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April 22, 2022

How2Exit Episode 29: Laurie Barkman - former CEO and a "business transition sherpa"Laurie Barkman is a "business transition sherpa." With he

How2Exit Episode 29: Laurie Barkman - former CEO and a

Laurie Barkman is a "business transition sherpa." With her firm, SmallDotBig, she advises owners on having more valuable, sellable businesses. And as a Partner with Stony Hill Advisors, a mergers and acquisitions firm, she guides them through the...

Laurie Barkman is a "business transition sherpa." With her firm, SmallDotBig, she advises owners on having more valuable, sellable businesses. And as a Partner with Stony Hill Advisors, a mergers and acquisitions firm, she guides them through the complex process of letting it go.

Laurie is the former CEO of a $100 million revenue company with an exit to a Fortune 50 company. With more than 25 years of C-Suite and award-winning marketing expertise, she provides actionable perspectives to drive sustainable value.

Engaging audiences across the US, Laurie is an Adjunct Professor of Entrepreneurship at Carnegie Mellon University, leads executive workshops with Vistage, and hosts a weekly podcast called Succession Stories.

Laurie earned an MBA from Carnegie Mellon University and BS from Cornell University. She is a Certified M&A Advisor and Certified Value Builder giving her the knowledge to expertly represent clients and coach them how to maximize the value of their business.

Laurie is the former CEO of a $100 million revenue company with an exit to a Fortune 50 company. With more than 25 years of C-Suite and award-winning marketing expertise, she provides actionable perspectives to drive sustainable value.

Engaging audiences across the US, Laurie is an Adjunct Professor of Entrepreneurship at Carnegie Mellon University, leads executive workshops with Vistage, and hosts a weekly podcast called Succession Stories.

Laurie earned an MBA from Carnegie Mellon University and BS from Cornell University. She is a Certified M&A Advisor and Certified Value Builder giving her the knowledge to expertly represent clients and coach them how to maximize the value of their business.
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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 Laurie Barkman. Laurie Barkman is a business transition Sherpa. With her firms small dot big she advises business owners on having more and more valuable sellable businesses. And as a partner with Stone Hill Advisors, a mergers and acquisitions firm She guides them through the complex process of letting it go. Welcome, Laurie. Now, for the first time, it's Laurie. So just keep smacking me.

I was just talking to a friend earlier on the way and she called me and her name is Laura. So for some reason, I've got you guys connected somehow. Thank you for being on the show today. I always like to start with kind of how did you get started in this what got you into mergers and acquisitions, it's not a natural starting place for most people. So

Laurie Barkman  1:18  
it's not a natural place. And for me, my origin story really goes back 20, 25 years being in business. And when I was a CEO, and I was part of a company that was sold to a fortune 50 That's really what got me interested in this deal side we were being acquired, it was clearly not a merger, the total transaction was a pretty sizable one ahead a billion dollars, more than a billion dollar enterprise value. So for for me, who was part of the executive team, we knew this was a the biggest deal of our lives, we wanted to make it successful. And then we also knew it wasn't just about the transaction, it was about the transition and the integration. So going through that on the deal side, after I left, I was part of the I was part of the integration. And eventually I left the company. And after that, I went into private equity. And I was on the other side of the table for doing deals, this time doing investing and trying to assess what would be the right thing for our our partners and investors. And I got exposed to Exit Planning. Through some networks of mine I was I was with a law firm, I was running business development for a law firm. So I got to know some of the other folks in the ecosystem lawyer lawyers, of course, wealth managers, accounting firms, and I was starting to learn more about Exit Planning, and this age wave tsunami. And so that's how I got into m&a As I was spending time learning about Exit Planning got certified from the from the Exit Planning Institute got certified on the value builder platform. And I can also share a little bit of backstory about the name of my firm, small dot big but that's how I got into m&a.

Ronald Skelton  3:05  
Awesome, and you actually run a podcast too, so and it's on succession stories. So I was checking that out some and that's really cool. So thank you for being on the show. Let's just jump right in what is like, what's on your mind right now? I mean, we were talking about this a little bit earlier. But uh, you know, there's a lot of things going on, you've had a lot of experience business owner, with business owners coming in, needing or wanting to sell their business. You know, what's like, what's the sticking point that you see that most of them have to overcome to get get successful exit.

Laurie Barkman  3:39  
Transferability is the biggest I'm seeing right now. There are a lot of people who think their business is ready for a sale, or they're thinking about it in two to five years. Age weight, age wise, they're probably in their late 50s. So they're thinking they want to retire in the early 60s. And they're giving themselves a two to five year time horizon, which is great, you know, more time on to work on this, the better. But in those situations, the clock is really ticking. Because sometimes a little bluebird comes knocking, and maybe we're not really ready. I had a conversation yesterday, actually, with a business owner. The firm has transferability challenges. He was approached about a year ago, he was definitely not ready. And he regrets that he wishes he was because it could have been a great opportunity to sell at that point. Because I'm just talking to him now I'm realizing with him in doing a business assessment of what some of the biggest gaps are. What if he had done that assessment five, seven years ago, maybe he could have done things really differently to help build the value. So I think that that's a key concern run when the business owner has given so much to this business, right? They've given up nights weekends. They didn't go to the kids baseball games, maybe they've experienced a divorce. they've sort of been married to their job. And it's not only dissatisfying from a financial standpoint, but imagine the personal disappointment that someone might feel if, ultimately, they don't have a sellable business. And they thought they did.

