Mike Mausteller is the President of Buckeye Business Performance, a coaching, training, and consulting practice powered by FocalPoint. As a leading Certified Business Coach, Executive Coach, Trainer, and speaker, Mike works with owners and leaders...
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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 Mike Mausteller. Mike served as the leader in the launch of brands such as Victoria's Secrets pink, and their sportsline v s x from ideation to $1 billion in annual revenue, he now brings his experience and accreditations certifications and education to propel the growth of small and medium sized businesses throughout the US. He guides the achievement of this through growth through coaching, consulting, training, public speaking and other online education tools. Today's Mike is here with us, he's going to discuss some of the key value deterrence that can be filled in to maximize the proceeds of a sell a business. Welcome, Mike. Thanks for being on the show, man.
Mike Mausteller 1:16
Oh, I'm super excited. I'm super excited for this show. I know it's it's great work. And it's it's not common. These days, we're still such a huge gap. And I believe the youngest baby boomer right now is 58 years old. And Baby Boomers own about two thirds of the businesses in America. So there's $10 trillion or more in value that needs to be shifted over the next several years. So as we know, as Ron's
Ronald Skelton 1:44
I was just reading somewhere that said, I think it was like, I think it was either five or 10 years, I'm gonna butcher this I know. But either in the next five or 10 years, there's as many as 25 million jobs will be lost. If those baby boomers don't handle it, do a succession plan, hand this over sell it, you know, keep the companies running. So let's just jump right in with you guys. Let's let's talk about how did you get into m&a? I like to always ask people, you're a board. Now you're here to kind of fill in the gap in between how did you how did you end up in front of me?
Mike Mausteller 2:14
Right? Yeah. So at a school, I was a buyer, right out of college, I was a buyer of ladies coats, and outerwear. And, you know, I tell everybody, it's the best start to any career you can get. People don't realize the buyer. They write their own marketing, they buy their own product, they choose the price, they choose the markdowns, you know, if there's logistics issues, you learn how to work through those. So you really get a great view of the whole company. And so fabulous start to my career. And what I realized at the time was I loved everything new. So at that time, it was new launches, new products, new marketing campaigns, I loved them. So I actually, my MBA was then focused in new and emerging businesses. Following getting that MBA I was I left Macy's and went to Victoria's Secret, where I worked on two concepts over a three year period. One of those concepts was VSX where there sport apparel line, right? Yoga pants for target, not so much for the gym, right? And yet, we got that business in three years, we got to $300 million. And at the same time, simultaneously, I don't know how else to say it. But time is not your issue, folks, I promise you, it's the toolkit you're using if you're not getting what you want. At the same time, I ran another business that was a two person test concept. When I showed up. At that third year mark, I turned back over to Victoria Secret, a 35 person self operating business unit that did $1 billion in sales that third year. So I spent much of my career following that obviously feather in your cap as a as a young gent still in my late 20s. At this point. You know, companies I've worked for after that was typically someone who knew me from my past, knew what I was doing it at Victoria's Secret, and brought me on board either through the CEO or the CFO say, Hey, make room for this guy. He's going to do all of our new product launches. So launching a business think about it right when it starts. Just like every small business, I own every hat, right? When someone says go, I'm literally writing a pitch deck, not for an investor, but to take to other department heads and say this is the support I'm going to need. Here's my projections, this is why it's going to work, etc. So I'm really running the whole business and creating the first step and value which is something right it has to start with sales. And so through my career, I started to get more and more focused on this concept of value, right? There's just too many retailers, which is where most of my career was spent, who are looking for that quick dollar, you know, markdowns promotions, you get people in right now. And unfortunately, what they do is they significantly hinder the value of their brand, by degrading it through these constant price breaks to the point where many get to where they have virtually zero sales, if they don't have some sort of promotion going on. And so that was where my first interest in the value space originated. And recently, in the last, say, let's say two, three years ago, I had two different business brokers that were just in my network approached me at different times. But both with the same same issue. I have a business right now, where the owner is so involved in the business, I can't possibly sell it, no one is going to want to work by a business where they have to work 90 to 120 hours a week, like some of these folks are doing. It's
it's just not a business, they own their own job. And in both of those cases, I was able to have have them invest in developing leadership, roles and responsibilities, and delegating to the point where they weren't the person putting out the fires every day. They could be the person looking forward. What's my next growth category? What's my next growth market? Right? How am I going to move forward. And so by doing that, I took what was worth nothing other than owning a job and created a business from it. And in both of those cases, that the brokers were able to then put the business on the market and sell it. And that's what I said, there's really something here, beyond just the sales driving. And I've been doing, building, you know, new concepts, new markets, new teams, for people, there's this whole idea of the value of a business versus the value of a job. And so here I am today, I've got my SEPA certification. I'm the president of the Ohio Exit Planning exchange. And we're helping companies every day with the team that I formed, create value, not just individual sales.
Ronald Skelton 7:26
So what does that exit value exchange? Because I seen that on your website. And I was like that that intrigued me, it's the first time I've seen that phrase used.
Mike Mausteller 7:34
Yeah, so the exit plan in exchange is actually a national group. They have chapters, and most of the chapters are by city. But here in Ohio with the network that I had, in the fact that all three cities are basically within about two hours of each other. I negotiated the whole state, I wanted to have a bigger impact anyway. So we I have the whole state as the president, we've got the backing of a national chapter who provides a ton of information and educational resources, as well as networking across the various chapters. So that's that's SPX, the exit planning in exchange. And here in Ohio, we've, we've formed a team, that basically you can lift us up and set us down in any exit planning project, and we can take you all the way through from the value building all the way through the transaction.
