Ep 8.25 Building a Business That Doesn't Trap You

Speaker A: I do feel badly for some issues for business owners that in a world of consultants, and I understand the, the fear and the trepidation of spending money on consultants, I have the same fear because what if I, you know, it's very nebulous what this person says they're going to do for me and how do I trust that if I spend blank thousand dollars that I'm going to get the value out of that investment? And that is a real fear. There's no doubt about it. And, and I don't know that I have any great advice on how to vet people other than go with somebody that's been recommended to you, that you get some referrals and references so that you're, you know, investing in something that you can be confident that there's going to be a return on. Um, but there's so many different, there's so many different ways to engage professionals. I do think the first little baby step there would be just to value, to change your paradigm on how you value outside professionals and look at them more of as, as an advisory group that's intended to bring value and whether that's to spending some time and setting some criteria of what is it that I, you know, what is it that I'm looking for help with and then evaluating against those very certain, you know, sets of criteria and then again getting, getting references.

Speaker B: I don't know if I think about, uh, uh, some of the people I've talked to recently who took the strategy rather than hire outright, look for a fractional professional. Uh, and I think the benefit there is that fractional professional is seeing a lot of different playbooks and a lot of different, uh, successes and failures. Where to me it just struck me that that fractional person might bring a stronger skill set than hiring somebody in house full time, part time. What do you think about that?

Speaker A: I definitely think there is a place for fractional CFO type work. Absolutely. It is, uh, uh, who's. I remember talking not that long ago with a client about, you know, really the importance of having a good cfo. And I think a lot of times this is another back to my. It's hard to find, you know, a consultant you trust. It's not always easy to find a really solid financial person. I mean a cfo, somebody with that title should be strategic. They should be part of your strategy team. They should be able to forecast, they should be able to answer questions. Bigger picture strategy, not just reporting you're not a, There's a difference between a controller and a CFO or A, uh, VP of finance. It's a different role. And I don't know that that's a really widely known distinction. And so I do think also I've seen a lot of people holding themselves out to be CFOs and VP of Finance that really, they're really functioning as controllers.

Speaker C: Welcome back to Free Agent with Meg Schmitz, your place for inspiring stories of real people who took the leap into business ownership, franchising, and freedom. If you know there's more to life than a desk job and you're ready to take control of your destiny, this is your podcast. After all, why work for the boss, be the boss. Now let's join your host, franchise guru Meg Schmitz, with today's episode of Free Agent.

Speaker B: Hi, everybody. Welcome to or welcome back to my podcast. It's called the Free Agent. My name is Meg Schmitz. For those of you who haven't been here before, this discussion is all about free agency and taking control over your financial future. The mission of this podcast is to share inspiring conversations with real people who took the leap into self employment, business ownership, franchising, and freedom. This conversation, though, between corporate refugees and executives tired of the desk job, and entrepreneurs and investors looking to share camaraderie and inspiration through their own business journey. Ah. My podcast is here to aim a spotlight on real people who stepped into the unknown, took control over their destiny, and became their own boss. And what I'm really excited about today is that I've got Jane Toriba, who is going to talk to us about one of my absolute favorite conversations, your exit strategy. For those of you who are in business and you're not thinking about it yet, shame on you. Um, I think Jane's tagline might be early and often or what Sounds that right? It's something like that. It's never too soon to start thinking about your exit, so I've been really excited about having you on today. So thank you for making the time for me.

Speaker A: Thank you. I appreciate the opportunity.

Speaker B: So, um, we had a really interesting conversation. I was looking back, it's been a little while since we had our first conversation, but it's such a juicy topic and you gave me a huge amount of questions and insights to cover today. Before we jump into the whole, how do you strategically create your exit? Talk about you, Jane, and how you got to where you are today. Because you're pretty passionate about this topic, too.

Speaker A: Sure. Thanks. So my name is Jane Tariba. I am, um, currently the president of Capital Valuation Group. It's a boutique Valuation firm located in Madison, Wisconsin, but we do serve clients throughout the country. I've been with Capital valuation group for 13 years doing, and um, Capital Valuation Group has been around since 1974, really doing nothing but answering the question, what is my equity worth in my privately held company? Before starting with Katval, I was with various public accounting firms working only with private middle market companies. I did that for about 15 years in financial statement audit roles and just have always had a real passion for helping business owners. And my transition to business valuation has been so rewarding because I'm able to consult with businesses more about how they can take what they've built and, and you know, really focus on the legacy of it or, or exit however they want to exit on their terms. Yeah. And so being able to be in that consulting role is really, um, you know, the reason we get up every morning

Speaker B: and so. Oh, uh, just such a great topic in, in your estimation, when should people start thinking about how to value their business?

