May 20, 2022

How2Exit Episode 37: Jon Taylor - over 20 years of M&A, advisory, and business valuation experience.

How2Exit Episode 37: Jon Taylor - over 20 years of M&A, advisory, and business valuation experience.

Jon has successfully advised clients across a broad range of industries, including government services, aerospace & defense, business services, technology, consumer and industrial products, and metals and mining. He has closed over $2 billion in...

Jon has successfully advised clients across a broad range of industries, including government services, aerospace & defense, business services, technology, consumer and industrial products, and metals and mining. He has closed over $2 billion in aggregate transaction value in his career. Prior to founding Stanton Park Capital, Mr. Taylor served as a Vice President at Moss Adams Capital (MAC), a West-Coast based investment banking firm. Before joining, MAC he was a Vice President with Capstone Partners.

Mr. Taylor earned his B.S. in Economics with concentrations in Finance and Real Estate from the Wharton School at the University of Pennsylvania. While at UPenn, Jon was a midfielder for the school’s nationally ranked Men’s Lacrosse team. Later he earned an MBA from Georgetown University’s McDonough School of Business. He is a National Association of Certified Valuators and Analyst (NACVA) Certified Valuation Analyst (CVA).

Jon is the Author of Maximize Your Multiple: The Business Owner’s Guide to the Institutional Money Deal, a book that helps entrepreneurs build and sell their companies for maximum value.
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Lane Carrick - serial entrepreneur and sold multiple businesses in his career:

Carl Allen - M&A Expert with Over $47 billion in deals:

Walker Deibel - the best-selling author of Buy Then Build:

Mike Mausteller - Business Coach, Executive...

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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 Jon Taylor. Jon is the author of maximize your multiple the business owners guide to institutional money deal, a book that helps entrepreneurs build and sell their companies for maximum value. Jon has over 20 years of mergers and acquisitions strategic advisory and business valuation experience and has successfully advised clients across a broad range of industries including government services, aerospace and defense, business services, technology, consumer and industrial products, metals and mining. He has closed over 2 billion in aggregate transaction value in his career. Welcome to the show, Jon, man, thank you for having for being on the show today.

Jon Taylor  1:14  
Thanks so much for having me. 

Ronald Skelton  1:16  
Cool. We were talking a little bit earlier. You know, my first question is gonna be the origin story. Man you were born and you know, you're on my show, kind of fill in the gap at how you got you got got here today?

Jon Taylor  1:26  
Sure. So I got out of school, I went to the Wharton School and graduate in the late 90s as an undergrad and which was an interesting time. You had referenced Excite. Right, so so that was right during the craze, you know, 99 2000 and, you know, my first job out of school, I studied finance and was just interested in Wall Street. You know, I remember watching Wall Street as a kid and just thought, you know that that is a really interesting movie. I think Oliver Stone didn't meant to be like a movie, but I think a lot of a lot of people, my generation just got turned on to Wall Street, right. So, you know, I read barbarians in the gate and college and some other deal books like that, and started off doing middle market investment banking, you know, working with some tech companies early on, and, you know, enjoyed it in a lot of ways. But you know, at the same time, there's all these kind of dark, you know, a lot of people were heading into the dot coms. And, you know, I did spend, I did try kind of internet thing out for a little while, but came back to banking and, you know, had had, you know, worked with a couple different firms over my career founded my own practice seven or eight years ago, and, you know, you know, haven't really looked back since just been doing middle market mergers and acquisitions, typically companies, you know, 10 to 20 million plus in sales, and then we have a very active business valuation practices. Well,

Ronald Skelton  2:51  
that's awesome. You said, you mentioned the Wall Street movie, right? The funny thing was, is when I decided to go into m&a, I actually sent a message to I called a friend of mine to tell him because we used to watch that when I was in the military, him and I would watch that show, like over and over again. And we were trying to figure out, we're gonna be stock traders or whatever, right? And so when I decided to go to this, I tried to get a hold of him. I couldn't get a hold of him, but his wife answered, and she like when we sent him, you give him a message? I said, Yeah, I'll tell him blue, blue horseshoe loves into any kind of steel or whatever. And she's like, what, I just write it down and tell him that. And so he texts me later, like, What in the world is going on? It's like, I moved to m&a. And he's like, Oh, that joke. So it was just wonder like, this is something 30 years later, I so that, that movies that iconic, you know, probably catalyst for a lot of people eventually get into this space, you're in the heart of tech, you know, you're right there in Palo Alto, we were talking about a little bit before the show, I lived there in that area for for nine or 10 years. And so you're surrounded by tech companies stuff, but we were talking to you do valuations of everything from the local hair salons all the way up to the big tech and everything in between, right?

Jon Taylor  4:01  
That's right. So you know, our valuation practice, we work with companies of all sizes, you know, on, it could be anything from divorce litigation to you know, Renee is very common for stock option valuation for businesses in partnership buyouts, you know, different types of litigation. I mean, we've been an expert witness in court, so that there's lots of reasons why people do business valuation. But, you know, m&a is is the biggest part of what we do and what we enjoy doing the most. And so representing middle market businesses and sell side, I mean, we've done some work in tech, but also some industrial construction type businesses as well.

Ronald Skelton  4:41  
So it's interesting as valuations are brilliant, like, almost a lead generation for your m&a side, right? Somebody comes to you and they're like, Well, what is my company worth and you help them with that. And then it leads to well, what do you plan on doing?

Jon Taylor  4:54  
Exactly? Yeah, yeah, that's the way some of our sell side conversations began. People come to us for evaluation and we turned it into a sell side opportunity.