Ronald Skelton 8:24
That's awesome. That's actually a very valuable service. I constantly run into business owners who want to sell their business. But when you get into it, they just have a job, right? They, they might like Why have five employees and you start looking into it when somebody tells me that they work 90 to 120 hours a week, I was like, Can your business afford to hire four new people right now. And they're like, why? Because when you leave, I have to do that because I don't want to work 120 hours a week, right? When you leave, I have to hire that sales rep, that marketing rep. The general manager I and like a lot of times the maintenance guy, the owner is the guy that goes out and fixes the tool. Like I asked him who doesn't maintenance on your machine stuff, you have a contract with somebody or something, I don't see a maintenance contract. Now I've been in this business for 40 years, I got to fix it, like I can. I don't do that
Mike Mausteller 9:14
hasn't been in that business for 40 years
Ronald Skelton 9:16
Exactly, right. And so there's real value in helping an under an owner understand where they are right. And where they need to get to be. I'm not a big believer that you need to show somebody or at least somebody needs to know all the steps in between, you don't need to know A, B, C, D, E, F, G all the way to Z, you know, a you need to know where you're at kind of getting to know what z is what your end goal is, and somebody needs to set so your B and if you should focus on just getting B done, and then figure out what c is afterwards if you did that a lot of people get a lot further in this. I think what a lot of the reasons business owners don't work with guys like you or do this process is it kind of seems overwhelming. So how do you break it down for them? so that they can actually, you know, add value to their company, make it sellable. And it just doesn't seem like, you know, a 15 page laundry list of all the things they need to do.
Mike Mausteller 10:09
Oh, yeah, the actually just the way you explained it is how we work. So in order to get z, I personally work with a financial wealth. Well, she's a wealth planner. Right? So she's managing wealth, not, you know, selling insurance and things like that. So she's managing wealth. And so I have my clients first sit with a lifestyle designer, and decide, what do they need? You know, you've been working 90 hour weeks for 40 years, do you really think you're going to say, Stop, and you're going to be happy? So our lifestyle designer is trained in this area, to be able to ask, Hey, do we need to set 200,000 bucks aside for you to have a passion project to kind of unwind for a few years, slowly, but still own something. So anyway, we design the life and then they they go to our wealth planner, who of course says okay to live this life that you've laid out until you're 99 years old, you know, this is the number you need to sell your business for. Net could come back, you know, $6 million. Well, I then will do a business valuation, it's through business equity, which is got the deepest database of, of companies, and transactions to pull from. So I'll do the business valuation. And let's say the number was eight. And I come back and say, Okay, it's 6.5 is what your business is worth today. Sometimes the number is literally zero, like we discussed, but in this case, let's say 6.5, out of eight. So do you want to cut your life by 20%? You know, your lifestyle by 20%? Or do you want to look at the next page, which is here is where you stand against your industry competitors, in things like your cashflow, productivity, the tenure of the team, and we look at all the facets of the business, even the in some things that are intangible, and say, Okay, I can get you 80% Of that million five gap, probably going to take us 18 months less in this case, I don't know that sometimes it's 12. Sometimes it can be 36, I can get you 80%, this value in 18 months, and it's gonna cost you 100 grand, and you're gonna end up with you know, $1.2 million of the 1.5 out of this. And then yes, it is one project at a time. Sometimes. So if we have to, let's say clean up the books, right, that I can pass off to our CPA, and have them clean up the books, the owner is then free. And we can we can work on a sales system, if that's if that's what the next step is. But it's really, the whole focus is a step. Because we always go after lowest hanging fruit, right? Lowest effort, biggest value initiatives first, and we grow them. And then we started we sequence them. And so at any time, we've captured the most value we could get, right? So if we say if I say it's gonna be 36 months, right? Some businesses, that's what it is. If we get 24 months in, and they look and say, okay, that's fine, I'm done. Now, I'll sell for 7 million, or seven and a half million, right, I'm not going to wait longer for the rest, fine, they can do that. But because of the process we built, just like you said, I know a you've developed Z with that wealth planner. And now we're just going to walk through the steps. And if you want to, if you want to be done at t, we can be done at T and you know that B was the most valuable thing and then see what's the most valuable thing so, so we've maximized it for you along the way.
Ronald Skelton 13:57
So having somebody on your team that can get inside of that story that they've created in their head, break it up a little bit and give them a plan for what to do next, will help solve this, you know, trillion dollar problem you were talking about earlier, right? Millions of businesses set out there with, you know, what I think was 20 25 million employees that are going to go away in the next five to 10 years if people don't make a decision to start heading these businesses over to the next generation.
Mike Mausteller 14:26
Yeah, yeah. It's sad to think about it, it's, it's somewhere between 10 and $13 trillion of business value could evaporate if if there isn't smooth transitions. And they're, you know, the folks who go on the market each year, only about 20% of the businesses are saleable. Think about what that looks like. Not just to the owner, but as you said to those employees, so you know, in my practice, one of my favorite things and we celebrate it every time we hire A new person, not not to fill a role, but a new position. If we add a position, that's a celebration, we go out and have lunch, because we created a job. We sent some kids to college, we fed a family, we, you know, whatever that is a vacation, I don't care if it's part time. And it's just, you know, someone that's one of the spouses working for the vacation fund, whatever it is, we just made some mission of somebody easier by creating that job. So that's a celebration. So when you talk about 25 million people losing their job, not to mention the trillions of dollars of value. That'll disappear. Yeah, that's that's not that doesn't sit well with me. I wish you wouldn't have said that, Ronald, because now, now everybody, I don't help, I'm going to be thinking about the jobs, not just the value that disappeared.
