated owner run, let's just talk a little bit about like, how does a business owner? How do you suggest a business owner make the shift to where, you know, they could take that first three week vacation, and verify that the business still runs is still doing good? I always tell people that you know, it's a two to three year process, do your three week vacation, wait six months go? Go on a, you know, a five or six week vacation? And at the end of the second or third year? What do you think it's totally ready, ready to sell, take the entire month of December off and come back and expect it that your business to be doing better than it was when you when you left? Right? And but what how do you make that like that initial shift? You're in there every day, you're you're the sales guy, you're the CEO, you know, you're a five or six person company's here to accept a significant part of the labor? How do you start making the shift to get ready to sell and have somebody else owned and run that?
Barbara Schenck 26:58
Well, one thing you can do is look around your business and say is there somebody who should be a partner in this business? Who is a likely successor to the business? And if you do that huge caveat, get a Buy Sell agreement? Because people enter partnerships on a handshake. And that's not what you can do you have to know. I mean, even Angelina Jolie and Brad Pitt are having a fight over Did you say this over, they don't have a good it's not an enforceable Buy Sell agreement on their winery or something. It mean, get a Buy Sell agreement. So when the partner wants to take over when one of you wants to leave, the other one knows exactly what it's going to cost. So first thing you do is look around your business, can someone take over as become a partner and start sharing what's on your shoulders. The other thing I would say is get your finances into someone else's hands, even if it is a professional firm. We hired a CFO, we hired a CFO, probably five years before, we were maybe longer than that before we sold the business, and that person handled the money. Two things happen, then all of a sudden, you have to do budgets, you have to do quarterly meetings to see if how you're doing, you start to run your business like a business. And it's a small business. So what we used to do is pay our accountant, our outside accountant and attorney once a quarter to attend our board meetings, they held our feet to the fire. And they're the ones at one point said you know what you need a profit sharing plan, Okay, step toward becoming a real business that somebody wants to buy. So I would say number one, look around your business as their partner and you don't have to have a partner in some ways it complicates the sale process unless they're the buyer. The other thing is look at a vice president who can you groom and really pay adequately as a vice president, who you think will stay with the business even through a transition, get the finances off your shoulders, out of your head, that is the worst place to keep your books. You somebody said to me once it's hard to keep a million dollars in your head. Well, that was back then. Now what are you keeping even a small business? So and then start, how else to get start getting clients to call someone else. I mean, we used to have account executives, and we started calling them account supervisors. And they had coordinators, we only had 30 people, but still, the clients knew to call that person and guess what they got a quicker response. They got more hand holding that person could be over in their office in minutes. Whereas as the owners, we couldn't I mean, so you start really sharing responsibility and client contact even at the risk that that person could leave. But if you have good systems, if that person leaves all the client data has been captured In your databases, and you go on.
Ronald Skelton 30:04
Yep. So you're operating your business you're looking around, and you may or may not have an internal employee that fits the bill of this, you know, being able to run the show when you're gone. What about looking outside of the company, or even, you know, in my space, some of these smaller business, it, I was working with a business, I'm just bringing this story and just working with a business the other day, and he actually introduced a new phrase, he, we always say, acquired a higher, us wanting to do an acquire to retire. And I was like, What do you mean? He said, Can you help me do when required to retire? They said what it was, I have a smaller business, it's one of my competitors, the guy runs EOS, he's like out I mean, he runs his business better than I run mine. Key Performance Indicators, like this guy has a system and process, I want to acquire him and have him be the CEO of all of it, and I want to retire out. And I've already talked to him, will you help with that. And that was a unique responses that he didn't have anybody inside, they could run his business as well or better than he could. And then he identified somebody outside of the company that wait a second, if we came together, it was more of a merger. Right? It'd be more of a merger if they merged with this guy, that guy, you know, probably run this thing better than I can. What about? What about that concept of ringing somebody from the outside either as an employee or some type of strategic play to make sure that you're well run?
