Over the last 25 years, Mike has bought, built, and sold multiple businesses. Building his first business was a rewarding challenge, but what really captivated him was selling his first business.
But that sale almost didn’t happen. Mike was 10...
Ronald P. Skelton - Host -
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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 Finger. Mike's had multiple exits, and he's here today with us. And I'm really grateful to have you here. Love to hear your story, man. Thanks for being on the show.
Mike Finger 0:43
Ron, my pleasure.
Ronald Skelton 0:44
Awesome. I start the same place with every guest. And I kind of joke around sometimes I say, man, you were born. And then now you know, some along, a lot of things happened. And you know, you ended up on my show. What's occurred in your life? What's your origin story? How did you end up on a podcast about buying and selling a business?
Mike Finger 1:00
Yeah, well, again, thank you for the opportunity for the conversation. I'm looking forward to it. You know, I don't always, I suppose there's a traditional path to business ownership. And I don't think it includes getting an undergraduate degree in theology and a master's degree in public and nonprofit administration. But that's how mine started. I had my education, started working for a small social service agency in South Minneapolis and got the bug. My wife and I cut our dining room table in half to make two desks and started serving clients out of our living room. That, that literally happened. And I, it turns out that I'm a bit of a growth junkie, you can't see me hitting my, the vein in my arm here. But um, you know, it was the next client, then the next employee, and then the next business, started a second business at the same time. And grew that, those two businesses to 50 full time employees. Came to the realization that my employees were trying to kill me, it wasn't intentional on their part, but it was the path that we were on. I would joke with people that I was scheduling in my heart attack, but there was a little voice in the back of my head that says this is not a joke. And so I did what so many small business owners do to start their sell a business education. I called the broker and said, I want to sell my business. Let's get this done. And they said, after doing a little investigation, sorry, I can't help you. Then the second one said, sorry, I can't help you. And the third one said, sorry, I can't help you. And I found myself sitting at my desk at the lowest professional point in my life. I couldn't believe that I was doing 5 million in revenue and had an unsellable business. How could that be? I had read the article Ron that said that businesses in my industry could expect one to two times revenue. And then I learned when I actually wanted to sell that revenue had absolutely, absolutely nothing to do with the potential opportunity for me to sell my business. Something so basic that I had missed. And so I can still remember that moment where I'd had to ask myself, what am I going to do and walking out the door with nothing was a real option at that point. I mean, it was just again, I, anyone who's been there or is there I don't need to talk any more about it. Anyone who hasn't been there, I could probably talk about it for the next hour and they wouldn't get it so. Decided to, to figure out how to make this business that I had built different and over the next five years started to make the small changes to the business that I was learning needed to be made in order to for the business to be attractive to a buyer. Five years later, we successfully so sold the businesses. That experience, that sale was a miracle in my life. It was, it was a life do over. I can't describe it any other way. It gave me the opportunity to step back and say what do I want to spend my time doing? What am I good at? What am I enjoying? I actually worked as a business broker for about a year. Helping others buy and sell, loved part of that, hated part of that. Spent three years running a small incubators, helping startup and growth companies start up and grow faster and missed the missed the, ownership piece. So jumped back in and over the next several years bulk bought and sold to small businesses. I think primarily to prove to myself that what had happened the first time wasn't a fluke. And again, had good outcomes. It, I had better outcomes in shorter periods of time than I did with the first go round. So after this, that last sale, realized that I genuinely enjoyed this seller business space. I did not want to do work that was transactional. I didn't want to sell your business and then never hear from you again. And so that's when I started the business I'm in now, which is called Exit Oasis. I coach small business owners who are interested in creating a business that they can sell when they want to.
Ronald Skelton 5:29
That's awesome. Let's talk a little bit about what makes a $5 million, lot of people thinks, when somebody says their business was unsellable because it's too small. What makes a $5 million revenue business unsellable?
Mike Finger 5:42
To owner dependent, not enough owner cashflow, lack of systems, inconsistency with the team, any of the long list of things, and again, we look at that we say, well, how could that be? Well, here's where the brokers play their little game, right? And it's, I think it's innocent, but I've got a broker friend who says, I can sell any business. But the owner might not like the terms, right. I could have probably sold that business for 10 grand deferred over you know, three years, right. Or for 50 grand with, I probably could have sold the business but for any, through any pragmatic evaluation, it was unsellable because it wouldn't have made sense for me to go down the line and do that show up to closing, write a check to the broker because the proceeds aren't enough to cover this. It was unsellable. And the truth if you look at the stats is that the vast majority of small business owners today own an unsellable business, and most of them don't know it.
Ronald Skelton 6:50
Yeah, there's a, there's a statistic, statistics out there that show like 80% of all businesses that make it to the listing don't even sell. And that doesn't include it, if you look at that, and if that's from like BizBuySell on those type of sites. What it doesn't include is all the businesses like yours where the broker said, Hey, you don't want to go down this path yet. Right? Right. Maybe it's a misconceived moment or a miss-, what am I looking for? What am I looking for there? In the market space that once you hit a certain revenue number, you must have a sellable business because it's big enough.