Ronald Skelton 15:45
It's what pulled me out. I was in the real estate industry started pulling me out of this, I started seeing those numbers that was like, I know business, I have an MBA, I like business should probably take a look at this. And the more I dove into, it was like, Okay, well, here's a problem, it really needs to help solving. So let's just jump into solving that problem, a business owner comes to you, let's just say they're doing okay, they've maybe they're at the million dollar in revenue mark, and they got eight or 10 people, but they're there. They've been doing this for 3040 years. And they're still pulling 60 8080 hour weeks, because it's just what they love, they wake up and start working on it. And when they go to sleep, you know, when they can't keep their eyes open anymore. They they quit working on it. So that's just the way they've been. What is the you talked about a little bit? They go through the lifestyle, stuff like that? How do you I guess the next step is you've we met you set them know what your lifestyle guy or gal, and then you put them through the kind of a business valuation? And then you gave them a step by step plan. At what point? Can you see that tension relief? Like does there's there's a, you can there's a weight that people carry, knowing that they don't think they can sell their business? They just they don't think they just don't think they can?
Mike Mausteller 16:57
Yeah, absolutely. And that's one of the things that makes this process so much better, because I'm not just telling you it's sellable. And I'm not just giving you a number, I'm basically confirming your future life is in good hands. Right? We're going to get you to that. So this is, you know, it's it's really that future visualization that people have. So now what we're doing right now is we're not selling your business, we're getting you that beach house, we're getting new that 200,000 passion project, we're giving you two trips to Europe a year, you know, whatever that is, that was in their plan. That's what we're delivering. So when you're working towards that, and not just value in your business, as soon as you soon as they make that, and you can see when they make that connection, like, hey, I can get you 80% of this value in the next 12 months. Wow, I'm only a year away from you know, had living the life that I dreamed of. Wow, you know that it's a different. It's a different realization, because it's like I said, it's not just numbers. I've, I've worked for companies where literally I can sit down and say, for the projects I came up with, I've led and executed their profitability is 20% of the company's value right now, because of those based on EBIT and things like that you could, or sorry, based on earnings, ratios, price price, PE ratios, I can say I literally created 20% of value of this company, public company, and multibillion dollar companies. And it's not nearly as rewarding when you're sitting across a table from a business owner. And you're coming down that homestretch. And things are just clicking. And they're they're just not they're not leaving their business. They're starting their next act is totally different mindset change. Like you said, the sole person, someone like that, I would probably pitch to them, listen, something could go wrong, at your age at any age, right, and anybody could get hit by the bus. But at that age, anything could go wrong. You want to keep running the company fine. But let's get a president in here. And let's develop a process where you hand off the most important things based on your vision of the future growth of the company. And they're there to execute it do the pain is put they're there to put the 90 hours in, and yet you're paying them a salary that you're not getting, but you're still in charge of your business and you're still making money. And hopefully, you know, we'll get it to the right number where it works for them. So you know, you he could be potentially right now, grooming his successor don't have to go away. Because at 70 I mean, if he has a stroke tomorrow, I mean, pray he doesn't but at that age it happens right at any age.
Ronald Skelton 19:53
He just had it over like there was last Christmas not this recent one was the one before they had a stent put in his neck to try to prevent Do stroke because he had a partial blockage in his neck. So and I just got called this week or last week that a health is not there. So I'm going to have more conversations with him. But, you know, you brought up something earlier, as far as like a cow, how a business owner comes up with what they think they need out of their business. It's interesting, I get on calls with business owners, and sometimes they bring up a number early, I don't encourage that I really want to build rapport. So if they start talking numbers off the bat, I like, you know, usually I'll circle back around and say something to the effect hell, we'll get to that, you know, like, now I just kind of want to understand how you built it. But if somebody comes and says, Hey, I want $1.5 million for my business, you know, instead of saying, How did you come up with that? I was like, Great, let's take a look at your businesses. We'll see how we can get you there. You know, that's my job as a mergers and acquisitions nerd, you know, acquisitions entrepreneur, is, you know, what does the business owner need? Or what if you asked them how they came up with it sometimes like, well, I talk to my CPA, and they said, if I want to retire at this income per month, that's what I need, or they have some logic behind it. It's not necessarily connected, right? You know,
Mike Mausteller 21:05
right. Yeah. No one's gonna pay you that amount of money, because they want you to retire successfully, that future cash flow this business?
Ronald Skelton 21:14
The last one, we had that conversation, we got a pretty deep into his business of kind of, probably middle of due diligence. And I said, look, the only way you're gonna get into that valuation is you almost need to double your business. Now, we can do that a couple of ways. You can work with a business coach to help you with sales and stuff, because he was doing all his own sales. And I honestly think he could, he could have brought on a sales team and just destroyed what he was able to do on his cell. I said, the other thing is, you can work with me, I can find a similar company that needed to retire, they're about to shut down, we merge you guys together. But you're not, you know, yeah, you'll get a higher evaluation, but that other owners gonna get a big chunk of that too, right? Because Because of that, so there's a couple of different ways we can get you where you want to be, you know, and a lot of people don't get that. It's like, well, I need to be at 1.5. My business is only worth, you know, say 700,000. Right now, I can't sell it like, yeah, you can, you just got to do a little work to get you to the 1.5. Right. And, and you don't have to do it on your own. There are people like you like me and other people out there that will step in for a piece of equity or a fee, or some you know, something of value will help you get to where you want to be in your goal. Let's talk about you mentioned before the show and in my notes there, I see. You said there's some key, like elements or determining or detriments, or you want to call it that can be filled in to maximize the proceeds of a sell. So what are some of those values that a business owner needs to look at? And be aware of that, you know, if this was that area was performing better or was in place, they would sell for a higher valuation?