Barbara Schenck 31:30
Well, I would get some legal help to make sure the contracts are clear, because you're going to be sharing everything about your business, it's sort of like selling to a competitor. They're going to see all your books, and what if they don't buy. So that is certainly one way to go. And the truth is, if there's no one in your company, who can help you build, grow and, and build the reputation of your company, then you do need to hire someone, whether it's through a strategic partnership, or biting the bullet and actually paying someone a top level price, which we did. I mean, we hired a vice president. And it was probably one of the hardest hires, because in the end, he was really, he he felt he was capable of running the business. And we weren't really ready to turn it all together over yet. But still, it set up a structure that then was attractive to the buyer. He knew that once we once we sold the business, he could see that there was a hierarchy that he could see where he would fit in and where the support would still be. There's no one answer to your question. I wish there was.
Ronald Skelton 32:38
Yeah, I was like it on top of that is like now in today's environment, there's fractional everything. You can get a fractional CFO, you can get a fractional seat, fractional CEO, right to come in, or even CEO coaches. There are fractional chief marketing officers. I've had a few people asked me if I'd be a fractional chief marketing officer. You know, there's just a lot of different avenues to bring the talent in. I would say in my gut feeling on this and helped me out if you think differently, is if you're looking at building this to sell it, you're prepping to sell you, I would think you'd want somebody in there. That's not just fractionally you want somebody that can be there through the transaction. That's part of the package of selling, right? The team, at least when I'm evaluating a company, the team was a critical part of it. I have to stay in who's going What skills do they have? How far can they take that? A lot of times I even kind of secretly look as the owner holding these guys back to they actually do better without this guy. Right? Because a lot of times the owner has just done things a certain way for a long time, and the team is ready to grow.
Barbara Schenck 33:43
And chances are if you ask the team, the answer is yes. But you know, what size company do you think is buying fractional CEOs to fractional sfos?
Ronald Skelton 33:53
I've seen I would say they're in the million dollar revenue mode. They're about ready to bring in somebody full time but just not quite. I had talked to a company he's doing 3 million so he has one trying to take the smallest one I've talked to of $650,000 equipment installing company, they basically get contracts with high end audio and video sales companies and they install it and like set up your TV room and stuff. He's got a fractional chief marketing officer. Now that's the smallest, but he's almost ready to have somebody in full house full time. That's all their job is, but not quite. So I think there's a I think they're a bridge, you know,
Barbara Schenck 34:36
but to the to a business buyer. That support system that organizational support is valuable. The question the buyer still is going to have is if that technical expert who's currently at the helm, and who currently has the competence of the clients, and probably the licenses and everything else is the buyer going to be capable of retaining it all when that person steps away. So it's, I think, a little more believable when you actually have a second in somebody who mirrors a lot of you versus fills in for what you don't have. And
Ronald Skelton 35:20
That was my gut, I was wondering where you would go with that my gut is that almost needs to be in house. And they need to fill out all of the shoes that you're walking away from, right, it needs to be at least capable of it, maybe not actively doing it, but they're fully capable of feeling like when you take out three week vacation, who steps up and does and makes the decisions you would have made while your, while you were there.
Barbara Schenck 35:41
The clients or customers aren't buying marketing or, or financial management from you. They are buying your product or service. So the question is, does the buyer feel that the product or service that the clients have confidence in will continue with you gone? And if the answer is yes, and the financials are all strong, you've got a very saleable business. And that's what the first chapter of the biz Buy Sell guide really goes through is how to get your business and sale ready shape. And you really want to do it for two reasons. One is to sell. But the bigger reason in the interim, is that when you have a sale ready business, it's easier to own and easier to sell. And you don't know when you're going to sell it, you don't know when something could happen. And you need to sell and she isn't ready. But if it's sale ready, and I always likin' it to detailing a car, you're going to sell your car, you go get a detailed because you want to get the best money you can and you pick it up from the detailing, you drive away and you look around this kinda go why are we selling this car? It looks pretty good. Well, that's the same with a detailed business. Think of it as detailing your business, you're cleaning it up, you're cleaning up its first impression you're cleaning up its web presence, you're cleaning up its finances and legal obligations. You're cleaning up it staffing security. So you're making sure people have caught you know that and you're in you're heightening business morale, you're strengthening your brand. And, and your brand isn't how your finances are managed. Your fight your brand is that your finances are invisible to clients. That all they're seeing is these preferential these premium products that they buy from you. Or services.