Ronald Skelton  5:05  
That's awesome. So I'm a business owner, I come to you and I'm like, I think I might be ready to sell this stuff. Can you help me work with? What is my business worth? Now, we've had a lot of conversations on the show about like how to maximize value and like, get your book straight and all that. But what is the process look like to start at evaluation process? Or evaluation? The evaluation? Sure, so

Jon Taylor  5:27  
So typically, we start with a questionnaire and understand what the business does what industry they're in, you know, getting the financial information, we have an information requests list that we send, which is really looking at the last three to five years income statement balance sheet. Understanding owners are what the ownership structure looks like. Understanding what is the customer base look like? Are there things like customer concentration, any significant risk factors, so we, we have a short questionnaire we run through with with folks at the beginning just to evaluate a company and understand, you know, what, what its value might be what what the different options, if they're looking to sell it, what's kind of their strategic alternatives. So obviously, I mean, larger businesses have more opportunities for selling than smaller, you know, a lot of small businesses are, are very difficult to sell. Because they're, you know, a lot of cases, they're just too small to be interesting to a buyer, right? I mean, if, you know, if someone's going to spend a lot of time doing diligence and audits, you know, mucking around with a, you know, a tiny, you know, Mom and Pop type business, you know, oftentimes isn't a good use of their time. So they're looking for, you know, significant opportunities companies doing, you know, I'd say, you know, at least, you know, a million plus in profits, these I mean usually, you know, fuss often,

Right? So, I'm coming to you, and I, you know, I'm gonna play scenario, because I kind of know, I know, I know, you get this because I get it as from a buy side. You know, conversation is, you know, a seller or a business owner, they come to you and like, look, I'm wanting to retire, I want to sell my business, I need x. Is there a strategic side of how you're like, how do you get them to x? You know, so I need, I talked to my financial advisor, my CPA says, in order for me to retire and live the life I'm currently living, I need another $2 million. Right? You and I both know that what I need and what the business is worth are not connected in any sense of the matter, but in their mind is connected, right? They are looking at the business going, I make 5 million a year, you know, revenue. So yeah, I probably could sell this for 2 million. And that's not connected, either. So walk through these, the conversation that happens for valuation. And like with the seller, as far as, do you have to set some expectations? Or is there, what's that conversation look like?

Yeah, that's an important part of the process. When we whenever we evaluate a business for sale, I mean, we have we do our, we get the financial statements, we go through a questionnaire, we get information on the customer base, the market they're in, and then we do our own evaluation of the business of what we think it's worth what we think bids might come in, if we were to market the company actively. And then we present that to the potential seller and say, hey, look, we think the value is going to be in this range, right? So you know, oftentimes, it's a multiple of EBITDA, you know, maybe a multiple of sales. And, you know, and obviously, there's, there's could be significant variance between like a high end range, versus a low end range, and everyone likes to be optimistic and say, Hey, we, you know, it's possible that we can get your, you know, 20 times EBITDA for your business or, you know, you know, 20 times sales or something like that. And that's what everyone wants to hear. But we want to try to give them a realistic picture of where, you know, 80 to 90% of bids are going to come in because it doesn't do anyone, you know, much good if we're just blowing smoke and making a bill like, hey, you know, your business is, you know, more valuable than the market might perceive it to be. I mean, it's, it's an honest conversation and just say, Hey, this is where we think most people are going to bid. And realistically, these are, what your options are gonna look like. And we say with the caveat, like, hey, we would love to get you more, and we'll try to get you. So if we can't come to some, you know, agreement there on a reasonable value of sounds like Well, hey, I want to x what you're saying it's worth it. We might say, hey, look, we're, we might not be the right people to represent you. I mean, we can certainly try to get you that number. But we don't think that that's, you know, there may not be the compensation we get is about a result, it's because it's typically a percentage of the deal. And so, you know, we don't want to spend our time marketing a deal if we don't think, you know, if we can't see eye to eye on what the value is and eventually get to a price. Right? You know, you know, think about a homeowner who, you know, hasn't maintained their home and, you know, 30 plus years and they get outdated kitchens and bathrooms. But they want, you know, premium price to sell. Right? It's, you know, if you're a realtor, you probably say, Hey, I'm gonna decline that listing, because it's just, you know, we're not going to get to a deal. Right. So that's, you know, we try to take similar approach.

Ronald Skelton  10:11  
You know, one of the things I find is, I don't, I'm not an advisor in the sense that I'm trying to, like, you know, help them sell it to somebody else. But, you know, when, when I'm, when I'm working with a seller, the first thing I, you know, I say, when they say, well, I need 2 million, my response is always going to be, let's see how we can get you there. And a lot of times that how we're going to get you there is we've got to increase your profitability, your your EBITDA, you know, there's a couple of ways to do that, you can become a lot more, if you got the revenue, you can become a lot more efficient, right, and drive that number up. Or if you don't, we could probably go acquire something similar to yours and drive it up pretty quickly and sell it all as one. And so there's some conversations I have with business owners who they think they need x, and they're just, there's just no way their business at its current state will get there. So and I do take a piece of that, do you guys do any type of strategic advisory like, oh, we'll help you acquire something to help you get there? Or you stay inside of the, like, sell side? Advising? Sure, yeah,

Jon Taylor  11:13  
no, we definitely tell people like, Look, if there's a certain number you're targeting, you need to grow the business for another year, or two or three years, or whatever the plan is, and maybe the best way to do that is to look at an acquisition, or maybe there's ways to increase the profitability that they looked at, right, or haven't considered, or, you know, you know, it's interesting, because, you know, you meet business owners all the time, and, you know, they're not, you know, a lot of them aren't really optimizing everything they're doing, right. You know, they, you know, maybe they're, you know, they're wasting money on things that aren't a good investment, or they need to really focus on growth growing the top line, you know, maybe investing in the right kinds of people that can help them get there. So we, you know, we do give that that sort of advice as well.

Ronald Skelton  11:57  
One of the things that, you know, work with some of these guys is it was finding kind of the red flags. So, are there red flags outside of the financials outside of the the that, that customer concentration, three years financial? Like, what are some of the questions you asked the seller when they come talk to you, that are outside of numbers?