Ronald Skelton  5:11  
I get a lot of people that say, Hey, I'm thinking about selling my business, what's the first step? And I said, Start planning three years ago, right? If there's a process to it, especially, I keep raising the number of like, revenue wise that I'm looking for, as far as a small business, or what we, you know, in the United States call a small business, right? The reason I have to raise that is because most of the time the owner is a key player in the business. And it's going to, it's just not transferable. They're either the lead sales guy or the lead, do it all guy, right. And I don't want to buy myself another job. And a lot of acquisition entrepreneurs are like me, they're not looking for another job. They're looking for an investment. And, you know, strategic investment at that. So let's talk a little bit about like the process that you walk somebody through, and, you know, do any type of succession even if it's, you know, preparing to hand that business to be controlled by another human being.

Laurie Barkman  6:10  
We talk about this a lot on my podcast is called succession stories, as you mentioned, and I speak with founders who are gen one, and I speak with multigenerational companies, I've talked to generation nine and 10, by the way, which was a great interview, I talked to a Mother Son, that business was founded in 1760s. So that's a little bit of an anomaly. But nonetheless, one of the things that jumps out at me, if we just stick on the thread of family businesses for a second, there are the next generation leaders who are well suited. And that's, that's part of a legitimate process to put into into place is the education and experience that's required to be a leader in that business one day. So there could be a disconnect in any one of those fronts, they might not have the skills, they might not have the desire. I've talked to folks who didn't want, they didn't want the chair, they didn't want to be CEO, they didn't want to be part of the company. And then lo and behold, years later, they're running, and they're doing a fantastic job. So all kinds of stories about how people start, you know, from sweeping in the shop floor, to really running, you know, getting to know the sales environment and learning the business from the inside. There's a lot of good good stories out there about where it's really worked. Well. Of course, there are stories where it hasn't worked as well. So the common theme for success in succession, whether it's family or not, is to understand what the role is, what's needed. And just like anything, having a good mentor program, doesn't have to be family, mentoring family. And a lot of times it's best not to, but sometimes the best mentors are family. And I would do I do love those stories. I've had father son, talk on the show with me. And like I said, Mother, son, I've had three siblings on the show, talking about when their father died, and what that transition was like. So the best transitions are well planned. Sometimes we do find that there's death, divorce, you know, the five d, sometimes things happen that we don't control. So those are more contingency planning, types of prep. But when we are more thoughtful about it and have time on our side to plan, succession, internally, that's great. Also external, that was my experience, I was hired from the outside and as part of a long term succession plan. And I've also talked with some professionals on my show about hiring outside CEOs. There's a great example of a family that I'm friends with here, where I live in Pittsburgh, and they had a skip generation leader, meaning the generation wasn't ready, they were in their 20s. And when their father's health started to decline, and they were not ready to assume the leadership role. So what the company did very, very effectively, was they brought in someone from the outside to run the company, and part of his mission was to get the next generation ready. And then he retired. And it was a success story all around. Now, those those that generations in their, in their young 50s. And so it's been quite a while.

Ronald Skelton  9:08  
There's a lot of ways to solve this problem, it doesn't necessarily need to be that, you know, your kid out there who's just turned 18. And he's out there, you know, trying to figure out what he wants in the world. There's brilliant ways to still leave something to the next generation, without having to do the turnover control is something you just spent 30 or 40 years building, right? 

Laurie Barkman  9:30  

Ronald Skelton  9:32  
What is the old saying? So the one I keep running into is the third generation and the old saying is the first generation you know, builds it. The second generation maintains it and the third generation destroys it that like there's something to that.

Laurie Barkman  9:45  
There is some myth out there and I think it has to do with the entrepreneurial spirits. So what I talk a lot about with with companies that are multigenerational call them mature businesses is how do we how do we bring them back to their entrepreneurial roots and the innovations that gentleman One or gen two, you know had in place. Sometimes Gen three needs that latitude to really look forward and look for sustainability for the future. A great example of this as highlights magazine, Gen four CEO right now running it. And he's looking out beyond, you know, he's saying this transcends him, this transcends who he is, as a CEO, and he's a great leader. And he what he's trying to put in place is how can this business which is education for kids, live beyond, right, whoever is the leader, whether it's family or not family, and it's so mission driven. It's such a great example. And they are putting in processes for innovation. One of the things that you didn't mention in my bio, so I'll just mention it is I'm an adjunct professor of entrepreneurship at Carnegie Mellon University here in Pittsburgh, and I teach a class called the corporate startup lab, with my colleagues, and it's a great class we have, we have privately held companies and public companies who want to bring innovations to bear because, you know, as we talked about growth, it's organic, or you're acquiring. And so these are companies that are thinking about organic growth. And they're investing in either new technologies, new processes, new products or services, and how do you bring those to market? And I love that I this have been part of my career being part of both startups like venture backed, as well as mature companies and having this corporate startup experience for how do we bring innovations to life and mature environments? So I think that's part of it, too. For as you talk about the next generation, what are they going to do differently? They get the baton now what one of my favorites, the interviews that came on, he's a Rooney from the Rooney family, if you're familiar with the Steelers, and he wrote a book about his father. And the story about the grandfather giving the you know, the keys, if you will, to the Steelers to the next generation. He basically said, Here you go, Don't f it up. Right. So that's another common theme of the second gen and why they're risk averse, is because the first gen built it, and second gen is like, Oh my God, I've got the keys, I can't mess this up. And the third gen is now inheriting an environment where it's been more risk averse. And they don't want to be the ones to take the risks. The other saying is spouting whale gets harpooned.