Mike Finger 7:22
Right. Right. Well, I, when I talk to owners about this, I tell them and I mean, this honestly, I can, I can build a $2 million business by the end of this year. Without a problem. You just have to give me two and a half million dollars. Right? I'll buy something and sell it cheaper than I bought it for and away I go, revenue is easy. Profit is hard. Retained earnings are hard. Not, not profit in the sense that we talk about a small business owner sometimes, right? I invested all my profit back into the business. No, no, no, no, no, that's not, that's not a profit, that's not profit. If it hits your bottom line, you paid taxes on it. And then you gave yourself alone the next year. Now you're reinvesting money back in the business, but just spending down profit before the end of the year, that's not reinvesting profit. That's not creating transferable value in your business. And, and again, I am incredibly sympathetic to small business owners in the space, in part because I want to be sympathetic to myself, and why didn't I get it? I don't think the messaging in our, in this sell a business space is clear about this stuff. The entire industry is compensated by complexity, right? Brokers, attorneys, accountants, all of those folks make their money because they legitimately take care of something that's highly technical and easy to mess up if you're not doing it every day. Okay, great. That's really important. But that is not why 90 to 95% of small business owners fail to sell. They fail to sell because of something simple. But no one is compensated by sending that message, no one out there gets paid to deliver a hey, here's the basics. Here's what you have to do, focus exclusively on these things, because the other stuff doesn't matter if you don't get these things done. Right. Ron, if I ask you did you go to your doctor and ask him, how do I live longer? What's the doctor gonna say?
Ronald Skelton 9:31
Eat healthy or exercise.
Mike Finger 9:33
Right? Right. Why did they say that? Why, it doesn't make the what the doctor does any less important. It, they empower you to do things that can give you the opportunity to have a dramatic impact on your lifespan. Okay, Ron, what's the answer to that question for the small business owner? How do I make my business more sellable? Our industry has avoided that question. Because no one makes money from that. I'm sorry, go ahead.
Ronald Skelton 10:05
As I say, nobody tells them that, you know, it comes down to sellers discretionary earnings, or, and or, I guess EBITDA if it's a big enough company, like, what are you able to take home at the end of the day.
Mike Finger 10:17
I spent the first year and a half before I ever launched this business, creating this massive structure of here's everything someone needs to know. I got that done in about a month. And then I spent the next year and a half, taking things out until I came up with what I feel, and I'll share it with you. Here's what I think the eat right and exercise is in the space and to me, it comes down to three questions. Are my results desirable? Can I buy your duplicate my results? And can I document my results? If you can answer yes to those three simple questions, I believe your business is way down the path of sellability. If you've got to know in any of them, you're going to run into serious trouble with with selling your business, to me, focusing small business owners on that those elements is what gives them the opportunity to fundamentally change their, their opportunity or their ability to sell their business.
Ronald Skelton 11:24
I get it. I mean, there are things out there that are highly desirable. And I mean, sometimes they're just hard to turn a profit in. So, if you're coming out of like, I guess there's the thing I'm thinking of is like those such search funder thing, right? There's people come out of college, and they've got their degree, and instead of going to work for somebody there, they start a search fund and look for a company that they can buy. And if you think about it, you know, if I'm trying to think of like veterinarian services and other stuff, where the dental services and stuff like that, if you were to go out and start that day one, you got a lot of equipment to purchase, right. You know, to set up. So I can see on, like, you know, buy versus build how those things come in. So that would, to be desirable, could be in that realm. Yeah, I just need everything there. I need everything you know, set up and running. But when you're looking at most businesses, I'm a buyer, I'm looking at your last three years profits. Your last three years, you know, how
Mike Finger 12:35
Are my results desirable? Right? Are you producing sellers discretionary earnings in an, in a way that's going to allow me to buy the business? And again, two basic needs, I need to earn a living and I need to service the debt. I know there's a lot of other things we can add on there. Right? Well, I want to return on my investment. I want to Okay, forget that stuff. If you can't do those first two things for your buyer. Where do we go? Because even if I love your business, Ron, I love your business, I want to buy it, oh, I've always wanted to do that. But I can't pay rent. Or I can't, I can't service the bank loan. Those are, doesn't matter. None of the other stuff matters. It's, it's those basics that they get lost. And we know it and the brokers know it and everyone involved in the industry knows it. But they don't make money off the businesses that don't do that.
Ronald Skelton 13:32
It's interesting as we just spoke, right before I moved to California here. We spoke to a, an auto servicing company. They tint windows, they do detailing the fix upholstery, that type of stuff. And they were doing I want to say 1.5, 1.7 million in revenue.
Mike Finger 13:49
Ronald Skelton 13:50
If fairly profitable. And so we did get on the phone call because you know, that they passed our initial screening, and the owner was like, well, I'm willing to stay on part time. Okay, what does that look, you know, he's, he's a pro golfer on the side. He wants more time for golf and less time into business. So the red flag was when we said, okay, what is part time look like for you? If you want to stay working in the company, be around and stuff. He says, Well, you know, no more than 40 hours a week. I'm like, okay, what do you do now? You know, oh, I do 60 to 80. Okay, that's a red flag. He's doing more than one job. And then I said, Do you have anybody else? Because the way he said it was like it was normal. Right. So my question was, do you have any bills that coming to work with that kind of hours? He's like, yeah our tinter. We only have one tinting guy here. And it comes out the guys working like between 12 and 16 hour days. Sure. He's on commission which you know, can get you in trouble when you're working that many hours. So anyway, so it's just that red flag if I've got two employees between the two of them two out of seven employees at this company I only had seven employees. About seven that are pulled on the jobs equivalent man hour wise in about four people. So if you look to profit margins, if you pay to replace those four people is no longer desirable. I certainly and it was a remote business. So if we're buying, it needs to be well run, we need to have operators in place. That's the reason we even entertained leaving the owner there is we were gonna hire an operator anyway.