Jon Taylor  12:19  
Yeah, it's a good question. Um, you know, there could be risk factors, compliance issues, legal issues, right, regulatory issues, you know, every, you know, there are some industries that are more regulated than others, there's environmental rights. So, if you're a manufacturing business, Have you have you had a phase one? Or phase two? You know, are there any talks in the, like, you know, we've worked with, they had to have a face on face to environmental, you know, drill hole holes through the floor of the plant, you know, wells to kind of test toxin levels and so forth. We had a client that, you know, one of their factories was built on a former coal ash plant, right. So, I mean, you know, you know, so those are big risks hanging on like a lock, it can certainly be an issue, you know, employment issues that, you know, hiring, you know, do you have a management team in place that can run it? I mean, that's an important consideration. Particularly, I mean, you reference the private equity world, right? I mean, most of those guys aren't set up to drop in a management team and run it. I mean, they might, they may have operating partners that can help round out a management team, but really, they're looking to the company to have that has a good leadership team already in place. So those are the intangibles for sure. Yeah. I mean, do they have, you know, how do they differentiate themselves in the marketplace? Do they have a good sales message? How effectively are they marketing? Are they using digital marketing? If that's effective, right, you know, their whole approach to product development? Do they have intellectual property? I mean, all you know, all those things, certainly come into play, you know, product concentration, are they very focused on a single, you know, is it like a symphony? Right. I mean, we, you know, we had a customer that they made were, it was a certain type of truck cover. And so, it was like a one product type business, right, they weren't very diversified. So they had to look at diversifying their their product offering. So they can provide, you know, more have more of a value added type offering to customers beyond what kind of a single product model so so yeah, I mean, all the you know, all those things come into play.

Ronald Skelton  14:24  
So let's go jump back right into that valuation. You mentioned intellectual property, and I hadn't had anybody on the show that talked about how do you add intellectual property into the evaluation, the equation and I kind of suspect you're uniquely set up to talk about it because you are surrounded by tech and innovation so you and your with your defense contracting, stuff that you had in your bio and stuff, you've got to come across this. So is it swag, right? The scientific wild ass guess? Or is there a method to you know, valuing intellectual property as an asset of a company.

Jon Taylor  15:01  
Sure. So we have done valuations specifically for a company's intellectual property. In a lot of times, that can almost be like a theoretical exercise where you look at what's the payment on what type of intellectual property right software code, which maybe they're not monetizing, but they, it could provide cost savings, right? Maybe they need to hire, they don't need as many people. So it provides a cost savings to the company by automating certain processes. Right. So, so those are so even if the software were or the intellectual property sold, but does it does it provide some other type of benefit or advantage to the business in terms of cost? Or, or how they the company is marketed? But But yeah, I mean, you know, we come into this question, quite often, sometimes when, you know, a company says, Well, hey, my business might be worth X, but my brain is very, you know, an awesome brand, or we've got, we've got all these patents on products that, you know, sometimes haven't even been developed, right or marketed. So that, you know, and we're, when you're talking about selling intellectual property assets like that, I mean, it can be somewhat challenging, because when you're looking at valuing intellectual property from, you know, maybe if you're looking to do it for, you know, tax compliance, or some, you know, some theoretical purpose, but But really, if you're asking a buyer to pay for real intellectual property mean, it should show up in the financial. So if you have real intellectual property that's valuable, you should either you should have some cost, advantage or quality advantage, you should have better margins than your competitors, or you should be penetrating the market faster, because your intellectual property makes your products appear so. So it really should show up in the numbers. And it helps to certainly having the intellectual property secured. I mean, pants, right. I mean, typically, it's a 17 year life. So the life of the patent matters, oftentimes, but yeah, I mean, the reality is the intellectual property, it should show up in the numbers. And, you know, I mean, a lot of companies, they, you know, they're, they're proprietary, you know, their secret sauce, it hasn't been patented, right? It's, it's just, it's kind of a trade secret, but things they know, or they call it, you know, black magic or whatever. And, you know, it's how they go to business. And it's not, it's not necessarily, you know, written out or explicit anywhere, but it's, it's a method and the way they do business that's valuable, and it shows up in the in the results in the financial results.

Ronald Skelton  17:30  
So, you've been in this industry 20 plus years, according to your bio, right? What's your favorite deal? Like uh, and maybe, you know, think of think kind of back through the deals you've done and been involved with, with your current firm? And other ones? Do you have a favorite and some lessons learned from that one?

Jon Taylor  17:47  
Yeah, every deal provides, it's, I mean, it's, you know, every deal provides its own unique set of challenges. So so we, you know, I learned something from all of them, right. And a lot of those are, you know, it's oftentimes, it's interpersonal, right, it's the interpersonal dynamics of the seller, in understanding what their needs are, and really listening to them. You know, just recently, we were, you know, kind of deadlocked on an offer with a business and kind of going back and forth with a letter of intent and, you know, look like, hey, this deal might not come together, because the, the sellers wanted to exclude a certain Software Asset from the sale, the buyer wanted to include it. And they were, you know, kind of fighting over to some degree, whether whether or not should be included, what the value was, and, you know, this was more of an early stage type Software Asset, so it was difficult to value. So, yeah, I mean, every every deal presents its own unique set of challenges. And it's in, you know, I had a client gentleman well into 70s. I mean, you know, he had essentially retired from the company that it was a business in the industrial manufacturing space, and he had moved to Florida, but was still somewhat involved with the company. And, you know, we had this we got a pretty good offer for business. And one thing he had, I'm understanding what's called a network capital target, because because typically when you sell a business, it's the valuation of the company, it's on a debt free cash free basis, right. So so what that means if you're the seller, you get to keep any cash that's in the business, but you got to pay off any debt and amount of what's called working capital, which is your company's inventory accounts receivables and payables, which stays in the business I mean, that's kind of you know, your your inventory and accounts receivable. This is basically its essence that the owner has made in time to build up an inventory balance and accounts receivable balance, which eventually gets turned into cash, but also they build up a payables and usually So, typically, you take the non cash current assets you deduct the non debt current ly bilities that gives you the working capital. And you typically look at a 12 month average for that number. So what ever the trailing 12 month average is, is usually set as a target, which is included in letter of intent. So when you close if you're, if you're above that working capital target, the seller gets a credit. If he's below, it's a debit, but, you know, out of business owners, we've never dealt with this concept before. And some of them really struggle. I mean, to spend, you know, one case had to spend probably over 40 hours educating them on why working capital has to be included, what it means how you calculate it, why we're using a, an average. So a lot of it is just seller education. And so yeah, I mean, a lot of a lot of clients we have are first time business sellers. And, you know, they're not super specific, you know, what, while they know their industry, well, they're they're experts in their industry, and they, they know everything about it in terms of but actually doing a deal with something they're very new to. And so they're, they're learning a lot of these terms for the first time. And so yeah, we often have to spend a lot of time educating them and helping them understand why why an offer is written a certain way. Yeah, what what working capital is, how long it takes to close? What's going to be diligence, right? So there's all these different reference kind of technical references we have to get up to speed on.