Speaker A: Yeah, that's such a great question. I mean I was born a planner. I think I was literally, I mean my first uh, full sentence was I was, I can do it myself. So I've always been independent and I've always been a planner. And so to me not having a business valuation is um, a business valuation is essentially a roadmap. So in owning a business, even if you're at the beginning of your ownership, if you don't know where you're going, I mean you're kind of driving blind. So having a strategy of at least some thought of what do I want us to look like when I leave it? And then building the infrastructure to get there. And the best way I know to do that is to understand what your value drivers are and focus on prioritizing those strategies. So I don't know that there's a right answer to when should you do it? The sooner the better because the sooner you do it, the more time you have to make adjustments.

Speaker B: And that's what I talk to my franchise owners about when they're getting ready to sign their agreement is you don't need to know when. But if you start to your point, Jane, if, if owners start building their business around a future exit, they're going to do things strategically differently. And I know you've seen this a million times. What are, what are some of the things people, uh, business owners don't do? Or where's the smart money on what they ought to be doing so that they create a valuation that someone's going to pay for?

Speaker A: I think most business owners underestimate the reliance on them as the strategic visionary. Yeah, I don't know that, uh, people really, either they don't give themselves enough credit for what they're doing or they don't know how to delegate and build a management team around them. But I'd say if I had one thing I could tell everybody that's a business owner on, that's listening to this podcast, it's take a good inventory of how dependent the business is on you because if there's some reason that you can't come to work the next day, your business isn't going to be worth much and a buyer's going to know that. So that's my. But if I get to give one takeaway, that's my one takeaway.

Speaker B: I see. Because my husband does a lot of, um, we both do actually a lot of mentoring for small businesses entrepreneurs. And you, you touched right on it. They're doing this and maybe they got lucky and it, it took off and it's starting to build. But they don't have the, they're not circumspect about who they need to put around them so that they can be that visionary. It's where it all started. So we see a lot of entrepreneurs who don't have the ability to build around their weaknesses or, or allow themselves to focus on their strengths. And I don't want to say weaknesses because some people are strong, they need to do a better job of identifying support players.

Speaker A: Yeah. And I will often say when we're doing our valuation work, how surprising it is to us that some business owners just somehow manage to be successful in spite of themselves. And I mean, I'm a small business owner. I understand that my day looks like, answer this call, respond to that email. And you know, there's a thousand fires I'm putting out. But a truly, in my opinion, a truly successful business owner is one that can carve out some time to think, to work on the business instead of just in it. And so to your point, you know, it's again, it's kind of again back to the strategy. Being able to really set time aside to be strategic and to think about higher level things like what are my strengths and weaknesses, how do I need to build up my management team, all these different prerogatives of strategy. Because it doesn't just happen. Value doesn't just happen. It's created and it's engineered and it's planned for and it's executed. And those who can be more proactive about it are going to be more successful.

Speaker B: It kills me just um, thinking about it right now about some of the companies I've been involved with and how close minded, uh, maybe it's fear based leadership, doesn't want to spend the money and it's such a mistake. Whether you're talking about hr, you're talking about marketing strategies and one of the things that you put into your questions for me was uh, to ask you, uh, how do business owners unintentionally undermine their outcome? What do you see that?

Speaker A: Uh, what a great question. I, I think again it's just, it's really the time, it's really spending the time. And I do feel, I do feel badly for some issues for business owners that in a world of consultants, and I understand the, the fear and the trepidation of spending money on consultants, I have the same fear because what if I, you know, it's very nebulous what this person says they're going to do for me and how do I trust that if I spend blank thousand dollars that I'm going to get the value out of that investment? And that is a real fear. There's no doubt about it. And I don't know that I have any great advice on how to vet people other than go with somebody that's been recommended to you, that you get some referrals and references so that you're you know, investing in something that you can be confident that there's going to be a return on. Um, but there's so many different, there's so many different ways to engage professionals. I do think the first little baby step there would be just to value, to change your paradigm on how you value outside professionals and look at them more of as an advisory group that's intended to bring value and whether that's spending some time and setting some criteria of what is it that I, you know, what is it that I'm looking for help with and then evaluating against those very certain, you know, sets of criteria and then again getting, getting references. I don't know.