Mike Finger 15:18
Right. Right. Yeah, it's, again, those basics kill most deals. But we as owners, where do we go for that? Where do we, what that eat right and exercise? Right? We see that message everywhere. It's a consistent, we don't have that in our industry. And I think it dramatically reduces the availability of businesses that can be sold. And ironically, that it's, it feeds into that brokerage culture, right? That hunt instead of their hunters, not farmers, right? I want to see a business that I can take down right now and sell and go. It's not about that grooming of, hey, if we if we increase the amount of sellable businesses by 10%. Wow, what an impact on the industry. But that doesn't, that doesn't pay the brokers bills. So,
Ronald Skelton 16:09
And this is a, lot of people don't get it that this is a huge problem, right? We have a lot of businesses out there. I think the last statistic was like 51% of all businesses, small business, small to medium businesses in the United States are owned and operated by the boomer generation. Baby Boomer generation, right. They call it the silver tsunami. And so all those in the next few years, between probably 10, max of 15 years, either gonna get shut down or change hands. Either by retirement, death, you know, there's gonna happen right?
Mike Finger 16:48
Ronald Skelton 16:49
None of those guys are going to live forever, and many of them are already in their 60s and 70s running a business. So there's a problem here that needs to be solved. And if you think about most entrepreneurs, we've covered this on the show quite a bit. The coined phrase that we came up with, and I'm sure other people call it as accidental entrepreneurship. Meaning they never intended to start a business. They did something really well. Somebody said, hey, do that for me. Right? They do that for them, they get paid. And like, hey, I kind of liked this and another friend asked for it. Next thing they know they're, you know, they produce, let's call it a widget, right? They produce a widget, people want the widget, so they make it they're really good at making it. And then it's kind of organically grew into a business. Nobody's taught these guys. And I'll even go to the forest say that most doctors and dentists and chiropractors are never taught how to start and run a business. So they just kind of, they go do what they do, they make a great widget, and then they hand us stuff over to a tax person and they get smacked around the first couple of years. And then they engineered all their only financials is what does it take to get the CPA off my back when I do my taxes at the end of the year when I do the review of quarterly. They've never been really taught or shown what it looks like to run a well-ran, ran business.
Mike Finger 17:59
Well, and they don't have that buyer's perspective. But let's, let's give, let's give those owners a little grace in that what are the messages they receive? What is the broker say? I can sell any business. Call me when you're ready to sell. I'll get you the best price. Those are the met-, that's the messaging, right? It's always about the I, you will be able to do this with your when you're ready. And so my, my both my favorite and my least favorite phrase that, that owners use is, I don't want to deal with this right now. I will get my business ready to sell when I'm ready to sell it. I will get my business ready to sell when I'm ready to sell it because we think okay, I've got time and, and we don't realize that ready to sell is what happens after you get the call from the doctor with a new diagnosis. Ready to sell is what happens when your spouse gets transferred across the country to a new job. Ready to sell is like me waking up in the mirror looking in or looking in the mirror and seeing a crispy piece of toast looking back, right. That's what ready to sell feels like. And then you learn 2, 3, 4 years to get your business ready for sale. Right? You alluded to it earlier. I want to look at three years of financials. Well, if I've been aggressively tax planning and made all of my profit disappear for the last five years, what do you see when you look at it as a buyer, you see a business that doesn't produce any profit. Well, guess what, you got to change that. And if you're not doing it in process, it's really, really I can tell you from personal experience, it's really hard to do that. When you are at the bottom when you are burnt out, when you are, when you want to sell it. Making those changes in there. they don't necessarily need to be massive changes. But it's like right we if we're going this way, and then we make a one degree change will end up in a very different place over time. And that's the key. It takes time.
Ronald Skelton 20:08
Yeah, a lot of people, you know, if you look at plotting, plotting direction on math and stuff, you don't realize it one or two degrees, you know. Over a long enough period of time to put you in entirely different continent.
Mike Finger 20:21
Ronald Skelton 20:22
So what are some of the changes, like, what is the message that we did brokers of acquisition entrepreneurs, that type of stuff? What is the message that we should be sending out?
Mike Finger 20:34
You know, it's a great question, and I'm gonna, I'm going to intentionally give you a provocative answer. I don't think we can trust those people to do it. I don't think we can trust the brokers to do it. I don't think we can trust the others that we've we mentioned lawyers, attorneys, even acquisition entrepreneurs who I lovingly referred to as been business gigolos, those are the ones that are getting in and getting out and they're dancing, and they're doing their thing, and it's about the transaction, that's where I'm making my money. We're talking about business owners, right? We're talking about people who have been in the community writing checks to the local band, doing the stuff, building their reputation for 10, 20, 30 years. I don't think we can trust that audience that we, those, those professionals we identify to groom those. I think it's going to have to come somewhere else it's going to have to come from, I wonder who's passing on the messaging, I think it's going to have to come from, I think we're part of where we're seeing it now, which is interesting. And it goes back to the silver tsunami, you've talked about. We're starting to see it in some economic development. Programs we're starting to see it with some chambers of commerce with some, especially in rural areas where they are seeing, if we don't figure out how to transfer ownership on these businesses successfully, our business base is going to be decimated, right? Because there's 75 businesses in town and to your point 40, or 50 of them are old, owned by people over 60. Okay, if you can't sell that business, those jobs go away. And maybe that, maybe that owner can, can sell, sell the business. But when I say sell the business, I'm not talking about selling your stuff, right? If I can make an asset sale of my stuff, somebody shows up in a truck and drives away with it. And I've sold the business. But unless they're driving to a location nearby, those jobs aren't going with it.