Mike Mausteller 22:50
Yeah, yeah, I call them potholes. Because that's what they are. They they're a big ugly hole that if someone else sees it, it detracts from the value of the business, right, they're gonna, they're going to, from that initial offer letter, they're going to give, they're going to discount what they're going to pay, right. And that all these potholes can be filled in. And so what we do is we pick the financially optimal number of potholes to fill in, right. Some of the things are, you've probably seen this story. The, the wife came along with the husband when he first started his manufacturing company. And he was he had two people he was managing, he was on the manufacturing floor, but she did the books. And then the company grew. And now we've got someone who really is in the CTA, who's doing the books of a company that's doing, you know, million to $3 million in sales. And thinking about that, from the perspective of a potential buyer. So you tell me when I buy, she's not staying around when he she didn't want to be in this in the first place. She's just filling the books to keep him in control, right? Make sure he's not spending his money at conferences in Vegas, right? And so what we recommend there is let's go hire a CFO type when it will controller type, whatever is appropriate for that size business. hire that person now. Because you don't want to be at the sale table until the person oh, by the way, the person the owner, there's been running this the president who's been doing your marketing and running the manufacturing floor, he's going to disappear. Oh, and by the way, the person whose knows all the finance and where all the little pockets of money are and everything. Oh, she's going to write so what we do there is we're going to replace her while we have plenty of time for her to teach the new person and unboard them and we're probably going to go get a sales manager as well. So that the only person that's leaving is the head of manufacturing. Right. And and that's a role you could typically hire for if you know if somebody wants to bring in some of the run to shops. or they bring in someone with experience and it's pretty easy hire. So, so that's one of the big ones is in a family owned business, how much of the business is family? And are they really going to be part of the transaction transaction? Or are they getting some part of these proceeds so they can go do whatever they want with their lives? It's actually is also one of the things that hinders people from wanting to sell, is what's going to happen to my people?
Ronald Skelton 25:26
Well, I find that's more critical than how much money am I gonna get in my pocket, I've seen more than one business go to not the highest and best offer. I mean, best offer would be subjective to personal opinion, I guess it's not the highest dollar amount offer, right? A lot of business owners see the best offer is the one that pays a reasonable amount, takes care of my people maybe preserves my legacy and my brand, if that's important to me, it seems to be to quite a few. And that dollar amount is, you know, I've seen quite a few business owners tell me that they took the second or third, you know, they were close a lot of times, but they didn't take number one, they didn't, you know, somebody offered 1.5 million, that guy said 1.3, but he's, you know, he owns a family business, he's going to be around, and he wants to just fold this into his and, and keep the brand and, you know, keep it around and keep all the employees, you know, it's a safer pair of hands. So there's something to be said, for that offering a safe pair of hands to the business owners. You know, that's what I look for is I look for businesses, I can be a safe pair of hands for the next year. And, you know, leave it as a legacy for my kids.
Mike Mausteller 26:35
Yeah, absolutely. Absolutely. And all these things can are controllable, you know, and that's part of the, you know, you mentioned people jumping right off and talking about money. And that's just not a great client for you. It's the same thing like, we were getting ready to go into the probably the biggest negotiation of your life. Let's first understand all of the things that are valuable to you. Right, let's have that conversation, oh, your employees are important. Great, we're going to put it in place right now, that within, we're going to make the contract now. So the next owners held to it, that anybody who's terminated within the next two years gets a $50,000 payout, or whatever that three times their salary, whatever the number is, we can work all these things in. But if you just start jumping, I need to sell my business now, it makes a little bit tougher, you know, if you if you want to do the fast sale, you lose a lot of liberties that you have, if you're if you're looking ahead. And you know, we can, whatever the obstacle is, we can work through it. It's just a matter of understanding what is value to you.
Ronald Skelton 27:37
I was just eating a stop for breakfast this morning at my favorite restaurant. And I didn't even know the lady at the cash register was the owner. She was like You hear a lot. What do you do? Like you wouldn't like you have to own your own business because you're here at random times throughout the day. And I said, Yeah, I do. I said, I run a podcast. And I told her she goes so I buy it. So businesses, she's like you want to buy a restaurant. And that's like me seriously thinking about selling this resin iconic restaurant here in town has been around like third or fourth generation. It's a little hole in the wall, Buffett Tyria type of thing. And not everybody listened. And Tulsa probably knows what it's called, because that's part of his name. But the owner was like, I think I want to sell it. So first of all, I don't buy restaurants say just because it's a lot of work. She asked like looked at me like why is it because I have a lot of respect for you and a love for what you do. It's a lot of work for a low profit margin. She was like, Yeah, so the secondly, I said, if you really want a business, buy sell your business right now, you should have been planning three years ago, right? There's a lot of there's some work you need to do. And you can get it done in less than three years. But if you're really serious about doing it, in a you're thinking in the next five years, I'm outta here. Start talking to some people, some people that can help you, you know, position yourself to maximize what that looks like at the other end. I said I just have a straightforward if you come to me now and say Hey, I gotta sell this right now. It's to my advantage not yours. Right? I if I do decide to take a you're gonna hit take a lot of concessions because you just weren't ready. Like the number, you know, numbers in this industry. You know, it's small to medium businesses run from one times your sellers, discretionary earnings to 3x. And you're gonna be on that one excited. One to two, one to 1.5 Just because you're just not ready. Your books aren't ready. You're, you know, you've been running this for 30 years. Your dad handed it to you so she got it. But you know, it was just concerning to her is like what she said she can see the look at her face when I said Well, if you if you want to really sell it you should be planning you should have been planted three years ago. Yeah. What's your feel on that? What's the timeline? I'm a medium sized business. I am an operator. I'm in there working every single day. How long do you think it takes for these guys to shift the gears and make it ready to sell?