Ronald Skelton  12:21  
There's something to the transition plan. And I have another friend whose father, he passed away, he had a heart attack recently, and I missed a guy, but his father is still around, but the father runs a tech company, and would have you know, it's second generation his granddad, or is the father's dad, I guess you'd say my friends granddad, had started it. You know, the other guy's running it now. And it would have been an opportunity for my friend to run it. And he I honestly said, teased him and said he developed a phobia of being bad enough, because you didn't want to run that business. Right? And he ended up being a crane operator, like, like, at the top of SkyRise is this stuff. And anyway, one, one day, he was asleep and had a heart attack in the middle of night. But the there's something to be said about, like, not all families, the kids want to take over the business. There's some pushback there, right? So I liked that generations skip thing you were talking if the business is big enough to afford a CEO that can run it, and then you know, open up an opportunity for maybe a future generation, or at least just contribute to the family. That's, that's an awesome, an awesome approach.

Laurie Barkman  13:36  
And it's also I think, good to create options. That's what I like to talk about with clients when we I work from transition to transaction, right. So on the transitional side, I like to talk about options, especially if you have more time to work to generate those options, and then prioritize and see them through. So let's say our first priority would be to transition the family. And that's what we want, but then we've got to actually uncover whether or not that's what they want. The other example from a related party standpoint might be the management team, the owner might think that they have a second in command to IC right a to IC person that they really rely on. And they might think that that person wants to buy into the business one day, they might be right or they might not be right. And it's a gamble to not have that conversation and and not also not take care of it contractually with long term incentives. So that person stays with you what if in your mind, it's there, but it's not in their mind and then they leave you. So I have come across those conversations lately where the intention is to have management team be part of the solution. The other example would be in generating options, certainly strategic buyer, whether it's a competitor or or someone that you haven't yet contemplated, or if it's a financial buyer, and it's more of a private equity environment. And so why it's good to generate all these different options is to then understand What are the motivations of those different buyers because they are different, especially if it's family. And on the family side, if your company is large enough, maybe you want to look at an ESOP, there's a lot of tax benefit, excuse me tax benefits. And there's good reasons. And there's there's cons, it's not it's not a very clear option, but it's good to explore. And, again, that's why I like to say, Okay, let's talk about your goals, business goals, professional, personal goals, and financial. Let's understand what your business is worth today from a market based standpoint. And I do work with folks to establish that baseline as with valuation services, and then we do an assessment, it's a great starting point to kick off a relationship. Because you mentioned it earlier, people wonder, what's the next step? What do I need to do? Well, let's baseline where you are, again, and let's talk about your goals. Let's understand from the business standpoint, what are the risks? What is it facing the hidden pitfalls you might not be aware of? What are some of those golden nuggets that you have in your possession, you might not even realize, I just had a kickoff call yesterday with a client, a new client that's looking to sell his company. And we really talked about assets. And when we think about assets, we think about the tangible things. What about all the intangible things, the SOPs, the brand identity? Certainly the customer database, what is it when someone buys you, they are going to get if you look at it that way, put yourself in their shoes, we're going to look at not only what assets you have to transfer, whether they're tangible or intangible, but we're also going to contemplate how transferable those are. And that all goes into this assessment of where do we have risks? Where do we have some value that we can try to build up even more. So if time is on your side, you have time, you have no SOPs, but you can create them, you can create a more scalable business, you can create a business that has recurring revenue model on it, all kinds of reasons why your business could become more valuable. And how does it become more valuable without you in it, it's sort of hard to get your head around. But that's the reality is a business that can't survive without its owner is not worth much.

Ronald Skelton  17:11  
You know, I was talking to a guy who was looking to buy a business and he was telling me about his deal bust and I was like, what did it bust? He says nobody in the company knows how to do anything but the owner, I was like, What do you mean? He said, Well, that's a machine shop. And every employee that comes in the, the owner goes out and train them on how to do it, it's not documented, like that even not even the measurements and stuff, he just comes out writes everything down on a notepad shows them how to do it two or three times. And then he queue a quality controls their parts for the first five or 10 they do in the spot checksum. And I think he does that for every single new employee, he knows how to make the owner knows how to make everything in the factory. And, and the guy is trying to sell his business now. And I was like, Okay, what do you got to do to get around that he says, I just can't buy it, i The guy just doesn't understand that, you know, that doesn't transfer. He thinks he can sell it to a competitor, it knows how to make the parts, but I don't even think he's going to have a strategic buyer that's willing to do that, and maybe to buy his customer list, right and manufacture the stuff on their own basis, but he's gonna have a rough time. So there is that there's a lot of business owners out there, too, that either knowingly have everything in their head, or sometimes unknowingly have a bunch of stuff on their head. That, you know, they think everybody knows what they seem to ask the owner on how to do things.

Laurie Barkman  18:33  
Yeah, we call that the Hub and Spoke problem. Where there's some there their chief problem solver and they feel it feels good. They feel important. They feel needed. This is their identity. They want to be wrapped up in the business. They they know their customers, birthdays, kids, you know, dogs names, it feels great to have those relationships. But as you pointed out, if they're the chief Rainmaker, they're the chief problem solver. They have a hub and spoke problem. They haven't they have what we call also the owners trap, where they can't take a vacation, they can't they can't have a sick day, you know, the wheels of business will stop if they're not part of it. And that inherently is more risk for a buyer. It's not as transferable, it will have less value.