Ronald Skelton 22:39
Interesting, you know, maybe this falls in the hands of like, the local Chambers of Commerce. The local, like you're saying, the cities that take a look at that to create some type of educational program, maybe, you know, score, your score, and some of these other places can put information out. I'm thinking about that is it's actually a great lead in for them, you know, for them to to get members to work with score to get, to get people to show up for the chamber, like look, you know, a public campaign of hey, we you know, this is, you know, like, I'm right here in the wooded forest. There's not that many businesses around here. But let's just go back to Tulsa, you know, there's X number of 1000 businesses and Tulsa 45% of them are owned by 65 and older, you know, there's a real problem. Do you know that it takes three to four years to properly sell your business? That friend, I was telling you, buddy, so what do I do? I said, it's been the next year, getting, you know, systems processes and your, your, your money, right? You know, get your financials right at, you know, as seen, like, you know, research what a deal room looks like, create it now. And then edit it, edit it every quarter update that, as if you if you if you were trying to sell it now, figure out what your goal is, and then know that once you're at the goal, you probably need to sit there and run it like that for two to three years so that a guy like myself can see the track record that it can run that and sustain that. Nobody,
Mike Finger 24:12
Those are, those are exactly the action steps that we draw from those questions I asked earlier, right? Are my results desirable? What are the two action steps? Increase your sellers discretionary earnings and improve your job, right? As the owner make it easier to be the owner here. Can a buyer duplicate my results? Build systems, build a team? Right? Those are the two action steps. Can I document my results, keep clean records, right. I again, it's about those basic elements that's not going to, it's not going to keep something some minutia from from killing a deal but in bulk, it raises us but it's interesting to your, your, your solution thought about the you know the chamber doing education and that sort of thing. I'm seeing some doing that and I think that's really important, but it's also important how they do it, because I've gotten owners come to me after they come to me and they say, Well, I'm going to sell my business through an ESOP. How in the world are you, okay, well, why do you think that? Well, I went to this three hour session that the sponsor, and then I, then I tell them the numbers about ESOP's in the United States. And how minuscule the number that actually happened are. So if you're in that .02%, yes, maybe you can sell your ESOP. But hey, buddy, you've got 10 employees and you run a cabinet making shop. You ain't ESOP material. So let's, right but, but that's where we go, we cherry pick these, these technical solutions, because someone's pushing those because they're compensated by doing and again, I'm not saying they're bad for doing that. I'm saying the vast majority of small business owners in this space are not underserved. They are unserved when it comes to this topic area.
Ronald Skelton 26:04
I get it. You know, the, if you look at that space, there's a group of those business owners who they're, I want to say, what's the word I'm looking for? They're just burnt out, right? You get to the point where you want to, if you wait until you want to sell, I think you said this early, you may not have the energy, you know. A lot of businesses that come to be on the table and say, hey, I'm really ready to sell this. If you look at it, the last three, if they give me the last three years, they probably did better on year two, two years ago than they did last year versus what they did this year. And it's because they're already kind of semi resigning from the whole thing and that they just don't want to do it anymore. Chefs the exact opposite of what we're looking to see as, as a you know, somebody trying to acquire something. And in my space, I hold in, I do wear gigolo thing right now. I have businesses that I'll look into that, I just want to bolt on to something else and sell it to them. So,
Mike Finger 26:59
Yup, yup. And again that, I think about this sometimes and my brain goes to analogies and unlike I see these people who are legitimately providing valuable information. I think what you share Ron on the program is helpful. It, for an intentional small business owner who wants to learn, that's what they got to do, they got to start becoming a sponge, right? They got to start taking this stuff in. But whether or not what Ron is looking for in a business, is, is what you should do to prep your business for sale. Ron's got a very specific set of desires and needs that he's looking for. I, I see this right now in the, in the online space, Amazon stores in the like there's been private equity groups that have put funding together to purchase those and they'll come up with, here's what we're looking for. And, and I've seen owners chase those specifications, not understanding that those groups are ultimately going to buy in an incredibly small percentage of small businesses in that space. While an individual buyer is much more likely to be your buyer, but they have a different set of needs. And so you might be chasing revenue for that guy who says I'm buying revenue in this space. But that doesn't mean that bill down the street can pay his mortgage if he buys your business.
Ronald Skelton 28:29
Yeah, there's multiple buyers out there, right. There's a private equity. There's the, you know, operator buyer, somebody just looking for their next, you know, they want to buy their next job. There's an investor like myself, who's buying for investment purposes. Wants to hold some, wants to sell some. And if, depending on what hat I'm wearing, even my criteria change, right? If I'm holding it long term, I love recurring revenue.