Ronald Skelton  21:18  
Yeah, I've actually run into a case where I had an LOI out, I thought it everything was going good. And the owner, at some point after he signed the LOI come back, because you do realize I'm taking all the inventory, and all the cash as part of my retirement. And I was like, What are you doing with the inventory? Well, I've got a buddy that owns something down in Texas, and we're gonna, he's gonna buy it for me at my costs. And, you know, like, No, I'm not interested in it, empty warehouse with a bunch of employees, you know, in orders that, Phil, I want to be able to, you know, the inventory, I need to be able to ship things as things going out. But he thought he was getting the bonus, he thought he was gonna pull over a million worth of cash out of the business. And, and, you know, half a million dollars worth of inventory, which his wholesale cost. And, you know, it's my price was okay, if you got all that I was like, No, that's not how this works. So I can see that, you know, a lot of the

Jon Taylor  22:15  
Yeah, and I was gonna say, too, I mean, but I mean, that that's why it's so important to set a working capital target in the letter of intent, because you don't want to set up a situation where, you know, because once the was signed, the sellers, basically incentive, I'm gonna draw down all my, I'm gonna give all my customers a discount to pay me early, and I'm gonna sell off this inventory, and try to, you know, basically read the balance sheet and then run up my payables. So when when my, when the buyer takes possession, there's, there's almost no inventory, accounts receivable and my payables have run way up. And so you don't want to create a situation where you're incentivizing either side to, to, to play games with the balance sheet, right? Because Because if you're the buyer, I mean, yeah, you're you want the inventory and and just increase in the payables to go down. But you know, to be fair, you set a target. And then if you're above or, you know, if you're above or below it, there's a debit credit at closing,

Ronald Skelton  23:11  
let's talk a little bit about we've got the valuation done. And the owner is still, and I'm sure you get this, a lot of times it's either a forced sale, meaning it's a health issue, or a divorce. We talked about that a little bit earlier. It in some cases, it's just a lifestyle choice. They're they're thinking that it's time to sell. I run into some cases where we've got pretty close to the finish line, and the owner decides to change his mind because he doesn't know what he's going to do next. Do you? Do you work with any type of like transition specialist or anything that helps the owner figure out what they're going to do next? So they don't pull that knee jerk reaction towards the end of the transaction?

Jon Taylor  23:53  
Yeah, no, it's a great question. And it's funny, because I talk to business owners every day. I mean, as you know, as you can imagine, and I go to trade shows, sometimes I meet business owners, and I always, always kind of chuckle sometimes, because I'll meet some of these guys that are, you know, well past retirement age, you know, well into their 60s 70s and even 80s In some cases, and I say, Hey, are you are, you know, would you consider considering a potential sale of the company? Is that something you'd like to do? Or would would consider it a lot of a lot of them are just like, No, I'm not even thinking about it. I'm not looking to do that. I enjoy what I'm doing. And you think like, hey, like this guy's ripe retirement age, but, you know, it's like a lot Lael, the way a lot of these entrepreneurs are wired, they don't even they're not even thinking about it, right. They just want to keep doing what they're doing. And this, this is their purpose. So yeah, I mean, certainly working with the business owner, I mean, obviously, it's really comes up to educating them and talking them upfront, making sure that, you know, hey, this is what it's going to take to sell the company. We're talking it's going to be a lot of work. It's a long process. It's not something that you can't hire us to sell your company on Monday. and expect to be closed on Friday. It's a big investment of time and effort. So we want to make sure that they're committed to the process. I mean, yeah, I mean, like you, I've had instances where the owner second guesses himself or, you know, decides he, you know, he doesn't want to sell in the end. And, you know, that's unfortunate. But yeah, I mean, at the end, you know, it is it is the sellers decision, right. I mean, it's, you know, our contract doesn't obligate them to sell if they don't want to sell. So. But yeah, I think the key there is, just remind them, like, Hey, we're working to bring you the best deal possible. And whatever deal we bring you to recommend is going to be a good deal that's going to be within the the valuation range, we discussed it on the terms we discussed. And so we say, hey, look, you know, we're going to bring you the kind of deal you're looking for, and, and, you know, if we do that, you know, we want to move forward and get something done, because that's what we're all here for.

Ronald Skelton  25:55  
You know, the other side of it is, is that a lot of times when you're working through all this stuff at night, that needs to happen to make a business really valuable. You run into what I refer to I jokingly call it the freshly detailed car scenario. Like you ever decide, you want to sell your car and you go out and you get it clean and detailed and service, you have the highest trading value and then you drive it over to the car dealership to trade it in, you're thinking I don't know, this is I don't want to sell it, this is a pretty nice car. Same thing happens to some of these business owners when the they go through the process of they bring in a general manager, so they're not having to put so many hours, they put in systems and processes. So somebody else can run it, they clean up their financials, and get things tuned up a little bit so that it's more profitable, all in all with the pretense that they were going to sell it. But when they get down to that other end of it, they go okay, well, I only have to spend four hours a week here. Now, why would I sell this? Do you run into? Do you run into any of that to where you put in the work to help them make it very marketable? But now it's also something that's a lot easier to manage? And they may or may not go?