Ronald Skelton  19:17  
That's a that's an indicator for me. One of the things I asked when I'm building reports stuff is when's the last time the owner took a vacation over three weeks, three to three weeks or more? And if they say never then I just I don't say anything about it. At that point. I just make notes that I got it I got to look into whether or not you know it can operate without them, but it's a good indicator of the owner. You know, I have one owner that goes yeah, I take the summer off every year. I was like was that just a really slow month? I don't know my team's got everything. I just I take it off and I travel I found my wife has family in another country. We go there for the December and it's like that's what I'm looking for. Right? That's what a lot of business buyers are looking for is the company will run without you. You know you like being there. Yes Great. You do a good job managing it but when you're gone he's like you know some months I get back and they did better without Let me and that's, that's what you want, right? So how does how does that all translate to value? Right? Because I know I still look at them when there's flaws, and they're, you know, owners involved and stuff, but the price starts coming way down, you know, it's, you know, the work goes up, the price goes down with the work, you know, the more of a job it is for the acquirer to keep it running and make it run, right, the longer the owner has to stay in some type of earnout, or transition plan. And the it impacts the price, right? It's just increases risk. So anything that increases risk decreases price. So what's your advice? Or what is your feeling on? On?

Laurie Barkman  20:38  
Well, absolutely, we need to be, we need to be honest with ourselves about what we think the business is, is going to sell for coming up with that range. From the market standpoint, it's important. And that number can go up or down based on some of the factors we've talked about. So a big reason why businesses don't sell is that this business owner has an inflated sense of what it's worth, or what it will go for. And they're disappointed when the offers are coming in much lower. And so how do we help that? Well, again, if we have the time to work through some of these challenges, that's a good thing. There's one client I have who has a business who his team has been so loyal and has stayed with him for so many years. But now they're all roughly in the same age group, looking at their next phase, which for them, maybe retirement. So not only do we have the transferability, where the owner has been so tied in, but his team may not carry forward. And that comes back to some of these main underlying issues where the business is at risk, not only because the owner but also because there's not a team to carry it, you know? And so for that solution, I don't know what the answer is. I think with more time, things could have been different. If we don't have time to make changes, then unfortunately, we're dealt the cards that we have, and we have to deal with that. And we can try to get creative in coming up with some incentive plans. And but there's a cost of those things. And people's health might be an issue, we can't control that. So if you're asking a really challenging question, because obviously the answer is it depends, you know, what can we do? I need to understand a little bit more about each scenario, each scenario is going to be a little bit different. We're talking about snowflakes, every business is different. And the risks they face the benefits of why would someone want to buy this business, you know, what are the benefits they're gonna get from that future stream of cash flow, the know how the Aqua hire strategy, the care abouts on the other side of the table, that's what really makes a deal happen. They might overlook some of these things. So let's just make up a scenario. Let's say that there's a private equity group who has a pretty good management structure, they want to they're going to provide the back office, they've got a sales approach, they've got the accounting lined up. Well, if our business doesn't have strength in those areas on the admin, we're losing someone or we're just not doing it as efficiently, then that's okay. Right? That's going to be an OK scenario, because the the new owner is going to fill those gaps. So that's back to the point of creating options if we can explore different scenarios with buyers really understand what they care about, and can we find the best fit, then maybe we're going to help protect some of the risk downside?

Ronald Skelton  23:34  
Yeah, I actually, recently, probably, I guess I say, recently, my time frame kind of collapsed. About six months ago, I seen a business that I was interested in, they reached out to me, but when I go to their website, you know, the owners wanting to retire. And they had about eight executives and only one of them was under 70. Right? And as like the entire workforce needs to retire in the next probably three or four years. Like those are all waiting. What normally if I had to ask him I said what happens when you retire? A lot of the guys I honestly think are staying there because of loyalty to you and said I'll have to talk to him at some point in the not in the name three of them right away. They said they're going to retire within weeks of him. Right? I was like Okay, the other four probably just haven't told you that. So when they talk to me, they're gonna tell me you know, so I lose interest quickly because I don't you know, like I said, I don't want to buy myself another job and I don't think I can replace five execs of the equipment manufacturing company and do it right all right, that's gonna have to be a strategic purchase somebody who's already in the space already has that just needs the customers needs the you know, the product name and the brand. And that's what I told him I said, you know, if you're if you're all you guys are really going to retire before you name your successors, train them and get them performing. You know, then you're left selling to a competitor that wants your brand, your your customer list and your parts, you know, so, one of the things we mentioned about you know, earlier was, you know, the five Very drivers to revenue and what kind of what kind of things reduced value? We're talking about it a little bit now. But if a business owner wants to hit their number, and you know, they've got a number in mind or whatever they're trying to maximize value, either for themselves or for their their family, what what is goes into that equation? I know it varies, but just from your perspective, what's the what's the ways they can impact that?