Speaker B: I think about uh, uh, some of the people I've talked to recently who took the strategy rather than hire outright look for a fractional professional. And I think the benefit there is that fractional professional is seeing a lot of different playbooks and a lot of different uh, successes and failures where uh, to me it just struck me that that fractional person might bring a stronger skill set than hiring somebody in house full time, part time. What do you think about that?

Speaker A: I definitely think there is a place for Fractional CFO type work. Absolutely. It is uh, uh, who's. I remember talking not that long ago with a client about, you know, really the importance of having a good cfo. And I think a lot of times this is another back to my. It's hard to find, you know, a consultant you trust. It's not always easy to find a really solid financial person. I mean a cfo, somebody with that title should be strategic. They should be part of your strategy team. They should be able to forecast, they should be able to answer questions. Bigger picture strategy, not just reporting you're not. There's a difference between a controller and a CFO or a uh, VP of finance. It's a different role and I don't know that that's a really widely known distinction. And so I do think also I've seen a lot of people holding themselves out to be CFOs and VP of Finance that really don't they really functioning as controllers. So. And part of the reason is because owners don't always value that role and may not budget appropriately for that role. And that is exactly where a fractional would fit really really well when the company needs that level of strategy and forward looking but maybe doesn't have the budget to have them full time in house.

Speaker B: Yeah. There are so many small business and been talking to some brokers and some other exit strategy planners. How many US companies are not worth buying? It's something like 70%.

Speaker A: It's a lot. It really is a lot.

Speaker B: Yeah. What do you see?

Speaker A: Um, I don't know that I know a percentage but I did ah a few years ago I went through some exit planning training myself and there's a staggering number of privately held businesses that are owned by baby boomers. And there's not just the reality is there's not going to be buyers for all of them. And that breaks my heart because I live in a relatively small town. Our relatively small town is dependent on a couple of really nice big manufacturing type employers that are all owned by baby boomers. And if those businesses go out of business, what happens to the small towns? So I think there's just so much built on this and though um, again the earlier you can plan for who's my the more transferable you can make it, the more attractive you can make it to a buyer, the more you increase your likelihood that you'll be one of the successful transitions at the end.

Speaker B: So when you're consulting with a client, what are some of the top maybe three to five points that you want to get that business owner to consider so that they can get the best possible valuation.

Speaker A: Yeah, so when we're working with valuation, they're really three, two value drivers. There's one is your cash flow, how much, how profitable are you after reinvesting in your long term assets? And, and then what is the risk inherent in that future projected cash flow stream?

Speaker C: Let's take a quick break from the conversation. Are you interested in seeing if franchise ownership is in your future? Get the inside scoop, um, on what it's like to own a franchise business, warts and all. Visit megschmitz.com to schedule your free informative call. Many people don't realize that franchise consultants are paid by the franchise companies. So there are no fees, no obligation and no strings attached. Schedule your call today@megschmitz.com and now let's jump back into the conversation.

Speaker A: So the first thing we talk through is the cash flow side and making sure that you're really, really watching, developing whatever key, key performance indicators work for you. But generally speaking, if you're any kind of a, uh, company that's got cost of goods sold or gross profit margin that you're really focusing on that and enhancing, doing whatever you can to become either more efficient or manage your prices or manage your costs, they're all three together to really maximize that gross profit margin. Service businesses similar only of course your labor is your cost. So just kind of looking again at how efficient you're being and really that profit margin, it's not necessarily about the dollars, it's sometimes more about the profitability. And when I say margin, I mean if you take your net income and divide it by your top line sales or revenue number, that's the margin. And you want that to be as high and consistent as you can get it. And consistency matters too. So the first thing we talk about is where is the, where are your financial value drivers depending on what kind of business you are? And then what are the risk factors? And the ones that pop up almost always certainly are going to be dependence on your man on your key people, which is generally the owner. Um, oftentimes there's concentration in customer base. Sometimes there's reliance on vendors which would be take some time to replace if something happened. Uh, maybe not like go out of business something, but disruptive enough that it would cause a pain point. So really it's like finding where the concentrations are. So those are the, those are the, that's the advice and it's always the management team, there's always some risk on the management team are even, uh, even the most well diversified privately held companies are probably still not diversified enough. But so those are the two things, the advice that we give them. We'll look at what, what are your financial drivers and what do you focus on from a budgeting perspective and then what can you do from a strategic standpoint to start to mitigate some of what's likely got some concentration risk.