Mike Mausteller 29:45
I say ideally you want to five year horizon. What that gives us is two years to improve the business meaningfully. That could be 50% more sales at a higher margin or higher earnings ratio, can we cut expenses as well. And then it gives us three years for that to show up in my, my earnings statements for three years, which I'm going to present to a buyer. So if you come to somebody and say I want to sell now, they're gonna look at your last three years. Well, if you've, if you've been working with somebody for six months, it's most of it's not baked in, right? And you have to tell the story. Right? So here's my new ratio, I had someone come in, look, come in and look at the cost, I renegotiated the contract, it'll look like this for you going forward. But you have to, you have to sell that. Versus here it is, for the last three years, I've got it built in. And this is my, you know, my best foot forward. And, you know, my, my sales have grown, you know, five or 10%, even in those years afterwards, whatever it is, so you show it should Objectory you know, maybe it's 25%. But you're showing, that's your that's the story, you're, you're selling them on that, right, the growth during that period, you're not selling them on? Well, my last six months have been great. So just assume that forever, right? It's totally different one. So
Ronald Skelton 31:03
I probably speak to and with more acquisition entrepreneurs than most because of the podcast, and I do big business networking things with just mergers and acquisitions, people, and I can promise you the circle of people who are buying businesses, very few of them put any stock at all in Coulda, Woulda, Shoulda, right. And a lot of businesses, if you're doing something for the last six months, you've made some major changes, even if they're running really well. We're still going to average that off over the last three years, like you said, and we don't buy into your Coulda, Woulda, Shoulda stories, right? Like, I actually had a business owner trying to get three times what his business is worth, because he says, I'm really this close to lending these three contracts, it'll triple my business. And, you know, I was like, Okay, well, I'll tell you what, you know, let's, we'll cross that bridge when we get there. But I promise you, if you really want to have this conversation, it's going to be worded in there that My offer is price x, and you get a bonus of y, z on those, you know, in your, you know, whatever, there's three of them, but there's three contracts, he thought he can land. So I'll give you a big chunk a big bonus up there for you, you'll get a higher valuation when we close those, and the first invoice is paid. Right. And he was really pushing back on that he wanted to sell on, you know, you know, this performance type of thing. Well, this is what we can do. And I was like, I just don't buy and Coulda, Woulda, Shoulda, we, I don't know anybody that does.
Mike Mausteller 32:26
No one else is gonna pay for it either. Don't feel bad.
Ronald Skelton 32:30
It's scary, right? I don't hide the fact that I'm new to this. I've been in real estate for a while I've been in this for about two years now played a part in a really big project. And so I might be a little more reluctant than some, but I don't know, like I said, I talked to mergers and acquisitions. We refer to ourselves as acquisition entrepreneurs. I talk to people in that space all the time. And I haven't met anybody that's willing to pay for Coulda, Woulda, Shoulda.
Mike Mausteller 32:56
Yeah, no, not at all. Not at all. No one buys your plan. If so I can make amazing plans. I can put every order you want on a piece of paper. But ya know, it's like I said, ideally, in that case, you can explain right? If just a third year, if just the most recent year numbers include that. But you've got these people locked into a multi year contract, all of a sudden, okay, now that's the base. That's the year I'm looking at, as a buyer. But like I said, it's so much easier if you don't have to tell that story. Get it baked in to three years of your history. You should use the way the process works when we do it here at SPX in Ohio. It's all value creation. And what value means is it's worth more to whoever owns it. Right? Just simply, what is it still you what if we made it that you're working 40 hour weeks and making 30% More than you did before, maybe you want to stay there, right, all of a sudden, you don't have to leave. And when you can get to that place. That's where you can hold out for that strategic buyer, who's going to pay you more because they look at the business as a bigger opportunity with them combined than it is for you alone. And when you get to that point, you're, you're free, like you're at a normal job that's paying you even more than you got before. You're working crazy hours. And you've got this chance to unlock a buyer who may pay you two or even three times what a financial buyer might pay, right? Someone who's just buying it for the cash flows.
Ronald Skelton 34:36
So I brought this up on a couple other shows. I'll bring it up to you because you're you actually coached inside of this space. I had a gentleman called me. He said I've heard of aqua hire. Can you help me or find me somebody to help me Aqua retire? And I was like I've never heard of that phrase before. What do you mean? He goes, Why run this business? My kids don't want it. They're not really equipped to take it over anyway. It's a very specialized business. There's a and smaller business within 50 miles of us who is run really well, he actually knew they were running on the Eos and like really systematic stuff, stuff he wish he had implemented, because I want to work with that guy and want to acquire him. Right? I'm much bigger three times to the size of him, I want to like, give him a 40 produce 6040 do like a some type of split, give him a big stake in it, and have him be the CEO and earn it over time, and pay our family trust over time. So my kids get a better inheritance with this guy running it, you know, and at some point, we might just own you know, he'll be the majority owner will be a minority owner. And I was like, that was a brilliant idea. And a great key phrase, I was like, you know, we're going to coin that and keep that. So, you know, it's kind of emerged, merged with another guy so that you could step out of management. I like it. And then not every industry has like the ideal subject, he did some research and found somebody that, like he was one of his competitors. He's like this guy still with someone with clients anyway. So I want to talk to him. Right? So what do you think about like, just different strategies to get the owner if the owner needs to retire sooner? What do you think about that type of thing where you acquire another company that has younger staff better management in the same vertical? Right, they could pick up your product line fairly easy?