Jon Taylor  27:02  
Yeah, it does happen? For sure. I mean, are people that even second guess themselves? And, and sometimes we have to spend more time with with them, you know, like, deal we did with this gentleman that was I think he was almost two years old, he was kind of quiet. So I said, Hey, look at this, you know, you sell the company, you insurance future to some degree, right? I mean, like you to think about what what happens if you were to pass away, and what happens to the business and you know, obviously, putting the kind of systems in place you need having a management team in place. But yes, if you want the best thing for the company, sometimes the best thing for that is for you to step away both from, you know, management and an ownership role and let someone own the asset who can really maximize it and continue to grow it and do do the best thing for the employees. I mean, this this one gentleman who was, you know, was in his late 70s. He, but he wasn't investing in sales and marbling wasn't, you know, you know, he's approach like, No, you know, didn't didn't invest much in sales and marketing or other things to grow the company, but, you know, had a great business overall. So I think the company was in a position where it really needed a different kind of ownership to run it and continue to grow it and develop it. So I think if you're an owner that can recognize like, hey, maybe the company is at a point where it needs to grow past me, in my financial or risk tolerance or ability to grow it. You know, I think, right? Thinking about what's what's best for the employees in the business, can maybe help them get over that because I understand the emotional attachment and you spend, a lot of our clients have spent, you know, 3040 plus years building a company and it's hard to walk away from right there's, there's that emotional attachment. It's, it's, it's, it's been an investment, they understand it provides them Steadicam, like, Hey, why? Why would I sell this? Right? So but there's, look, there are lifestyle factors to consider, for sure.

Ronald Skelton  29:03  
So what would you consider as the most important piece of advice you give to an owner who's thinking about selling his business? He's looking considering an exit.

Jon Taylor  29:11  
One thing I think is the the amount of extra to sell a company oftentimes, is the amount of information that has to be provided, right, and getting the business ready to stand up to that level of the level of scrutiny to be able to answer questions and generate reports, right? I mean, having good software systems, information systems that can generate financial statements and lists of customers and, you know, projects and, you know, sales by product and profit margin and things like that. So, having good IT systems having the right kind of people in place. You know, it's great when a company has a Chief Financial Officer, I understand there's a lot of small businesses that maybe don't don't have the budget to afford one but if but, you know, if you're a company doing 20 million plus in sales With with decent profitability, I mean having a CFO can really help you position the company and help you get the systems and in place, you need to operate it to provide efficiency. And then also, you know, during a sale process, just being able to generate reports and information quickly, you know, even for yourself, you know, to help you operate the business. So, yes, systems or, you know, things written down, is is important, right, because a lot of a lot of businesses start out with a one man band who's doing four or five different jobs, and, you know, he's been kind of running it by the seat of his pants for years, and, but stepping away from some of those roles, hiring professionals to do those same jobs, writing down procedures, write explicit, you know, manuals on how to do things and how the business is run. Having good documentation is is is very important. And, and it makes a big difference in a sale process, when you have good documentation versus, you know, someone asks you for, you know, your list of customers or, you know, sales by product or something like that, and it takes you two weeks to pull together, it's, you know, it can really hamper a sales process. I mean, you have to be able to generate information quickly and answer questions. So that's something we always recommend.

You know, I can tell you from the buyers perspective, and I work, not just myself, and I work with a lot of other buyers, for everything, we have to wait for your price, you're what we think the value of your company kind of goes down a little bit, right, because you're just, if you're creating it on the fly, and you haven't tracked it closely over the last three years, we have to kind of assume there's some fudge factor in there, right? You didn't have it readily there, you dug it out, you were in a hurry to dig it out. And it's kind of like the guy that waits for the last minute and it creates a mileage log for his kind of tries to go back and create a mileage log for his tax deduction on the use of his car, right, you got six, they got six different pins, and they're trying to create it. And they know it's pretty close to accurate, but it's not, not 100%. That's kind of, you know, ours perspective, when when I asked you for something as a buyer, and it takes you three weeks to get it to me, I was like he's having to go out and create that, right. And if it's something like your profit and loss statement, you know, broken up quarterly over the last three years or your you know, you know, or just financial stuff. That induces a little fear in your into your buyers. So one of the favorite things I always like to ask is, what do you believe is a common myth inside of this profession outside of m&a inside the inside of advisory services? What do you believe is a common myth in your profession that you'd like to debunk right here and now?

In a common myth, uh, yeah, good question. I mean, there's a lot of them. You know, I mean, one thing, I think that I mean, there's this whole idea, I think, I went to business school, and we talked about, like, the strategic buyer is the best buyer because he can afford to pay a premium and so forth. And, you know, and I think a lot of times that that's, that can be true, but in some instances, I mean, a lot of private equity buyers are just as aggressive as strategic buyers, when it comes to buying businesses and their valuations can be in the same range as a strategic right. And so some people don't want to consider a financial buyer, because maybe they feel like, you know, private equity has a bad reputation or private equity firm bought a friend's company, and they, you know, they don't, they don't want to deal with with with private equity. Yeah, I mean, they're, you know, I think that that's a fairly common one. I mean, some business owners, you know, they feel like, they can sell the company themselves, right. You know, you know, it's like, I mean, I, I recently sold the home, and, you know, I guess I could have done a for sale by owner, right. But, you know, there's, you know, I understand there's a cost to hiring a certain professional, I mean, you look at what, what kind of commissions get paid to realtors these days, and it seems kind of ridiculous with Zillow and the Internet and, and you're still paying, you know, five 5% or more to sell a home, but it's, um, you know. There's value in having a professional that's done it many, many times help help you in a transaction and trying to do everything yourself, I think is a mistake, right? I mean, you don't, you wouldn't like you know, write all your own legal documents, oftentimes, right? You know, hiring a professional who can save you a lot of time and money in the end.