Laurie Barkman  25:25  
Well, if we're using EBIT, does the measurement, then let's use that because that's tends to be the best apples to apples number. If we don't have EBIT da, in some businesses, what we're doing is we're creating a normalized income statement. And we're then using a different number, which is seller discretionary earnings. And I think that that's one lens to take on the financials, because what I see is that they're different multiples applied on an SDE number, versus a EBIT DOT number. If we are in a business with a high percentage of recurring revenue, then perhaps that business will be valued on top line revenue, a multiple of top line. So the first thing is, especially you're talking to your buddies on the golf course. And they say, oh, yeah, I sold my company for for five times. And you're like, Well, five times what? Right? That's really the thing to know, the math is five times what it was. Ste was it even though was it revenue. So that's kind of the inside baseball on, you know, what's the math and how we get there was we lay out on multiple years of financial. So let's say three years is typical, we can do more, if you've had a couple of down years because of COVID. For some businesses, it's been the opposite, they've been thriving. So nonetheless, we'll take three years or so. And we'll lay that out. And we look at your income statement. And then we take a look at things that we call add backs. So from an expense standpoint, if you've had one time expenses for the business, that really aren't recurring, that the new owner wouldn't incur, that would go on the list. If you've had business expenses, that, again, their business expenses, that but then you might also have had personal expenses, running through the business, those are choices business owners can make, it's good to really be clear and track those, so that when we're doing this type of analysis, it's easy to calculate what those are, because we need to rotate those out, the new owner isn't going to make those same decisions. Same as interest payments, they might make different decisions about loans that you've taken out, they'll make different decisions on on different expense categories, depreciation, etc. So what we do is we take those out, also things like PPP and eidl tax rebates that you may have gotten, we can't count on that for the future. So we need to take those out, and add them back, etc, you know, so that's kind of the math is we're doing some back and forth here. And that's how we calculate Ste. So what I do when I look at a business, from a market based standpoint, I look at comps, just like when you're selling your house, you're going to look at other houses that have sold in your area, similar size, similar geography. But of course, we all know if you've maxed out, eat out your basement or your you know, your master bedroom suite, and your neighbor didn't Well, you might sell for more. And that's the same thing with this type of analysis, is we're not only looking at the market comps to understand general multiples, but we're then trying to assess well for this business, what might be reasons to kind of punch above your weight class, why might you generate a premium. So typically, what I see is a range of value. But what's going to get us closer to the top of the range. And so there are eight core drivers have that we can talk about eight or I can pick a few. But those are the some of the some of those things are absolutely tied to the financials, the size of the business, the profitability, the cleanliness of the books, the reliability of the numbers, that type of thing, but then also what industry you're in what growth, with growth prospects you have, if you've maxed out on your market share, and you really can't grow more, what's the new owner? How are they going to benefit from taking over your business? How should they think about the growth prospects? And then there's others like recurring revenue, like what we call a Switzerland structure, which is not too reliant and from a risk standpoint, and any one vendor, any one customer from a customer concentration standpoint, or any one employee, which by the way could be you. So that could be a problem. So that's just some of the some of the drivers we look at we certainly could talk about more.

Ronald Skelton  29:27  
You know, I actually, one of the things I stumbled across was there was a manufacturing plant and they had all the equipment was sold and any any day that the mechanic they had an on site guy who could fix anything. If he was sick for a few days, sometimes the plant came to a screeching halt, because you would look at their production they showed me production cycles and like hey, why is there like a law here? Oh, this piece of equipment called you know, went down and and our our maintenance guy was on vacation. Right so that I liked the part you said about key employee it doesn't have to be the owner if you've got one guy over, things come to a screeching halt. If he's not there, probably not a good idea, or at least you know how to start thinking about how to have a backup to that guy. So, you know, let's, let's jump into the you talk to you mentioned later as eight points to go to the valuation. What are you? Can you just rattle off a few of those? Because, you know, somebody might not?

Laurie Barkman  30:21  
Yeah, sure. So the first one is the financial performance. And the strength of the of the numbers, the size of the business, there is a small business discount what we call it, if a business is under a million, that's certainly going to have a higher risk profile, then a company under 5 million under 10 million, etc. And so the size does matter, you know, when people ask that question, and that's the reason why, because of all the things that we've talked about that a smaller business is going to presume to be more tied in with its owner. And so financial performance is everything we were just saying to about there are EBITDA and how that compares in the industry with some of our, but some of our key metrics look like. The next one is the growth potential. Have we maxed out on market share? Do we have room to grow? Is there field left to plow? If you're targeting? Here's one example. If you're targeting fortune 500 companies and you have 498 of them? That's fantastic, right? But where's the growth potential, there's only two more to go get. So growth is a good part of that and being able to tell that story and share that story. The third one is we look at cash flow, we call it the valuation teeter totter, is your cash, you know, as a cash spigot? Do you have to keep borrowing line of credit, you know, working capital challenges, what can we do to improve your improve your working capital needs? There's there's different things that we can look at there. The next category is what I call the Switzerland structure, which is this risk profile? Are we too concentrated in one particular area? One example on the vendor side that we might not think about is all of our contracts, if you're a value added reseller, are those contracts transferable? If we gather up all the assets, and we say whatever event what's valuable, what am I actually selling here? If you've taken years to become certified in something, that's awesome, that's great. That's part of your value add. That's part of the barriers to entry you've created. How transferable are those agreements? And it's good to know if they're not transferable, right? And what can we do to mitigate that risk? That's just one example. Another example might be if you've built your online store, and you're really reliant on Facebook, and now Facebook has changed its policies and we all know the the rift between Apple and Facebook. Wow, that really hurt Facebook stock, right? So what if you've been all in on on Facebook for your third party selling or you're really relying on Amazon and Amazon changes their their third party reseller platform for some reason? Oops, right, that's a problem. So those are the kinds of the hidden risks you want to look for. And we've talked ad nauseam about the employee side. So that's the Switzerland structure, we also take a look at recurring revenue, what percent of your total revenue is recurring? And there's a difference between recurring and reoccurring? Right? With a with a no, the reoccurring is great, we can count on it. But we don't really know when it's going to happen. The example I like to share as me with my interior decorator, she thinks Okay, Laurie is going to spend 5000 with me every year, she doesn't know when she doesn't know on what, right, she doesn't know for sure it's gonna happen. As opposed to Netflix. Netflix has my credit card, they they are charging me in every month and up until I cancel. So a contract relationship we can count on and we can bank that revenue as recurring. So is it as a percent of total more than 15%? More than 20%? You know, how healthy is that? We have to also look at churn. So it's customer acquisition, its retention, all those metrics go into recurring revenue, we'll take a look at that. We also take a look at customer satisfaction. If you're measuring it, that's great if we have objective measures like a net promoter score, sometimes with Yelp or Google, you know, there can be Google reviews. And that's great if you don't have any other metrics, but we want to know, have there been complaints, you know, what's, what's the referrer ability? How high is your referral factor? Because that's also going to help us understand your customer acquisition cost.