Mike Finger 28:51
And that's why we got to start as owners with who's my most, most likely buyer. And then let's target them. And the good news is, is that like we, if I'm building my business, so that it can be easily purchased by an individual who looks like me, right? That's what I tell, I tell owners, I say, look, you know, your buyer look or look in the mirror, they're gonna look like you. They're going to be at their mullet most likely going to be an individual. And if you build your business so that person can buy your business. Those same traits are attractive to the private equity buyer. Those same traits are, because again, it goes back to those basics.
Ronald Skelton 29:31
They're going to expect certain things of you, you know. You get you asked for X amount of money for your business and whether what that exit is, whether it was a good price, or a low price, you're gonna go okay, we'll give you this much up front. And you know this much when you hit this goal, and a lot of those goals are lofty. There's goals that they see. If you learn to play that game, it's a very profitable game. I was on here with Adam Coffey. And he's told the same company four or five times through that process (inaudible) have it and took their company to a billion dollar you know, revenue.
Mike Finger 30:04
Right. And I love those stories, but I'm gonna be, I'm gonna be honest here. I think they hurt small business owners. I'm, because that's not going to be your experience. If I'm, if I'm talking to an audience of 1000 small business owners, that's not going to be your experience. Maybe one of you, maybe two of you, right? So why don't you guys leave, and then the rest of us will stay and talk about how this is really going to work for you. And, I again, I, I anger some when I do that, but I tell them, I tell my owners don't worry about private equity. Don't worry about ESOP's, don't worry about family, family offices don't, just set those aside. But I read articles Ron, where those are the only buyers identified. They don't even talk about the individual, which is the vast majority of buyers. They think the last, the last report I saw showed 70 plus percent of buyers in that quarter were individual buyers.
Ronald Skelton 31:11
That's because employees journalist.
Mike Finger 31:16
Right, right. Yeah, again. I, I can tell I get a little frustrated. But I'm also passionate about this, because I think there's a lot of well intentioned small business owners who feel like they've done their homework. I know I had. I know I did. I know I felt I had, I read the articles, I thought I had it figured out. And what had been presented, what I had found, what was out there, what was easy to find was wrong. It was just wrong as it related to what was going to happen. So what do most of us do as small business owners? What's our plan, we look at the complexity, we get frustrated, freaked out by it. And then we go to our fallback plan, which is, I'll wait and then I'll fail. That's, that's how most of us deal with the seller business space. We wait to get involved in it. And then we fail to sell successfully.
Ronald Skelton 32:09
If you look at the venture capitalist group, they're kind of a catchphrase people calls their uniforms, right? I actually think in the business, selling business, that unicorn is thinking they're gonna sell stuff $10 million revenue business to a private equity to a home office or something. And because it's the uniforms, there, they're definitely those guys are definitely acquiring businesses, they are definitely players in the field. But they are hunting him for such a specific thing that, you know, you're kind of in that VC startup phase, or you're trying to, you're trying to be a unicorn. Right?
Mike Finger 32:45
Right. And if that's your play, great. That's a legitimate strategy. But that's a very narrow, very, very narrow strategy, right? The numbers of companies that can be in that space that have, I mean, we know the failure rate there is massive. But it hey, if that's what you're doing, if you're playing, if you're playing big stakes, that's it. But let's not confuse that with the little plumbing shop and the, you know, the oil change place and all of these others, owners, small business owners, we are not in M&A. We are just trying to sell our small business. So if it's got an M&A tag on it, just set it aside, it almost certainly doesn't apply to you.
Ronald Skelton 33:29
You know, the guy asked me said, uh, I'm thinking the same guy, he's like, the earlier part of the conversation is like, how do I learn what you know? I was like, well, I'm 50, you're 27. Right? This one guy who wouldn't try to sell something. So I've got five college degrees, an MBA in marketing, and I've spent the last two years and about $20,000 being mentored by everybody I can get my hands on, on this m&a space. You don't have to do that to sell a business. You don't have to go out and spend, you know, 10s of 1000s of dollars to get mentored in m&a. You need to talk to guys like you and other people out there who have your best interests in mind. To change your business to make it marketable. You don't have to learn, learn a new dictionary of terms and acronyms and abbreviations and EBITDA's and sellers discretionary earnings and all that other stuff. You know, you just need somebody that can take a look at it and go, hey, here's, you know, here's your next step.
Mike Finger 34:27
Yep. I tell, I tell owners, you can just ignore learning how to sell a business. You don't need to spend your time on that. Focus exclusively on how to create a business that can be sold. That's all you need to worry about at this point. When you get to that point, okay, now you can spend time if I want to hire a broker? Am I going to use an online platform? What's gonna be the best opportunity forward? But none of tha,t all of that knowledge is meaningless if you don't have a sellable business, and I, Ron, how many times have you seen that? People who've had If you think they've got it dialed in in terms of process, but they're out there peddling something that is going to cost me 50 grand a month, if I buy from them, right? Not, it's not not only is it not going to cash flow, but I'd bring money to the table to every month just to own it.