Ronald Skelton 37:35
You know, it's interesting is, I have a case where I talked to a business when I first started looking at this before I took any mentoring and you know about the time I was buying the equipment and setting up my pest control company and buying that, which I bought totally wrong. That's why I wouldn't got mentoree I've got it way too small. And anyway. I was I talked to a guy who had a business and I was like, Look, he I couldn't get him where he wanted to be and say, here's the steps you need to get get to and it was all the stuff you're talking about. I think I even was using your guide, because I've had that for a while now. I just walked him through like here's this, here's where to get it. I emailed him the PDF or whatever and told him how to get it and and I contacted him about four or five weeks ago and said, How's it going? He says going great. I love my business. I'm not going to sell it now.
Barbara Schenck 38:22
That's a detailed car.
Ronald Skelton 38:24
Yeah, it's that's why when you said that I was like, Yeah, you know, it was like, I talked myself out of a good deal. Like, No, you didn't because you didn't want it the way he had it, you would want it the way he has it now but he's just not ready and he's 68. So five or six years from now he's probably gonna call me again, right? When he is ready.
Barbara Schenck 38:42
And his business will be saleable. I'm gonna give a pitch for biz buy sell right now, this is the guide to selling your small business and I wrote it but biz buy sell not only produced it, they make it available for free. And all you have to do is go to their site, click on the and once you get there, you have to click that you're a buyer or a seller click on sell, scroll down, click this and you can download it for free. You have to enter your email address, but I guarantee you they don't start badgering you with emails or anything. They just want to get the information to you. And
Ronald Skelton 39:14
I'll put the link in the show notes if you want. That's cool. So I'll just put a link directly to that page.
Barbara Schenck 39:18
And I would love it if you would and I and I asked bizbuysell before our talk, do they welcome you know, absolutely. They said this guide so many people have downloaded it, we're actually talking about expanding it. So it is a really good resource, which backs me up a bit to something how much I know for a fact people don't get their businesses ready for sale. When I wrote selling your business for Dummies, which is this book, and I'll tell you right now it's out of print. And the reason it's out of print of all my books. It was my lowest selling book,
Ronald Skelton 39:56
and it's shocking. That's so shocking.
Barbara Schenck 39:58
I thought it was just gonna go off market. But here's the thing I learned, people don't think, about selling their business until they're ready to sell their business. And they're only going to sell it once. So they don't think they need a book that they're going to refer to repeatedly. And they don't want to work that hard. And that's why once they're ready to sell, they go to the biz Buy Sell site, they download the book. And you know, most people who go to the site don't list their businesses, they know they're not ready, they list them, maybe maybe later, but not immediately. So it just know for a fact people don't think about selling in time. And that's what you're doing. And I'm so grateful to what you're doing to helping more people realize, let's get it ready now for us. For us on two counts, make it better to own and run make it easier to sell on the times. Right.