Speaker B: Yeah. I, is just going through my mind a conversation I had last night with my son. We were talking about KPIs and how important it is to know, know your numbers. But he said, yo mom, more than that at the company that, where he's working right now, he said we've got a culture issue and it's going not just senior leadership, but middle leadership as well.

Speaker A: Yeah.

Speaker B: So there's this, there, there are the hard facts of your, of your numbers, but then there's the softer side of how is the business actually being operated. How do you tackle that?

Speaker A: Yeah, culture is such a great, that was a great ad there because it does get down to management team, but it also talk. But culture is a huge, A, uh, huge component of value because when a healthy culture is going to, it's going to lead to things like better retention rates, likely easier to attract new talent, which is such a challenge today. But that retention and that retention is so important and then the productivity. So there's. I used to think that it was kind of a buzzword, but I, it really, you really can tell the difference between a company that intentionally focuses on culture and one that doesn't. And when you're looking to evaluate two different companies and you're the buyer, which one would you rather buy? Likely the one that's got the solid culture and the people that are working cohesively as a team in a, in the same direction. And so back to my, you know, my one piece of advice. If a business owner could like really realize how important it is to work on the business, culture would certainly be one of those components, whether it's something that the primary owner does or if they have an HR person that's doing it. But that should. Absolutely. That's a great point.

Speaker B: Thank you. Um, I'm, I'm, I live with a husband. We have seven businesses and this is, he's very much on the ones and zeros analytical side. And I'm way over on the other. Culture is everything. We have to pay attention to the softer side of this business because it affects, as you said previously, it affects your vendor relationships, your, your client relationships, your employee retention. So There has to be a nice marriage between the two. So in doing evaluation for a company, how many owners are realistic about what the value of their company? Um, when you come back to them with, with the evaluation, how many of them get sticker shock and go, whoa,

Speaker A: uh, that, you know, I gotta start tracking this. I get that question a lot and I never have a good answer. I'm always actually quite surprised when people, uh, I should, I guess, I guess my answer is people don't really know because when people, when we ask, you know, so what's your reaction? This is the value. What's your reaction? Recently it feels like most donors have been like, yeah, it's about what I thought. But I certainly have been in conversations where there's just some wild misconceptions. And a lot of those, that's a veer the conversation to multiples. But a lot of it's because people think that you value business using some income statement measurement times some kind of transaction multiple.

Speaker B: Yeah.

Speaker A: And while that can get you a ballpark back to your culture, example, if you have two companies in the same industry with the same earnings, you're not going to pay the same for those. And multiples would imply that you would. You're going to pay more for the one that's got the stronger culture. So I think some of the misconception comes from those types of conversations. And also, you know, there's just. There are some industries right now that are consolidating and private equity is all over them and they're paying huge transaction multiples. But if you're not in that industry, like I would never compare like a general contractor to like an electrical and H vac consulting company that's working with data centers. I wouldn't put those in the same, but they're both construction. So that's where. Sometimes I think that's where the disconnect comes from, is that people get a preconceived idea of what's going on in the market. Um, so many times people come to us and they literally have no idea. They literally have no idea what their business is worth. So there's no. Nothing to really compare it to.

Speaker B: One of the gals I interviewed recently for the podcast, actually, it it I. We were having such a chunky conversation, I said, do you mind if I hit record on this? Because this is really good for people to hear. She wasn't a franchisee. She started a company m her. She's got four boys and, and they were really little when she started and she thought she Was stressed out. Then earlier this year, as they're getting older, becoming teenagers, realized maybe it's time to sell the business. And so she started to float the idea and someone came back to her in fairly short order and made her what she thought was a reasonable offer. But it got her thinking, uh, that the reaction time came back so quickly, maybe she wasn't in the right price point. And so she did get a valuation. And then she was so delighted with how the numbers came back. Then she went back to the drawing board and said no thank you to the guy who made the offer. But it gave her all the confidence she needed. And I think this is. Jane, this is such an important point for you to hammer home for people is don't get out there and try to sell your business without really truly understanding the marketplace, the demand, as well as the other elements that we've discussed earlier. Get evaluation so you know for sure what kind of a target buyer you're looking for.