From an organic standpoint, or if you're spending on the marketing side, you know, what are the what are your marketing dollars for every $1 You've invested? What's the ROI and the other side? We'll take a look at that. We're also going to take a look at the things we talked about earlier with a hub and spoke challenge. The more that an owner is involved, this is kind of the the teeter totter and these two factors. The the scoring that I have isn't a zero to 100 point scale on each of these eight dimensions, and it gives an overall and we also baseline you versus your peer based on your NAICS code. And so that's an assessment that I'll offer to the audience, if they want to follow up with me and, and do this assessment, it's numeric, its quantitative, its quantitative in nature, which I really like, because we can talk about where they are now, in the red zone, the yellow zone or the green zone, it's very clear. And then we can also do scenario planning, if you're able to improve on some of these dimensions, what will that inherently do to improve your business value? And if you're valued at a million right now, and you could be valued at two, that's another million dollars that you could be leaving on the table? Why wouldn't we try to work on that?

Ronald Skelton  35:32  
So I get it, that, you know, there's all these things that go into there is, are there any things that I mean, there's a lot of times there's these myths about certain professions or, or certain fields that are that just exist in the industry, like, a lot of people think that if you're a sole operator, it's just not sellable? Or if you're a, I don't know, certain professions? It's almost not like, a lot of people think that if you're in certain professions, you just can't sell your business. Is there any out there like, well known myths out there around what you do that just kind of bugged you you wish you could debunk right now?

Laurie Barkman  36:11  
Well, one myth, I think, is, I'll do it myself. And I think that that's noble, but let's face it, you're already not taking a vacation. So why would you add another full time job to your plate, where you have no experience, and this is your one shot? Right? So I think that's probably the biggest is I'll do it myself. The other one is, I don't have time to work with anyone. So it's not I'm going to do it myself, because they're already acknowledging they don't have time. But they don't have time to work on getting their business ready for a transition, which I think is an extreme fallacy, because what we're going to do to get your business ready for a future transition is good economic stuff. It's stuff you should be doing anyway. So if you're basically then saying, I'm not going to go, I'm not going to work on the things that are going to make my business more valuable. It just makes you wonder, well, what are you doing, then?

Ronald Skelton  37:09  
I've noticed that if you look at some of these guys, when they when they call when they finally call somebody, like myself, or you know, even a business broker, a lot of times, their last three years have been declining, they've already kind of stepped out a little bit, kind of, they're either burnout, or they're checking out a little bit, before they realize that before it hits something that I probably should sell this. And that's the exact opposite of really what should happen, right? You know, if you really want to maximize your value of your exit, you kind of got to do it, when you're got momentum, things are growing, there's a good story to tell as to what the future looks like. As opposed to telling a story. Well, I kind of got burned out in the last three years, I haven't done much. And, you know, we're half what we used to be, I get those calls. And I was like, Well, you know, if you're not bait, I'm not going to base your performance or your your evaluation, or valuation on, you know, what you did five years ago, is that, you know, they have this, like, if you could have would have showed us they want to sell their business on Coulda, Woulda, Shoulda. And it just doesn't work that way. It's a we look at the last three years, we average it out, I like you if it's okay, if COVID hit you we go back a year or something to kind of show me a truer picture where it will stabilize that. But you know, if you're starting to get checked out of theory, if you're starting to get checked out or you're starting to, to transition, I think it's time to reach out and get that help to get the person like yourself, or somebody can give you some you know, fresh insights from fresh tasks to get things done. And kind of drive you across that finish line if you really want, you know, to maximize, you know, all those years you put in. I've seen business owners where you know, there's this happens a lot. They run their business for 25, 30 years. They don't know what to do with it. Next one day, they decided to shut the door and leave. There's a local local business here where I was like, one day it was there. And the next day is gone. I found out I was like what happened to that it was a it was a pretty good sized manufacturing company. And the owner said well, they said the owner retired or moved, you know, moved back to England, that's where he's born and you know, raised. And he just that's where he wants to retire. And I was like, he didn't sell it or anything. No one day you come in and said he's done and laid everybody off the left. This company was doing probably eight to $10 million a year, revenue wise and I talked to one of their managers who was shocked because they were fairly profitable about 18% margins. And I think that was a fairly sellable business even even in a short term. Some owners just they don't see you know the process or they try it once and then you know, the buyer backs out and they just they don't think that sellable. And I would say if you're doing more than a million dollars in a year in revenue your business is absolutely sellable to somebody. You know,

Laurie Barkman  40:02  
It is. Yeah, it is, I think that you have to have patience with the process, even if everything goes smoothly can still take up to a year. Yeah. So it just it's not an overnight thing and we have to prepare for it. There's the contingency planning what happens if you can't run? Right? The if you're sick, there's that. And that's, that's good business to be prepared there. This is more of a long term view that we have to recognize 100% of business owners are going to leave their company one day, it's a sad truth, we have to acknowledge we're human, and boots on or boots off, you're leaving. So what are you going to do? And it doesn't make sense to wait till the very, very end to answer that question.