Ronald Skelton 40:49
So what do you think that when when should a business owner start thinking about that? You know, I, I'm of the mindset from the day you own it, but absolutely, yeah, you're running a business like, you know, what is the best, best time to what do they say? When's the best time to plan on an olive tree? 100 years ago, when's the second best time right now? Right? The same thing here is like, when was the best time to like, think about selling your business when you for me formatted it and grew it to where it's at now. You know, that was the best time but the next best time is now right? What is the timeline from deciding, okay, I want to run this business as if it's for sale, even if I don't want to sell it. I'm gonna want to do something with it one of these days. What is the timeline? Do you think for most of these in this in this genre, we're talking about the, the, you know, that's a less than 25, 30 employees less than five or 10 million, they're there. They're a key operator in their company. What's What's that shift take? You know,
Barbara Schenck 41:46
I think it takes I tell people, it takes up to 18 months to get your business ready for sale. And that's everything from going through things, little things like making sure who owns your domain name, if I own it, personally, it's not an asset of the business that needs to change. If I had the website produced by somebody who owns basically, I have to call them to update it, that's not an asset of the business. All these things have to change the contracts, you start writing different kinds of contracts with your clients that include transferable clauses, you, you start getting key person contracts on employees, it takes up to 18 months, maybe a very simple business less time, but still ending and then cleaning up your finances. And making sure that your operating costs you go through your operating costs or your cost of sales, I'm sorry, and say, Well, what are we paying a big chunk of our cost of sales is going for, in your case, maybe internet, streaming services or whatever, you know, we could get more competitive there and bring that, that variants down and therefore gross profit up. And then you do the same with operating costs. And you're not saying that you're trying to, you know, pare your business down to nothing you're trying to get on any extraneous costs, to get that bottom line strong and going up. And if it's not going up, now, it might take more than 18 months.
Ronald Skelton 43:11
It's interesting, there's a lot of parallels. So the real estate world, and the real estate world, if you're running and owning a business, you know, it trips the owners up a lot of times because for the last three or four years, they've been trying to minimize taxes, minimize taxes maximize like what they keep in the company. And also they try to get qualified to buy a house and they're shocked that they don't qualify for much of a house because they don't show much profit. I think a lot of the same thing that you're thinking about selling your business, you kind of gotta go you got to pick a middle ground from what's a happy, like tax, reducing your taxes as much as possible, and a happy showing as much profitability and you know, and really that sellers discretionary earnings as possible.
Barbara Schenck 43:56
Well, but to add one thing that's a little bit mitigating and comforting is that sellers, discretionary earnings do add back in one time extraneous costs. So if one year you did all new cabinetry in the business, of course, that would be a depreciating but some but still, if you had a big expense one year, you just you just qualify that and pm people understand. In fact, good buyers are impressed that you put that in and then took it out of the the earnings picture.
Ronald Skelton 44:29
Yeah, it's important to because if you don't if I look at your business, and it's something there's renewable things you need, say see you I was looking at a printing company, they owned a printing shop and did us swag, right? They printed on everything. And their equipment. Was I want to say 15,like the newest piece of equipment they had and there was 10 to 15 years old. Now they maintained it well. It's all running is it every piece of equipment in your works, but the only thing that I caught in my mind is like 15 years ago when you bought that how much did you spend on equipment, and they had four or five million dollars worth of equipment on their floor. Right. And I'm thinking at some point that stuff's got to be replaced, and probably sooner than later since you're running on, you know, I say that there were newer pieces they bought, it was grown organically, so a lot of that equipment was bought over time. But-
Barbara Schenck 45:14
Through the depreciation cycle already. Yes, I
Ronald Skelton 45:17
It's there was like, there was like, Oh, my goodness. So that was kind of a red flag is like, there hadn't been a refresh and equipment in a very long time. And a lot of that unless it was something needed to print a new line, like the it's just a new technology come out, like they had 3d printers to do some stuff. But if it wasn't new technology, they were still operating on. Like, they were good at fixing everything that ever bought, I think every piece of equipment that company ever bought was still up and running. And that was impressive. Yeah, that was impressive. And it's the same, right? It's kind of like, you know, if I lose their maintenance guy do I have to replace five and a half million dollars worth of equipment.