Ronald Skelton  34:21  
It's interesting, I've had sellers ask me, like, should I have somebody on my side, and I was like, Look, I'm negotiating this to be the buyer. I'm gonna negotiate this to be in my best interest. I'm not out to harm you or anything, but I promise you if you have stuff that I don't recognize or don't understand, I hire in people and I bring in advisors, they look it over and give me advice. I would recommend you do the same thing. Right? You're not going to understand this. And quite frankly, I may or may not be equipped to be the guy that teach you. You know, if I was selling my unit, and I just turned it around, if I were selling my company to you, I wouldn't ask you to teach me what I'm presenting to you. It's just a bad idea. Right? I don't have any mal intent towards these guys. But just being straightforward and as honest is like, I'm gonna bring an advisor in if there's something I don't understand. And yeah, you probably should do the same thing.

Jon Taylor  35:09  
So, right. Yep.

Ronald Skelton  35:12  
And in the same thing, I've got a background in real estate investing. And, you know, to this day, I still, you know, maybe because it's time requirements, but if I decide to sell something, unless I have somebody lined up that wants to buy it, like I have some properties right now that are owner financed out, I've got somebody that might want to buy the notes, I'll probably do most of that myself. And then when I'm ready when it's done, because I know the guy, he knows me, but I'm still going to take it too, I know how to do the paperwork to, I can do it right here and bring a notary over to the office and have them notarized it, I know how to do it, but just for his Welby and his, you know, comfort zone, I'll pay the money and go to a closing company and transfer the title and everything through a closing company, because they know they can ensure the transaction they can oversee it, they catch anything I might have missed, it's a peace of mind for both parties. And so I would say if you if you've got unless you've got a mom and pop shop, that you're just selling it to a friend or a family or relative or, or something like that, it's it's absolutely a good idea to bring in a an advisor to take a look at what you got and pay them. You know, I say that. And I don't I don't fish through biz buy sell or anything listed for businesses, because there's just so many out there that just say most, most what's word of mouth for not all brokers or even or equal? Right, there's a lot of stuff listed listed out there. And like we were talking about valuations earlier, there's a lot of people out there that I think there's a reason a lot of businesses don't sell off a buy biz buy sell, I think they have like a 20 or 30%. close rate, it's not very high. And it's because it's because the valuations were done incorrectly. Right? When it comes down to the brass tacks of things, businesses are worth what the market will bear. And it's the job of the adviser to to know what that range is. Now he can list it for something higher than that. But he should know in the back, you know, in his heart of hearts, Soul souls. That is that's not where it is. Right? And it sounds like you guys put the homework in the know, right? Like, hey, I'll list your business for two and a half million if that's what you want. But I haven't really suggested three or four months, we lower that because it's probably closer to 1.5, or 1.8 is where it says you know.

Jon Taylor  37:26  
Yeah, and I should say, too, I mean, often, when, when we're marketing a business, we don't necessarily set a list price, right? So I know it's very common to Best Buy Sell, though. When we market a company, typically we're dealing with investors, private equity firm, strategic buyers who do a lot of deals. So, you know, looking to them to give us a bid. We're not, you know, we're not necessarily asking for a specific price. I mean, I you know, there have been instances where I mean, to me there's no or sophisticated buyer price, because paying, they're just down so especially at the market price, talk like bids in. And then you'll see what what the

Ronald Skelton  38:08  
it's interesting that you said that because that's one of the number one things I've heard when I talk to businesses who have business owners who've already sold, I asked like, what did you make any mistakes? Yeah, the biggest mistake usually what not usually, but they're more often than you would expect. The mistake was, I told I told the buyer what I what I needed. And we ended up pretty close to that. I was like, Well, how is that a mistake? I think if I kept my mouth shut, he didn't offer more, right? There's even one of the one of my favorite podcasters was talking about the company he sold. And he said the biggest mistake he made is they asked him with his business for sale. He said yeah, if I got in this range, I would sell it. And the number the offer come right in that range. Now either has to go against his own word and say no more, or just accept the range he gave them. And he thinks he left millions on the table because they were in the upper side of his range. But uh, you know, had he not done that he found out later that you know, that same company had bought, you know, similar assets for more. So let's look at let's cut it just real quickly. We're about 40 minutes into this. Let's make sure everybody knows how to reach out to you. I've got your, your name and your website up on the up on the screen. So if any of you guys are watching us on live or you're watching this on YouTube, you got the video up, it's available, and it's Jon, spelt J O N, Taylor, T A Y L O R. And it's at his business. His website is Stanton Park LLC, S T A N T O N P A R K, That will be in the show notes. And let's go ahead and put up your LinkedIn contact information too. So if you're looking for him on LinkedIn, it's Jon, J O N T A Y L O R. Finance So his LinkedIn URL actually has Jon Taylor finance on on there. And there's quite a few Jon Taylor's actually, I was looking for you today because I thought we were connected and everything that I think Man, I've had about, like six of them I'm connected to around the world. Like, that's not him. That's not it. So I would, the URL is on the screen now. It'll be in the show notes for the show. And for those of you guys that want to reach out to him on LinkedIn, and get a connection there, now do you do business outside of the California area? Or just California for now?

Jon Taylor  40:30  
I do. Yeah, we work nationwide. So represent businesses all over the country.