Ronald Skelton  40:40  
You know, is interesting is I contact, I thought it was I thought it was had a brilliant idea. And turns out, you just it's just too, too problem problematic to do. I set up a small team here in my market, and what's called a bunch of estate planning attorneys and told them what I was up to. And then one of them was a business attorney. So he just really can't do that. Because most of these guys aren't set up for it. And the plan was, is if somebody passes and they own a business, I had a temporary team that could swoop swoop in and manage it until you know, the probate happened until basically keep it from sinking. I seen two really good businesses in this market that one of them was electrical company. They had probably 10 or 12, trucks, a facility, electrician, you know, commercial and residential electricians. And the owner passed away. And wife didn't know what anything to do with it. So she just eventually shut the door and auctioned off all the equipment. And if somebody would have stepped in and just manage that for a little while they could have sold that or done something with it. Problem is, is their operation agreements not set up correctly and a bunch of other stuff? There's no way to hand that over. Right? You know, that happened with two that I can think of right now we're owner passes, and the wife is not in the management agreement, not in the operational agreement. There's no, she has no signing authority on anything, and nobody else in the company does either. So you know, the thing, no, basically, nobody can sign the check there. So it can go down pretty Hill, not downhill pretty quickly. If you you know, don't act. There's ways around that they need attorney said they can step in and do some stuff. But you know, one of the things I would say if you're a business owner out there in and you're operating your business, your operational agreement, even mine, my wife is a successor manager of the operation Signing Authority, if I'm not around, even if she has nothing to do with the business, if I get hit by a bus, she can sign checks and hire a CEO. Right? So there's that that's one of the flaws I think a lot of people put in their operating agreements is they don't have somebody named if something happens to them, they can step up and you know, and I even put first or I don't know if it'll stay up, but my says wife says per step is which means per bloodline. So anybody in my bloodline can step up and manage that in the event that I'm gone. But uh, hopefully that'll stand I should ask the attorney, I just, I put it in there after he did it. That used to be an insurance and you put that in insurance all the time. So I put it in there. But uh, what's the biggest, what's the biggest area you're seeing right now? I see a lot of what we refer to them as baby boomers or whatever, that there's a lot of business owners out now out there right now that are still operating. They're within a few years of needing to retire. What is that first? Like kind of? What does it hit them? Like? What's the aha moment where they realize I probably should talk to somebody? Are they are they really waiting? I've got the gut feeling. They're waiting until something catastrophic happens. They get a health diagnosis or, you know, something happens in their life, and they have a wake up call.

Laurie Barkman  43:45  
Yeah, we did a webinar recently, we had over 100 attendees. And I was really pleased afterwards that a number of people reached out and said, I watched the webinar, this was really thought provoking, I would say age range of these people, I'm seeing a range of in their 50s. And then some of them are in their late 50s. And kind of that mindset towards, you know, in the US, we have this age 62 framework from the baby boomer generation and, and Social Security. And so a lot of times people are age based in their decision making when I turn X, that's when I'm retired. For other people, it's life phase, you know, life stage. So it doesn't matter what age you are. It's just what you want to do next. And I think that it's an acknowledgement Look, we all no matter what we plan for, if we have a plan for what we want to do next, we are inherently going to be happier with our choices. We're going to participate in the process. And by doing so, that is going to create more value. So it's kind of like this concept in psychology of cognitive dissonance. If you inherently disagree with something, but you are physically doing it, the act of doing it actually changes helps to change the mindset, right? So if we think about, well, I'm negative about this, I'm more neutral about it, I don't know how I feel about it, I don't have any game plan, how's that gonna feel, it's gonna feel like a super disconnect. And so of course, we're not going to go work on it, that might be one of the root mindset challenges that we're facing is, we don't know what we want to do next. That's one of the main reasons we don't want to admit it. But that's true of why we're not working on it in the first place. Or it's because our identity challenges we don't know who we are, if we're not working in this business, my name is on the door, it's a family or i What's the founder, right, all those things. So I think for people to be more feeling more successful and positive about a transition in their future, the more open minded they are to start taking some action, I also start to see a lightness like I saw it yesterday, when I was on the I was on a call, I did an assessment with someone and the personal situations were have not been great over the last few years, the business situation has not been great. For the last few years, that's taken a toll on him. And he was really authentic and honest about how he was feeling. And it felt a little bit like a therapy session in a good way that we he could feel a little bit of just some kind of weight coming off his shoulders even admit this out loud, that it's been a concern for him. And that made me feel good. You know, that's part of the reason why I do this. And it's, it's I think, a lot of a lot of I get a lot of satisfaction from working with entrepreneurs, I have my whole career, I appreciate the risks that they've taken. And I can also appreciate this is not easy, you haven't built your business on your own. So why would you go through a transition or a transaction on your own, and I want to be their partner, I want to be their trusted advisor to help them achieve their goals in this next space.

Ronald Skelton  46:56  
You know, you brought that up that a our identity is tied to this and I catch myself that I actually I have a friend who's a performance coach, and he smacks me, you know, verbally all the time for saying that. Like, oh, you said, Well, no, she'll hear me say, Well, I'm a podcaster. Like, no, you have a podcast, you know? Or I'm an entrepreneur, like no, you have you own some businesses, right? You just you tell me like, you need to quit tie in your identity to what you do, because it's not right. He's also very recall that, like, what's the word? I'm like, not new age, but you know, he's not hippies, the guy's a retired Marine. There's a word, I'm looking for it like, you know, you know, you don't have thoughts. I mean, you're not your thoughts, you have thoughts, like they just things that pass through your head, kind of guy. So, but a lot of us do that. As entrepreneurs, we really tie our sense of identity to who we you know, what we do what we spend our time doing and stuff. And, you know, I'd rather say I'm a father and a husband than say, you know, I'm a real estate investor and business owner, but I catch myself tying my identity to it. So when when, uh, when somebody's run their business for in some cases, third generation, fourth generation, you just said, what was what, six or seven generation?