Barbara Schenck 45:56
You mentioned the word red flags. And in the biz Buy Sell guide, we have a page of the red flags, low earnings, high competition, low advantage, no key staff, weak operations, low name recognition, dependency on just a few clients processes that aren't systemized or easy to take over declining industry or market area, expiring or problematic lease aged equipment and facilities and legal, financial, operational or transition problems. So those are them. I mean, it takes 18 months to fix that. And maybe more. But the other thing is, if you're going to lease new equipment, get transferable leases, because you know, you are thinking about selling the business.
Ronald Skelton 46:44
So you created a marketing agency, took it to maturity and sold it. What do you do since then you've done a lot of research for all these books, right? So you learn stuff since the last business you've sold? What do you know, now that you wish you had known before you listed that business for sale? Like what's the like, Man, if I had just known this before we got engaged in that process, it would have been different?
Barbara Schenck 47:08
Well, I'm going to be honest and say we were very fortunate, there's little I would change about the business. But since then, as I did the books, and really started to have a career after the the business and it wasn't as much to make money as to get information out. But I knew I had to get pay. And I wanted to be free information. Like even my website is almost all you can click to buy the books, but there's tons of free information. How am I going to get paid, and then I learned when you can hitch to the strongest horse. And so I knew at the time dummies was strong. So for Dummies, so I contact, that was my first thing then after that BizBuySell actually contacted me. But then Microsoft called what I write their business, small business training courses and, and small business was called business on my main was the site. So I just hitched to the strongest horse. And I think businesses could do that as well. You do that by getting a few strong clients. I mean, we got the state of Oregon to do its tourism. And after that, guess what comes in all kinds of tourism clients, because you're kind of in the shadow I read a book years ago called horse sense. And it was about this hitch to the strongest horse. And so I think sometimes businesses try too hard to go it alone. You say Who can we hitch up with that gives us more credibility builds our brand credibility.
Ronald Skelton 48:38
I agree with that. 100% and, you know, a client list is a very attract, like who's on your client list is very attractive to the buyer, especially some of the higher paying client buyers. What what we what we refer to in the industry is strategic purchases.
Barbara Schenck 48:53
Ronald Skelton 48:54
A lot of times this strategic purchase happens because you have certain clients, you know, especially in like in your marketing agency world, your client list is critical because maybe the the acquiring strategic buyer has some products and services that you don't offer, they love to upsell that but they just can't get in the door. You're in the door of these clients. That's a huge advantage. So, you know, be proud of your customer list and go after the go after that. I'd love to hear the strategy hitched to the strongest horse. Get some of those on your client list because it's appealing to the buyer to know that you know, you know you've got those clients you've got that you know,
Barbara Schenck 49:36
It comes back to brand but it comes back to branding because you're trying to sell your brand when they're studying your brand. They look at your clients and see brand names. This is very affirming and brands happen to attract brands. So do look at who you are doing business with. If you you're doing business with, you know, the second half of the top 10 list how can you get some of the top? The first half of the top 10 lists make a couple of stretch goals. And, and build a business that has high attraction and really in many ways branding for Dummies, what walks you through? What does it take to build? In some ways a brand has a reputation? And how do you up your reputation because it makes your business more saleable. The man that bought our business, he was a Catholic. And so he went to the Catholic Church and asked the priest if he'd ever heard of us. I mean, people want to know that, you know, and now of course, it's all online, they do online searches, but you make sure that whoever they might be going to to ask knows about you and has something good to say.