Mike Mausteller 36:19
Yeah, I love that for the right situation for sure. You know, as you said, it's, you can't just, you know, put that up market that I want. So many people couldn't even understand the concept from any marketing language. But if you can find that deal, it's great. You know, the other option is working with a team like ours doesn't have to be us. It's not a pitch, this is a podcast. But when you work with a team, like ours, we have fractional sales, right? So we have someone who could come in, if, if you get sick, all of a sudden, or you know, just just need to go now, we can bring in people who can run the company on a fractional basis while preparing it for sale. So that's, that's another option. If you can't, you know, if they're not as fortunate as this person to have a business within 50 Miles that's run well and could come in, you know, the other option is definitely the fractional route, and we maintain a full C suite and the second level, right, so we have a CFO, we also have an accountant and a bookkeeper, right. And same thing I've got, I've got someone who can run your HR, or I have a person who's a benefit specialist, a person who's legal compliance specialist, etc, right. So we have this team built, and others do to again, it's not a plug for us. But But fractional was definitely another option for team for people who get to that point.
Ronald Skelton 37:41
You know, one of the things that bring up at her and I like to point this out on most of the shows is, if you're thinking about if you're getting up there in age, you have any medical concerns, or even me, I just turned 50. And for the first time on my life, I'll be 100% transparent. They put me in blood pressure medicine, right, I had chest pains one day, and I started looking through all my operational agreements. But I've actually seen since I jumped in the m&a space, I've seen at least three businesses here in my local market, where one day that everything looks cool when they use your advisors like where, where's all the cars are, that was a thriving little business. One was electrical. When I first got into this, I actually reached out to a friend who seems to be able to, he knows everybody in town, and I say, What happened to so and so electrical, he goes, I'll look it up. So he calls me back and goes, the owner passed away. And they're having a hard time because nobody can write checks or payroll or anything. He didn't have anybody in his operation agreement. Nobody else is on the making system. There's no like the there's nothing there. So he's just nobody that has the authority to cut another check without his signature. So he has 16 trucks, about 18 to 20 electricians, they did residential and commercial, or, you know, and and a commercial building. And they ended up like I watched it, they ended up just auctioning off the trucks at the local auction. They they just liquidated the assets. And all because he never thought to say, you know, in my operational agreement, and I wouldn't change all mine in my operational agreement that, like in the event, I'm incapacitated and unable to do anything, you know, checks can be signed by my wife and I actually didn't know if this was I haven't even talked to my attorney yet. But I used to do insurance I put first purpose which means per bloodline. So if I forget about this 10 years from now on my kid, you know, my 11 year old is now 21. Right? It says for steps it says my wife but if she can't do it, or she's gone, it says For bloodline so my son can do it, it'll go right down the bloodline, like the insurance policy would what a lot of people overstep that set of their operating agreement aside of bank statements instead of other stuff. And if something happens to them, you know, a lot of these businesses don't have enough cash on hand accessible cash on hand to survive, you know, a six month 18 month probate system.
Mike Mausteller 39:57
Yeah, that's I mean, there's It wouldn't matter if they had the money. They couldn't access it in that case. Right, right. That's just sad. I mean, even if even if they had the money that, yeah, the business can't, you know, employees are gonna have to find new jobs. And even if you could, then get it out of probate, you've got nobody left. You know, what does that what does that even look like? So yeah, it's, it's important. In fact, that's one of the first things we do is risk. Right? We work on risk, because he might as well at least capture all the value you have today. Right? At the very least, let's not lose any, let's make sure your family gets something. And with that, we will do come company owns often company owns life insurance policy on the owner. So we can then quickly access money to go hire somebody
Ronald Skelton 40:48
came in policies. Yeah. And policies as well. That's very important. Yeah. Yeah, we
Mike Mausteller 40:53
definitely talk about we definitely go through that, you know, all the risk phases.
Ronald Skelton 40:59
I've opened up operation agreements with three partners, and there's no buy sell agreement at all in the operational agreement. Right. And now they're, what they're mad at each other, and they need to sell and they're gonna have to negotiate and agree upon an all three sign a Buy Sell agreement to pin their operational agreement with, and they're at a stage where they're just done, right. They're done with each other. Right? And, you know, they all think the other one did something wrong. So this stuff is important that people understand. You know, there's a reason why, like, there's so much stuff we'd look through to for due diligence. I had a guy, we started the due diligence process, I thought I had a deal. And in that, in that looking through his operational agreement stuff like, Hey, your name's not on any of this stuff. It goes, yeah, it was my dad's. I was like, Did you never admit that yet his signatures were handed over late. And I showed up to work one day, he put me on the big signature cards, like a sign checks the but the HR Payroll people on there, so they can issue payroll checks. And I said, Yeah, but you didn't update your you didn't go to your attorney, adopt a digital legals and your documents and verify stuff. And he's like, No, and I say, close your debts still around. He's kinda like, when you mean, kinda. He's like, he's in a memory care facility. I was like, well, he's not legally competent to sign any documents anymore. You walk into a memory care facility with legal documents, and they'll run you off. Ask me I know, I didn't know any better. And I walked in, and they're like, they'll call Adult Protective Services on you. So like, you don't want to do that. It was a very awkward conversation. I just went in with somebody with their son, and it was a real estate deal even. And, like, what do you do? And I said, Well, he needs to release, you know, release this property? Like he can't, he can't legally do that. Right. So what do you do with that? I mean, I guess that's step one, when somebody comes to you early, is there. You so you go through their document, you do a little bit due diligence, you do a risk assessment, you put key man policies, company owned insurance policies in place. You know, what are the other I'm sure there's other key value deterrence, right. We already talked about the books are a mess. Owners work in too many jobs. What are the other ones that you would like to talk about?