Ronald Skelton  40:34  
Cool. So I didn't want anybody to see like your profile and goes like, should they do that to me? Like, they'll look at my profile like, well, you're sitting in Tulsa, Oklahoma, I got a business down in Dallas. I was like, does it make money? And they're like, Yeah, then I want to talk to you about it, right. I like money, I like money, wherever it's made. And if you got a great business, I'd like to hear about it. And, and one of the things I tell people at times I look, I may not be the perfect buyer for you. But as the connections I'm making out there, I probably know when that is. So let's go ahead and talk about what you got going on, you know, and there's been more than once where I've said, Hey, you really need to clean this up a bit. Once you work with somebody that's a strategic adviser in the sell side, work with them, it's gonna take you a year or two and come back to the table, because what I'm going to offer you right now, you're not going to like I'm going to offer you between 1x and 3x. Because your finances are a mess, you're running this thing yourself, I'm going to have to bring a team in. And you're close enough to that Peony level that if you had all that fixed, you'd be in above that 3x mark, you know, 5x 6x, you know, whatever, a PA you'll 10x, you know, depending on the PE or the private equity company, and or the, you know, strategic. I've asked you a lot of questions. You know, we're at the 40, 40 Something minute mark, what should I ask? Right? What's the question like, man, we should probably talk about this topic. Is there anything on your mind that like, you're hoping I get around to?

Jon Taylor  41:53  
No, that's a good question. Yeah, I mean, I think, you know, maybe we touched on this before, but I think the big opportunity with business owners is, you know, probably, I think it's in my book, I kind of go through this, but something like, you know, fewer than 95% of, you know, 95% of businesses are not saleable. Right. So, you know, in businesses that, like private equity, or strategic buyer might buy, you know, really only two to 3% of businesses even qualify for that kind of a buyer, right? Because usually, because they're not, it's they're not a big enough company, their sales and profits just aren't high enough. And so I think there's a big opportunity for business owners to think about how they can grow and expand their business. Right, what overcoming things like customer concentration risk factors. I think we touched on that a little bit before, but you know, those are things I mean, maybe I'll put a plug in for my book. I mean, that's, that's pretty much what I wrote, because I saw there's this huge kind of bottom of the pyramid opportunity for, for business owners, where, you know, if they're focused, you know, if they, you know, commit the sources, you know, that they can significantly grow their business beyond where they are, and maybe, maybe look at doing an institutional type deal down the road where they can sell for a much higher multiple, rather than, you know, kind of the one to 3x Multiple range you mentioned, right, because that's where a lot of small business owners end up. Because they just, they haven't put the resources into, into making it up a more sizable, profitable venture.

Ronald Skelton  43:28  
A lot of business owners don't realize that there's actually tiers, right? Right now. I'm hearing P&E firms are dipping down into the sellers, discretionary earnings and slash EBITDA, EBITDA, uh, down to almost the 1 million mark at least a 1.5 million mark. So the institutional money, if you're producing a million or more in profit or EBITDA, you know, then you might, you could probably pick up some interest from those guys. A lot of guys don't understand, or a lot of business owners don't understand that there's, there's these tiers, right? If you're below that mark, you're probably going to get 1x to 3x. Right? If you, I see a lot of things like, we think rock top my head, a pool, pool, cleaning service companies, companies, service and maintain swimming pools, a lot of those sell for 1x. Right? It's just what you know, and which, you know, I'm looking at them because like, you know, I get my money back in the first year, I'm interested. So but 1x, but if they can get their EBITDA in, maybe it's 3x, depending on the industry, and if you're in software that that just goes out the out the window, because if you're a software as a service, there's some crazy multiples that those guys get and stuff, but that one to 3x is typically underneath that, that million dollars in EBITDA is that still what you're seeing?

Jon Taylor  44:47  
Yeah, so yeah, I would agree. I would agree. To get to get a bigger multiple, you've got to be over a million dollars in play and usually, you know, 2 million plus.

Ronald Skelton  44:58  
I think as you can get to you through whatever means if you get through it through mergers and acquisitions, you grow your customer base, let's just say you hit 2 million, that multiple, it can go from that one to 3x to easily five 6x or above. So you seeing this? I mean, you've been in this industry for 20 years, I've been in it for two and a half. So does that ring true with you too? Like the multiple is almost twice that, and then if you can get to see it?

Jon Taylor  45:25  
I agree.

Ronald Skelton  45:27  
And a lot of people don't like a lot of people will Google like, what's it?

Jon Taylor  45:30  
Yeah, sorry. I agree. I mean, if the company can get to that level, and grow significantly, the multiples or, you know, they're, they're pretty much double, or more what, they're good for much smaller businesses.

Ronald Skelton  45:42  
A lot of people will Google like, what is the EBITDA of multiple and they'll download that chart, and it says, well, marketing is at 12x. And you know, I have to come back to go to get 12x. But the people that are paying 12 for those marketing companies are buying companies that have 10 million or or more at EBITDA. So you know, there's another level, there's these tiers. For guys to do acquisition mergers, we kind of look at as an arbitrage, if I buy one company that's doing under a million I've met, I merge it with two or three, we get to two or 3 million, I could buy them for one to 3x, sell 'em for six or seven. And if you want to hang in the longer game or own for a few more years and get it about 10, I might be able to get industry, what they call the industry multiples, which might be 10, or 11. For marketing agencies. So one I know because we did a roll up last year, but you know, construction materials, was looking at that industry a little bit there 11x. But you get 11 x's, you're producing 10, 15, 20 million in revenue, I mean, in profits a year.

Jon Taylor  46:35  
Right. Yeah, I agree with that.

Ronald Skelton  46:37  
Cool. Now, the other thing is a lot of these small mom and pop shops, they're they're hearing that they should do strategic purchases, or strategic acquisitions. Like, you know, that's you should be their buyer. But I think it's, I think a lot of those owners, and like I said, I'm new in this space. But I think a lot of those owners, that's not who they want to buy their company, right. A lot of these guys that are mom and pop, they're doing less than a million dollars a year in profits, and they're wanting to sell one of their biggest concern is what I call a safe pair of hands, that their employees, their staff is going to be left with somebody. More often than not you sell a strategic purchase, there's a pretty good chance that they want the customer base, they want the product line, but they don't need your accounting team, they don't need your HR rep, there's got to be some synergies across the two companies and your sides decide to go. So I I've seen two in the last two years where they got to the finish line, what they thought were going to be a really beautiful exit. And they found out that the acquirer has no interest in any of their employees. And then they didn't sell it to it, they actually took a much lower price from somebody else.