Laurie Barkman  48:14  
I talked to nine and 10.

Ronald Skelton  48:15  
9 and 10. I mean, that's just that's amazing. To me. I think it's beautiful. I really do. And I get it if you're the Hershey family, right? Or no, or one of those right. But it's a lot of the times you're talking about, like the one I was telling you was third generation, it was concrete, right? You know, that identity is still tied to that that family identity is tied to that ran and stuff. When you sit down with a person to start talking about succession planning and transitioning out of the business. How do you break that emotional bond? The I am this business?

Laurie Barkman  48:51  
Yeah, it is a good identity question. Am I a business owner? Do I own a business? So you nailed it on the head with that one. I have a couple of tools that I use. I've talked a lot about the business assessment, the business readiness, the business value, that's one tool. Another tool that I have, which I'll invite the audience to follow up with me if they're interested in it is on the owner's identity and readiness for a transition. So we call it the personal readiness to exit evaluation. And it'll take you as long as it takes you but generally 15 minutes. And there's a series of questions that will ask you and you'll also then get afterwards, a written report that shows you things to think about across four different dimensions of personal readiness for change, and what we call for drivers towards the success factors that might help you in that transition. And a lot of times when I go through this with people, we go through the report and we realize, Oh wow, there's some homework to do. These are things to work on. And it's not like we're going to work on it overnight. We're going to work on it over time. because you might not know the answers to these, and that's okay. So that's the whole purpose is to try to bring up to the surface. What are some things that have been on your mind? Maybe you've got some options? Maybe you don't that you've thought about? What are some of those things? Let's talk about some pros and cons. And then we use that alongside the business assessment. It's a great way to kick off a relationship, because I really helps me get to know them what some of their pain points are, what are some of the things they've been struggling to think about? And we use that as a framework for exit planning and strategy planning and transition planning? And with the business, what do we need to work on with you one on one, what do we need to work on? And those aren't things we want to surface with your management team. But there might be things with the business transition that we do want to surface with the management team? Because we need them to go execute, we need them to align on what it is we need to go work on if we need to create a recurring revenue model? Well, you can't do that on your own. How are we going to involve in that. And so a lot of times, what I'll do is I call it strategic Exit Planning, right? We'd sort of tie it together where there's the there's the one on one stuff that's private, that's we'll talk about in a coaching sessions. And then there's the pieces of the business that we need to go work on involving your team, let's put strategic plan in place to make sure that all the oars are in the water moving in the same direction at the same time.

Ronald Skelton  51:21  
Well, I just looked at the time, we're already at 53 minutes. So we do to make sure need to make sure that people know how to reach out to you. So let's make sure we do that. So what's the best way for somebody to contact you,

Laurie Barkman  51:32  
they can go to meet Laurie And reach out to schedule time directly with me, there's a Calendly on that page, and I'll invite them to take the business assessment. If they would like to, they would like to take the personal assessment, that's fine. Also, if they want to take both Oh, of course, they can take both. But that page will invite you to take the business assessment. I'll get in touch with you for that. And you'll take it'll take you about 15 minutes, and then we can meet and discuss. And so that's a that's an open invitation. If you go to this page, you can also connect with me on LinkedIn, Laurie Barkman on LinkedIn. And also if you want to learn more and go to my website, it's small do t

Ronald Skelton  52:16  
And you guys that are listening right now, those are all the URLs and how to contact her will be in the show notes. If you're listening to the podcasts. And if you're watching the video, it'll be in the show description. And it's on the screen. You're staring at it right now. At least the LinkedIn link in the meet Laurie Barkman. I want to thank you for being here. Is there any like Final Thoughts like the if the your big takeaway, if somebody could take away one, two or three things, you know, in the next couple of minutes? What would you want to be as your parting shot here?

Laurie Barkman  52:49  
Yeah, I think the main thing is to work on your business and get it ready for a future transition is going to make your business better to run, you know, you'll be happier running it. And that's ultimately what we want is we want you to have a successful future exit. But also, you know, don't wait till the end to have to feel that success, you should be feeling it all the way through. And so when time is on your side to be generating more value in your business and more options for the future exit for future transition. That's the best scenario. So please don't wait till the very last years of your career to work on this.

Ronald Skelton  53:25  
Awesome. I appreciate having you on the show. Hang up for a few seconds when we complete, and so will you and I can chat. Thank you very much. It's been very valuable. I'm sure the listeners will love this.

Laurie Barkman  53:35  
Thanks, Ron. Thanks for having me.

Ronald Skelton  53:36  
All right. That's the show. Hey, it's your host, Ronald Skelton. I want to thank you personally for watching the show today and invite you to call our new hotline 918-641-4150 That's 918-641-4150 Call us and tell us about our show, ask questions, suggested guests or even tell me about a business you have for sale and we'll reach back out to you. Again that number is 918-641-4150 call our hotline leave us some information. Thank you. The investors and entrepreneurs professional mastermind. The investors and entrepreneur professional mastermind combines that additional peer to peer mastermind introduce first in Napoleon Hills famous book Thinking 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 That's T i e. P And check out the investors and entrepreneurs professional mastermind