Mike Mausteller 43:19
Yeah, so the after we get the again, that risk or you know, ensured the value we have today remains. And the first place that I always turn is sales. If the owner is 80% of your sales force, that can be a big deterrent for a buyer is does that person buy from you because their cousin Joe, or because of your relationship used to play golf? And he knows he's paying a nickel more per unit, but he's okay with it. But he's not going to be okay with it when it's not you. I mean, we don't know all of you know, all of these things. And, you know, if you're on the outside, and in 80% of the sales are tied to someone who's not going to be there. When you take over the company. It gets scary, right?
Ronald Skelton 44:01
Yeah, one of the guys was telling me on one of the shows, he bought a company, and it was, I don't think we released the show yet. But anyway, he bought a company and the owner had been taking the top seven or eight customers on an Alaskan fishing cruise every single year. Like they go out there together. Right? And he's like, I don't even like fishing like that, you know, we're, I forgot what time of the year I guess that time of year came around where they're supposed to go up and do the salmon or whatever fishing, and all these people started reaching out to me like, Hey, are we going on the trip this year? And he's like, What trip? You know, he said he did it the first year because he had no idea like he did his due diligence stuff, but the owner never told them well, I take my top customers and now he thinks he's gonna lose customers over it because they were paying you know, he thought he had a great brand and they're paying us like you said 5% Or five, five cents per unit a little bit you know more than other people. And it's because nobody wanted to give up their you know, Alaska fishing cruise. You know, with this guy, he had the same guy, same boat always could find the fish. It was a fun trip for them to go on. I was like he said, What should I do? I said, pay for that trip. It's not that expensive.
Mike Mausteller 45:11
In the market, trying to get your customers back,
Ronald Skelton 45:14
I told him, it's like, if you don't like fish, and I love fish and send me on the trip, I'll entertain your clients. So and anyway. But yeah, there's there's there's that there's the what is that relationship between the owner and their top clients. What about, you were talking about things that could be a detriments to the valuation. Do you look at things such as a customer? What am I looking for dispersion or like? Yep, over concentration, and one or two T customers?
Mike Mausteller 45:43
Yeah, so your customers concentration. I really like to see everybody under under 20%. And that 20% Number kind of scares me, right? That's your business. That could disappear. Because you know, somebody else shut their business down, they were sick of it or whatever it doesn't, doesn't even have to be anything related to you, or your quality or your product or anything. It's just somebody else's having an event. So yeah, I really don't like to see anything above 20%. I know some people give a little bit. But I would prefer if I could add up your top three, and get to like 20% 25%. Right. So there's somewhere between, you know, eight and 10% and 15% each or something like that. And that I feel a lot more comfortable there.
Ronald Skelton 46:32
Do you see? Sorry, I didn't mean to cut you off there. Did you see one time revenue? Is it detrimental instead of something where like, I'm trying to think of a situation here. But in a case where you sell a costume or one thing and it's good for life, right? It's the you know, John Deere tractor, they're not going to need another one for 40 years, you know, unless they buy another farm. Right? They might need tools to go on to it. But they've got that tractor that's going to run for 30 years. Do you see that as a detriment like? Or do you see that it's just a normal part of particular businesses? I guess the real question I'm asking do you spend time trying to figure out how to get monthly recurring revenue into a company so that because I know that's valued higher?
Mike Mausteller 47:15
Yes. So the automatic customer is on the shelf over here. And yes, we're always trying to drive to subscription model. Not always true subscription. But, you know, the salesperson calls on the 15th. And you buy your widgets, and you know, and every month we're you know, we're doing that. The, it's has two factors. Number one, they're stickier sales, right? They're very sticky. Number two, it smooths and evens out your sales flow, too, right. So if you have a seasonal product, if you can get people to even place that a little bit earlier, you can sometimes afford to give them a price break, because you're not paying overtime for it during the peak season with your with your staff. So I like to look at that and it can smoothing that out makes the business run easier. You don't have to what they call build the church for Easter. Right? If every every church built for Easter, they have, you know, like tons of open seats the other 364 days out of the year, right. And so yeah, that smoothing effect is big, too. Not to mention, obviously, the stickiness of a recurring customer, I worked with one client. They didn't even have a subscription button on their website. Right, they didn't even have it. So this is this is on the other this is a startup on the other end, where we are building for value to sell. had about an eight year horizon. And without that subscription button 97% of the people who bought something in the prior quarter bought again, they came back and bought it. That's Wow. Like think about that. Now if we get the subscription button on there, it's only gonna get better, right? And so, every so every customer, you maintain a customer and pretty much at 97%. I mean, you're maintaining that customer. So think about what that means to the next person who's buying it. This business is stable, and it can only grow right now. 97% Stick forever, probably not. But you know, in the first three years that was that was the number that they were riding on for three years.