Ronald Skelton 35:15
It's interesting. I was looking at one. I learned a new question over the last couple of months. And it's like, I usually worded in just kind of in the report phases. What exactly does your significant other do, right? Your wife or whatever it happens to be, husband. And the reason I asked that is a lot of these companies that look fairly steady, but you see if you, if you looked at him over a longer period of time, more than three years, and you kind of take a look at it, they're cyclical. And how, like, wow, this guy must be really good at managing money. Because he's got, you know, every three to four years, the market turns on him real estate's like that every 10 or 10 years or so 12, 15 years, we have a crash, you know. How did you live through that last one? And then you look at it, like, he must have saved him, if you really dig into their books, and you look at you get into their accounting system, when you, you do your actual full due diligence system, and you've got access to things. And like, well, we've, you had a couple of bad years, you must have saved some money. I see these infusions. I learned the question is, what does your wife do? What does your significant partner do? Because a lot of times, they're doctors, lawyers, high income net worth people. And you know, your honey has been bailing you out.
Mike Finger 36:24
Right. Right. It was a tax write off, okay? Well, I'm not looking to buy a tax write off, I'm looking to buy a stream of income. I can't buy groceries with a tax write off. It doesn't work.
Ronald Skelton 36:27
It's funny is, uh, when I was, I was in the military for a while and always live in Hawaii. I decided, I was like, I applied for some government based jobs there. And they were paying significantly less than, you know, the state side, like even California. And not if, they're like, but you live in Hawaii. I was like, sunshine doesn't pay my bills, right. So the same thing here, you know, you know, just stories, not gonna pay your bills. You've, the numbers have to be there. Tax write offs aren't gonna pay your bills. You know, it'll, you know, they're good to have occasionally but or when they when they're needed. So, let's jump right in,
Mike Finger 37:14
It's a, it's this big monster out there for us as small business owners, and it focusing in on the simple. That's what, that's what, it's gotta be.
Ronald Skelton 37:26
Let's kind of do like a, I don't know, a roleplay, or whatever. But I come to you, I've got a business. And I'm thinking about selling it. What are some of the first questions that you ask to kind of get a gauge on where that business is at? So our audience knows what they need to start thinking about.
Mike Finger 37:41
And that's really interesting. I actually just had an intake with a new client yesterday. My approach, for my first meeting, we take a two hour deep dive on a client. Or on the business and on the owner. And I do that without taking a look at financials. And I do that because I solely want to understand how they view their business. I'll ask them what they think it's worth, if they're ready to sell, what they like about the business, a high points, low points, we'll go we'll take a deep dive, because for businesses that size, it's as important what's going on inside of the owners head as what's going on inside of the business. That, those two elements compete. The second meeting is a deep dive on the financials, right? They, they send me three years of financials, and all of that is focused, and this is the one piece of the complexity that I encourage small business owners to focus on, you have to have a deep understanding of the term sellers discretionary earnings. You need to understand what that means. And so what we'll do is we will splice that business and we will take a look at it and we will do an analysis of sellers discretionary earnings, as it relates to how a buyer is going to view that business. Right. The question was, how early were we in this process Ron when we earn when we understood the question. Does it cash flow? Right? Can I buy this? Pay the debt? And will it cash flow? Because if it does, then the, the whole conversation gets different. Most don't. Right? I you go to a bizbuysell listing and you just start going through the stuff, doing the quick math and what they share with you and you're like, that doesn't work. That doesn't work. That doesn't work. That doesn't work. This one might work. Okay now there's, now I can drill down a little deeper. Unless you're looking for something very specific as a buyer, hey, I'm buying plumbing companies. There's a plumbing company. I might go further on it but for most buyers, you look at him all the time Ron. Is there anything more important to you when you, when you sit down and look at a business?
Ronald Skelton 39:50
There's not and you know, I would probably say the two highest things for me personally because I have other assets, is sellers discretionary earnings. How much does it, can, can it make? How much is it making? You know. And the second one is liability issues, right? How legitimate this is? That's not the word I'm looking for basically, how likely am I going to get sued by owning this? How many lawsuits you know, you have already are already weathered or in play? So, because I'm a little resistant to being in spaces like that, but the numbers matter. And more so than almost anything else, right? I traded companies a waiver because I can't manage the culture, right? I've said this on the show we recorded yesterday, at a business out of Texas where they found out the owner manages by kicking trash cans costing and throwing things around the room and stomping his feet. People, he's like, he says, I've got employees have been here for 15 years. I said, yeah, but those employees only know how to work in that environment. And I don't know how to hire that guy and I don't want to be that guy.
Mike Finger 40:52
Right. Yeah. No, that's a great point. And, you mean you, to answer your last question to give a little peek behind the curtain the process that I go through with the client, or that I encourage small business to go through if they're doing this on their own. What are my exit goals? What does a business, what does the business need to look like to likely be able to produce that exit goal, right? The average sales, multiple is 2.5 times sellers discretionary earnings, right? So can you meet your exit goal for 2.5? What your sellers discretionary earnings is? Okay, so what does the business need to look like to do that? And then, where are we now and then our processes to go from where we are now to creating a business that is likely to create the exit that we want. It's, again, it's a straightforward process. Now, that doesn't mean we have to list the business for 2.5. Right? If you can get 3.5 on it, crazy, wonderful. But let's create a business that produces the exit that we want in the real world. That last part is important.