Jon Taylor  47:47  
Oh, wow. Wow, that's unfortunate.

Ronald Skelton  47:50  
Yeah. So that's something, you know, in hindsight with him was like, that's something that he didn't have an advisor, I know the guy. And I was like, Why did you go into a deal? Without your level of company and 5 employees. With your level of employees your level of revenue and not have somebody on your side? Because that should have been discussed on day one as to what are you going to do with this, right? They just seen that this guy is a company came in and offered him a substantial, like an 11x offer on their, on their income on their, their, what he called the profit, but it wasn't EBITDA. I looked at the the offer and the LOI, and he's thought 11x, I don't have to work no more, I'm retiring. And then he realized that he's the only one getting the check, right that everybody else is gonna get laid off towards the end there. It was just a conversation. You know, that happened after. During the due diligence process he's like, Well, do you need my employees? Do you need my HR staff? And they were like, Yeah, we maybe later they kept pushing that off. And he finally asked the right question, and I was like, so in this case, in this case, you know, I would say if you've got more than a couple dozen, or even, I don't know what the number is, but if you've got enough money and or a sizable enough business, it's not a bad idea to have somebody on your side to tell you wait a second, they're not asking for HR and personnel records, because they don't need those, you need to know why they don't need them.

Jon Taylor  49:14  
Exactly. Right. And, you know, oftentimes, the way that the letter of a letter of intent might be written can be confusing to a seller if he's never read one before. And yeah, there's nuances to the process, they might not pick up and they Yeah, they could spend a lot of time don't go on down the road with the buyer that isn't gonna buy the company on the on the terms they represented, right. So, you know, you know, I've seen business owners Yeah, they'll engage in months and months long conversations with the buyer. Nothing ever happens. It's like well, hey, did you ask him this? Did you ask them that? They're like, Well, I didn't It's like well, yeah, that's they weren't serious buyer. So you know that you know, things like that. It's can be very helpful, like you said to have an advisor in your corner and help you help you get towards the path of a sale.

Ronald Skelton  50:00  
We're at the 50 minute mark. Now keep wanting it, we could talk forever on this, that most of you just like, just like most of my guests, I get on here we get in the groove. And, you know, next thing I know, I looked up at the clock, I was like, man, we're running out of time. Well, before we go, I mean, what would be three big, like, if they don't remember anything else from the show? You know, what are two or three big things that people should remember? Like, when they're thinking about buying or selling a company?

Jon Taylor  50:27  
Yes, so I think good documentation is important, right? I mean, the big difference between selling a company that has good documentation, good financial reporting systems software, that's a key piece, having the right team in place, can they lead the company post sale? The business owner? What, you know, what is? Would he consider rolling equity into a new deal? Or does he want to sell 100%? Right, because, you know, those types of terms dictate what type of transaction you can do, because if, if the owner wants to sell 100% and retire, he may only want to try talking with strategic buyers. You know, most private equity firms won't want you to roll and then, you know, I think, you know, really getting taking a hard look at the numbers in the valuation is important. Understanding the real value your company, not just, you know, because, you know, I work with sellers all the time, and they're saying, hey, this, here's a deal where somebody's got, you know, 20 times EBITDA, how come our offers are for 20 times EBITDA? It's like, well, hey, like that? Does Is that a real number? Like, who knows? It could be a stock deal, it could be based on an urn out, you know, I mean, you don't, you know, those types of details matter, is it all cash or not? So, you know, all those things. I mean, really being educated, there's a lot to learn about a deal. And I think having an advisor work with you is the best way to go for most sellers. So, you know, they can certainly, you know, like we talked about, you know, save your time and money and some heartache down the road,

Ronald Skelton  51:54  
I'd almost bet money, there was an urn out and some type of performance metrics to get that earned out if you're getting 20. Right. And I say that there's some crazy stuff going on in the world, right? How can we support you? How can my listeners myself, you know, what are you working on right now? What can we do to support you? Is there anything we can do to? To? To help you out?

Jon Taylor  52:15  
Sure. So we look, we're always looking for great clients to work with. So business owners that want to sell that, that have great businesses that are growing and profitable, you know, we're always looking to work with, with folks like that on the sell side. On the business valuation side. I mean, we work with all all kinds of companies, I mean, you know, you name it. So, yeah, we're always looking for great companies to work with. So happy to be a resource for those types of folks.

Ronald Skelton  52:40  
I'll put one on you, I've got a roll military buddy, I'm moving to your area, I'm actually moving in in two to three weeks. Honestly, moving about probably an hour north of you.

Jon Taylor  52:51  
Oh wow!

Ronald Skelton  52:51  
To Sonoma Valley. So I'll be up there. In the next two to three weeks, I have an old military buddy who's charged me with helping him find a company to buy. So he is going to get an SBA loan type of situation. But keep the looks out for anything that's in that $5 million valuation range, that's really well run. He's got a he's, he's a full time employee, kind of a VP level at a company that does, cover will say too much. But it's contracts with Defense Departments and municipalities. So he's, he loves his job, but part of the retirement strategies, he wants me to help find something that he could invest in own as an absentee owner and have me help oversee. So it's in that areas, and you're kind of in your space, if you find something like that reach out to me. And as we're going through our search, if we find things that just like, just don't fit, but they really probably need some help. I'll actually send some stuff back to your way and we can help each other out that way. 

Jon Taylor  53:51  
That sounds great. 

Ronald Skelton  53:52  
Cool. Well, I appreciate you being on here. And if you if you're good, I'm good. We'll wrap this show up, hang out for a couple of seconds afterwards. And I appreciate you being here. 

Jon Taylor  54:03  
Thank you. 

Ronald Skelton  54:04  
Thank you, Jon. All right. That's the show, guys. 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 entrepreneurs 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 achieved 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