Ronald Skelton 50:47
I love that. I love that. You know, it's the story that other people's tell about you. Right? It's the it's not the story you're trying to say. You, you put a story out there, but that's just influences, the branding, right? What really is the brand and what really matters to like an acquirer or like myself or somebody you know, private equity or strategic purchase, is when they start talking to people in the in the space. What did they say about you? I turned away a deal the other three, four weeks ago now five, six weeks will go now. I know people in the guy's industry. So I called him up and said, What do you know about this little company in Colorado? And they were like, he's in a bad space. He's He's crashing and burning. And he's, you know, looking at it. I didn't even hadn't done started my due diligence yet. They're like, You got to look at his DMV report. He's actually I forgot what it's called. But he has top vendors not sourcing him anymore, because he hasn't paid their, their bills and stuff. And this is just like, I went out to the industry because I've got a huge network. And like I talked to people industry, what do you know about this little company over here? And I don't say they're for sale, I don't disclose any of that stuff. I just kind of want to know, you know, what do you know about you know, the industry and I start with the industry, and then I kind of get into what do you know about, you know, these particular players in the industry. And it matters, it really absolutely matters.
Barbara Schenck 52:09
This is what you do over the 18 months, you say? Where's everywhere they might check in the beginning. I told you I will tell you something funny about our Wall Street Journal ad hub set out my husband did wrote it, he's really good. And so he wrote the pub set ad small agency in attractive community upside potential, right. WSJ, whatever, because you don't reveal your name, especially in the service business, because it scares clients to death. And so Wall Street Journal made a typo. We're so excited. We see our ad, and it says in highly unattractive location. So he called them and they said, Oh, my God, that's our F. That's our error. It was a pubs set ad will run it again. Well, that's all we cared because it was free. We got it ran two times. The unattractive location ad brought more results than the attractive location. What did people think it must be quite a deal if it's, you know, all that in an unattractive location. So the point is, people want to know what makes this place special, and they're going to check into it, we did sell it to someone I think he did was really respond to the unattractive anyway. So just so you know, it's pretty interesting that what causes people to have interest and what they need to know, to look further?
Ronald Skelton 53:25
Well, Barbara, we're getting close to the top of the hour now, and just kind of want to make sure people know how to get a hold of you. We have your website up, if you're watching the video version of this, it's on the screen, it's biz, B I Z strong.com, bizstrong.com. She has a lot of free resources, a lot of, you know, stuff on there links to her books that she's authored. And it's a great place to start if you're thinking about buying a business, because, you know, I would say go look at that, you know, the guide to selling a business. He used those checklists to make sure you're verifying those things are strong if you're going to buy on the buying side. So it plays for both sides. And is there anything that like, that you really want people to know? Like, what is the biggest takeaway, or a couple takeaways from our conversation today that you really want to land with small business owners?
Barbara Schenck 54:14
Well, I would say you both you and I love small businesses, and we want them to succeed and succeed means capturing the final round of revenue. So I want them to be in position to sell their business and I don't want them to wait until they're ready to sell because I think that's too late. And if you go to my website, right from the homepage, you can download the first chapter of several of the books, or if not that the cheat sheet to the books. And there is the link to the Best Buy Sell guide, although I appreciate if you share it as well. There's also if you click free resources, a lot of the columns I've written for Microsoft and American Express that are on there on Fox News, they're on all over the place, and you can just click and read all of those mostly run a business that's ready for sale and, and you'll like running your business more, you might even want to keep it
Ronald Skelton 55:08
The detailed car right. Thank you for your time. It's been lovely. Hang on for a few minutes after we end the show and you and I can chat for a few more seconds. But I do appreciate it. It's been great. I know that the listeners are going to love it. Thank you very much.
Barbara Schenck 55:23
All right, I enjoyed the time with you. Thank you. Awesome Good luck to everyone. And that's
Ronald Skelton 55:27
And that's the show the investors and entrepreneurs professional mastermind. The investors and entrepreneurs professional mastermind combines that or traditional peer to peer mastermind, introduce first in Napoleon Hills famous book Think and Grow Rich with accountability partnering, where your peers help you ensure that you set goals take action and get results. If you want to scale blow past roadblocks and achieve success faster than you might think is possible. I suggest you take a visit over to tiepm.com That's T i e. P m.com. And check out the investors and entrepreneurs professional mastermind