Ronald Skelton 49:31
I think I equate it to my previous experience being a real estate investor that I love recurring revenue, right? That's what I'm like, you know, even in the home services, right? I own a pest control company that's not really great if it's reoccurring you got a problem right? You know, I have a few recurring clients I go check a bunch of Airbnb is we do inspections on them every about once a month just because they have a high chance of getting bedbugs and other stuff. But most of my clients I go in there, I do my work and they don't call me back until they see something crawling across the counter again, right? So I own one of those. But you know, I like companies like, we've tried to take lawn care, I don't only need one of them. But I think it's brilliant because it has to be done every month, right? pool cleaning services, I've been looking at those, I think I might get into that, just because they get done every couple days, right? Like once a week, twice a week, somebody comes by and checks your chemical level, recurring, you get a customary in as long as you treat them well, and you get great customer support, you know, there's a pretty good chance you got a customer for a long time. So that goes with it. I think that can be done in almost any business, I think there's some element to creating long term clients that come back, you know, and, and buy things over and over again. So before we go too much further, it is kind of getting close to the top of the hour. Let's make sure people know how to reach out to you. I didn't verify this link with you beforehand, but I'm gonna put it on your screen real quick. Make sure verify that's right.
Mike Mausteller 50:56
Yeah, it looks perfect.
Ronald Skelton 50:57
Cool. For those you guys who are on the podcast, it's actually his LinkedIn. So it's, it's the standard linkedin.com/in, Mike, M I K E. And then it's hyphen, M A U S, T, E, L L E R. It's Mike, M I K E, hyphen, M A U S, T E L L E R? And is there any other way you'd like people to reach out to?
Mike Mausteller 51:22
That's perfect. That's actually my preferred method. Let's chat and go ahead and connect. And you can follow my content, I can follow your business that works out perfectly.
Ronald Skelton 51:33
Cool. And then right now we're at 54 minutes. So we'll kind of wrap it up the top of the hour. If you had one key takeaway, one myth you could dispel in the industry or, like, if people walk away from the show, they only remember one thing from Mike, what do you want them to remember?
Mike Mausteller 51:53
When it comes to value, you cannot believe that everyone thinks like you, you have to, you have to think like potential buyers. So if you, for instance, a silly example. But if you want to sell in the next two years, and you potentially want to sell to someone who would take over your operation, or maybe combine it with theirs, don't sign a five year lease, for a price break in, you can be tempted to do that, well, it costs less, they're gonna like this or not, if somebody wants to shut it down. So stop thinking about what's good for you, and concentrate on if you were going to buy this and you are the most skeptical person in the world, because every buyer is they're all tied for the most skeptical person in the world. What would what would you need to do demonstrate or prove to yourself? Right?
Ronald Skelton 52:46
Awesome. I like that. So if you're if, if you're selling a business, put yourself in the shoes of the buyer, and what would you need to prove to yourself to buy that business? So if you walked in off the street, not knowing anything about your business? What would you need to see like and, and be shown about the business that would attract you as a buyer? I like that putting yourself in the other person's shoes. Cool. Well, I appreciate having you on, we are kind of at the top of the hour, thank you for being here. Hang out for a few minutes after the show. And we'll chat for a second or two. Other than that, if you don't you have any other things to say?
Mike Mausteller 53:24
No, when do I get to come back?
Ronald Skelton 53:27
I think it's fun. It's so much fun on these shows, I look up and go, Oh, man, we're already at the top of the hour, we could go on for a lot longer. So I do appreciate it, we'll probably have you back, I'm going to do a series just for everybody to know out there. I'm thinking about doing a series where we pick a topic and we bring an expert on we actually walk you through and teach you, I get a deep dive into a particular thing. Right? So that might be something if I want to break down that mini series, I'll reach out to you and go, here's the 15 topics, I think we ought to teach somebody on which one would you like to do a, you know, a 45 minute segment on and we could even break out your slides or whatever you need to do to get them get the point across. So maybe we can do that?
Mike Mausteller 54:05
Absolutely, absolutely. I'd love to talk about how the valuation is built even so people understand all of the important pieces of that, you know, a lot of people would would fire their mutual fund company if they didn't get their quarterly statements. But most of us don't know the value our business right now. And it's probably 10 times more valuable than that mutual fund statement. So you know, get out there, check your value. And maybe when we get back together we can we can talk about some of those big chunks of value that the 80% rule.
Ronald Skelton 54:40
I get a lot of business owners asking for their balance sheet and their income statement. They can find those. Then I asked him for a cash flow analysis showed me their multiple core quarterly cash flow for the year. And they just gloss over like they don't even know what that is like what's really critical because I kind of need to know if you have seasonal you know, you know, that's that's how I See the seasons and stuff inside of your business? I can see him and the others a little bit. But I really want to see, you know, you know, are you like there? Are there businesses out there that look like they do really well, but like part half of the year that are robbing from Peter to pay Paul right there. There's, you know, so. All right. Well, I appreciate having you on here. I am going to end the stream. And that's the show everybody. Thank you for being on and hang out for just a second. 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 918641415 Whoa, 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 and leave us some information. Thank you. The investors and entrepreneurs professional mastermind. The investors and entrepreneurs professional mastermind combines that additional peer to peer mastermind introduced first in Napoleon Hill's 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 tiepm.com That's T i e. P m.com. And check out the investors and entrepreneurs professional mastermind.