Ronald Skelton 42:04
In the real world. And important part of in the real world is be careful when you go to a broker. What he says you can add back, right? The add backs for sellers, sellers discretionary earnings. So anybody that doesn't know what to add back is it's like, say you have you lease a company vehicle that you drive on a day to day basis. I don't need your vehicle is an add back, right. We can add that back in and I'll pay a multiple on your revenue or your profit that would have went to pay for that vehicle.
Mike Finger 42:33
Ronald Skelton 42:34
I've seen some brokers take a lot of liberty and what they add back, right.
Mike Finger 42:38
I'm smiling, because I'm remembering the, the owner who pulled me aside, and she said, listen, I just want to let you know that we have never, we haven't bought toilet paper at home since we've owned the business. So that's a couple 100 bucks of add back every year. So well, it doesn't work that way. We can't quite do it. But they get that concept and they get excited as I did, right? It, but the reality is, is again, we're in that third question. Can, can you document your results? Right? If you can't show me, I can't trust you.
Ronald Skelton 43:12
Right. The uh, the other one on side of that, like expenses that are added back and stuff is along the lines of, what am I looking for? I had a company that I looked at, they had 55 employees and the insurance premiums inside of their accompany were unbelievable. And it comes to find out they were paying like, over and beyond. Basically they were paying for the top policy and the majority of all, all the stuff on that. But on top of it, that they so they tried to add back in. Well, we overpay on insurance. So you can shift this and if you shifted this and like, no, no, no, we have to make the shift first. It has to show up on your books and accounting. You can't add back in hypothetical if you run it this way. You know it's the what's the word I'm looking for, there's a little phrase I like it's something along the lines of you can't you know wishes and promises you can't add them back in,you know. And a lot, a lot of brokers will convince a, will convince the owner. I don't think it's the owners wrong doing this is to brokers. As matter of fact, I'm at the point now where I don't solicit brokers for deals whatsoever. I don't look at BizBuySell. I figure out what industries I'm, I'm looking at and I'd go do my research on them. And I do out direct outreach. I start talking to those business owners and you know, figure out where they're trying to go, where they want to be and if it's if they want to sell, we'll have that conversation. But um,
Mike Finger 44:49
And that scale of aggressive add backs almost always directly relates to how little profit is being shown on the, on the profit loss to begin with. Right? My last show haven't made my, I remind the owners that you will never hear someone say, I'm going to buy your business because of how little you paid in taxes. That's what makes your business attractive to me. Doesn't work that way. Paying taxes, that's a good thing. It means you're making money. Let's start there. Now be aggressive in your tax planning. Absolutely. But let's start from the place where you have a business that is actually making money.
Ronald Skelton 45:33
I got it. So let's take a look at the industry as a whole. Are there other myths out there that you just like just totally driving nuts in your profession that you wish just didn't exist? A common beliefs that are out there?
Mike Finger 45:47
Oh, let's see how much time do we have left? I mean, and again, I've just want to remind people, as I talk about these things and I say small business owners, these things always occur, because I remember that I believed them myself, right? How long it takes to sell a business, the likelihood of selling the business, what I will sell the business for? We as owners get most of that wrong. And I think a lot of that is a function of survivor bias, right? What are the stories that we hear about? Well, they're the successful sales. And how did that successful sale work? We hear occasionally about the failed sale, right? Oh, I did this. But then the broker screwed it up on the day before closing, or I did this and the financing fell through, or, well, here's some of those. But those are almost always told, from a complexity narrative perspective, right? There was this little thing I missed, or that little thing I missed. Then there's this vast pool of stories of owners who never sold and never got the chance to sell. And those are the ones those are the that's where that that that's those simple myths come into play.
Ronald Skelton 47:07
What is the old saying that history is written by the winners?
Mike Finger 47:09
That's right. That's right.
Ronald Skelton 47:11
So if you think about it, it's actually difficult. There's, there's a reason I think there's a secondary reason why we don't hear those stories. I actually have a team of people who look for people like you to get on the show. I tried, I love doing little mini series, and I tried to do a little, you know, boom, or bust mini series, where I talked to business owners who successfully sold and then I wanted to talk to eight or 10, who tried to sell but it failed miserably. And we could not get them to come on a show and explain why their business didn't sell.
Mike Finger 47:41
Ronald Skelton 47:42
It just they just don't want to publicly talk about it. It's a shameful act in their mind. And I don't think it is I don't think there's any shame in, in that in the respect it was their mistakes made very possibly. You waited too long to sell, you didn't put, put into plan the action items that you and your company could teach them to do. Often, more often than not, the decision to sell like that, in a shorter period of time was an external factor, right? Moving, you know, medical diagnosis. You know, it's not just not always just burnout. And then those cases, there's no fault there. Right.
Mike Finger 48:22
It's I, failure's part of the journey. I have owned eight businesses. I've sold four successfully, two failed and I still own two. That's, and I feel thrilled with those with those numbers. It uh, it absolutely, but I learned more in the failures than I did in the successes. And going through those, through that journey. I let me ask you a question. Why do you think so much of the storytelling that we hear about is from the m&a golden God right? That, that, that I sold my business for 117 million after 12 months of ownership on a Tuesday, right? Tell me what, why do you think those are the stories that get told? It is just human nature, that's going to be a sexy appeal, or?
Ronald Skelton 49:15
I think so. If you look at like, what stories sell? What stories, when I say sell it gets clicks, right? What is clickbait the somebody's gonna click on it read the story. It's the, the treasure hunters, right? The huge win. I sold my business for 8x, you know. And it's, we'd love dirty laundry. I crash, burn and miserable. So it's either you don't get that mid level story because it's just mid level on it. You know, get, to get writers or write about it and get people to talk about it,
Mike Finger 49:47
Ronald Skelton 49:48
they talk about what are earns the money. What earns the money is what grabs eyeballs and what grabs eyeballs is the treasure hunters, the unicorns, right?
Mike Finger 49:58
Ronald Skelton 49:58
Or the miserable crash, burn, I went to jail because I did it wrong kind of just like the worst case scenario, stories. So I,
Mike Finger 50:08
It becomes infotainment instead of education or actual appliable information.
Ronald Skelton 50:16
So that's one of the reasons I don't think that your story can be told through the media. I mean, you can do on blogs and stuff like that. I think your story almost has to be told through directly to the, directly or indirectly webinar,
Mike Finger 50:32
Ron are you saying I lack sex appeal?
Ronald Skelton 50:35
I say, I'm saying that, you're gonna have a hard time getting clickbait. The clickable stories out there, about, I sold my oil change business for 3x. And it's just, people aren't going to read it.
Mike Finger 50:49
Even though it changes the owners life dramatically.
Ronald Skelton 50:54
I can send a link to that story to every oil change place in this, in this state or in all 50 states. And I bet if you looked at it you had in the subject line was how I sold my oil change business for three times my profit. I would say your open rate would probably be less than 20%. It'd be a fun, fun test to do. I don't think people would open it and read it. Now if you put in there how I sold my oil change company for 10x. And you know, $50 million, and you'd have two to three times that. Right? People want to buy into a dream. And, you know, the cool thing would be probably to track all the ones that open the what should be normal story, because those are your clients.
Mike Finger 51:38
Right. That should be normal story that is unattainable for most, right? I mean, we haven't even touched on the the 80% that are below that that have an unsellable businesses to begin with. Right. Yeah, I'm, that's your talk about the myth. The building out there that, that's one that that gets me I refer to it as m&a Porn. It's, you know, it's that, that storytelling that's so out there, it might be true, but it's just, it proves the fact that it's not going to happen to the rest of us, but it's presented as if it can. And even, even more dangerous, I think, is that the story is told in a way that implies that you as a small business owner should do similar things to what they did if you want to sell successfully. When in fact, some of the things that they do are the direct opposite of what you should do. Big business truth is not small business truth.
Ronald Skelton 52:40
Exactly. I believe that 100%. So we're getting close to the top of the hour, let's cover some very important things. Tell me about, we've got like five minutes left, tell me about how people reach out to you and your businesses, new Oasis, right?
Mike Finger 52:53
Uhm, Exit Oasis.
Ronald Skelton 52:55
Exit Oasis. Don't,
Mike Finger 52:56
The easy way to find me is exitoasis.com. And or I'm really active on LinkedIn. So there's, there's a couple of Mike Fingers out there, but not many. So give a quick search on LinkedIn for Mike Finger and you'll find me.
Ronald Skelton 53:11
And that's linkedin.com/in/mike hyphen or dash finger. So I put that on the screen. If you're looking at it'll be in the show notes. People that are, can, you know if you're not driving on the road, listen to podcasts. If you look at the show notes, his link to him will be on there. So what does it look like to, we got a few minutes left. I guess the favorite question is how can we support you? Like, what is or what can myself or the audience do to, to help you get to the next level?
Mike Finger 53:38
No, I appreciate that. I, truthfully, this for me has been as much about mission as it has about money. We've, we've created a blog on Exit Oasis where we curate some great content. We produce some content. Start learning, a simple, a simple ask that I asked small business owners is to set a lunch date with themselves every month. Set aside 30 minutes every month to, and this is a lunch date with your future self. This is a lunch date where you're going to learn about selling a business, watch a video, you've had some great guests on here who produced some wonderful content. Watch a video, listen to a podcast, read an article, educate yourself about if you, about what will be if it happens, the largest financial transaction in your life. That helps me. That, that's the mission stuff for me. That's, that's what I'm looking for, is to help small business owners experienced that same miracle I did. It's the life do over opportunity. Whether you are 67 or 37 is substantial. And there's basics that you can pursue that can make that possible. Give yourself the benefit of doing that. Check out the website. If you want to reach out on LinkedIn, again, I what I do is I coach small business owners. So whether I can do that, whether I do that one on one or we get some of those same successes because you pursue and read the content fabulous.
Ronald Skelton 55:12
Awesome. Well, I want to thank you for coming here today and helping out. I think it's been very informative to myself and the audience. I like you have, you have a different view on things haven't been there. And I think that's a huge value to anybody that needs your service because you've, you've walked in their shoes, you're not just a broker that came out of, you know, came out of college that a brokerage and never went through the process yourself. You've got the battle, battle wounds to and the scars to understand why you, to drive your passion, right. To decide, decide to do in this sustainable space. So thank you for that.
Mike Finger 55:46
Pleasure. Thank you for the conversation.
Ronald Skelton 55:48
Yeah. So I'm going to end the show. That's the show today, guys. Tendhank you and hang out for just a second afterwards, and we'll call it the end. 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 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.