Speaker A: That's so true. We've had, we've helped at least two, at least two that I can think of in the last short order, short period of time where they had offers from a buyer and our, and our valuation came in way over what the offer was. And we do valuate. So for our, our practice that really works with M and A or transaction work, transaction advisory work, we're helping people in all sorts of ways. Whether it's finding, helping to set a price for third party sales or buying an acquisition target, or bringing management into minority ownership. So and most of the time when people come to us, they don't have the offer yet. So when I say we've only been two, it's because usually people don't have an offer in hand yet. But, so they hired us to evaluate the offer that they got and they were way low. And the uh, and I will tell people, you know, some of the. There's so many different ways that evaluation can provide value to the company. One is now you know what the value is. So if you do get one of those offers, you know how to evaluate it and you can respond immediately. So that's one really big benefit, uh, of having. And then you know what the value is worth and you know why it is what it is. M, it's your financial strength, it's your, you've got your document, your processes documented, you've done a great job with this. Xyz or maybe there's, you know, whatever your strengths are, you know what they are and you can sit confidently and negotiate with that Buyer and explain what it is that really drives the value and why it is what it is. So when you get that offer that's real low. You can explain why that's not acceptable.

Speaker B: And so, uh, where I am right now, in the middle of Wisconsin, we have a couple of companies that periodically we will get unsolicited offers to buy a lot of private equity, small boutique private equity. Some of it is bigger private equity, and you touched on it a little bit ago. They've got money and they are much more willing to come with, come to the table, come via email, come. However it is knocking on our door to say, hey, I've been driving by here for years. I'm, um, in the industry. I know who you are and what you do. This is exactly why I talk to my husband about getting a valuation on at least two of our businesses. That happens pretty routinely, but it's always much more compelling when private equity steps in.

Speaker A: Yeah, and again, it, I just kind of look at it as the more information that you can have, the better, the better. You're just, uh, it's going to make any decision you make better when you have more information. So, sure, you could engage in conversations with private equity and, and, and maybe everything will be just fine. And maybe they're offering a fair price again to be able to really evaluate that offer. It's nice, in my opinion, nice to have the support for, you know, what it is and whether it is reasonable. That's just because it's a number that sounds nice.

Speaker B: And living in the world of private equity, as my husband and I do separately in a different business altogether, it's seductive when those offers come in. But as owners of that many businesses, what Pete and M I then flip side talk about is, well, what, what are they going to do to the culture of the company that we've worked for decades to build it, uh, to where it is now. And so sometimes as a seller, you might have a, uh, very saleable asset, but transferring it to some buddy. And I guess for you being in the valuation space, that's not really your job is to evaluate which buyer or which offer is the right offer or is it, is that something you get into?

Speaker A: I mean, people will ask us. It's certainly not anything that we're experts at. And I certainly don't want to just say too many bad things about private equity because I think that can be a real option for people. Um, of course, you know, like any stories, the only stories you ever hear of are the bad ones. And so I think I've. It really doesn't even matter if it's private equity. That's the buyer. It's a third party strategic buyer. I think as the seller, it's your prerogative to do as much due diligence on the buyer as they are doing on you as the seller. Make sure that you understand what their other transactions have looked like. If it's private equity, understands the third party, the third party culture and what they do to maintain it. And I don't know how much they'll share, but that's, you know, I think, I think sellers sometimes get caught up in the emotion of the sale and maybe feel like they can't ask the questions, you know, like they're, that you're just as entitled to qualify the buyer as a financial buyer as they are to you. So you see their financial statements just as much as they're asking for your financial statements. And they're going to. The buyer is going to ask a whole list of questions on, in due diligence and the seller, I think has every right to do that same investigation to make sure it's a good fit. Because understanding what they're going to do with people and what's the, uh, are they going to be, you know, truly hands off and you're going to continue to let my management team function or not, or, you know, just kind of understanding what it may look like at the other end is so important to a seller.

Speaker C: Curious if franchise ownership might be the next step for you or just interested in owning a small business that offers a proven path and support system. Um, download Meg's free ebook that outlines everything you need to know about franchise ownership. There is more to life than your desk job. Visit megschmitz.com and enter your email to receive your downloadable copy instantly. And now let's get back to the conversation.

Speaker B: I'm so glad you brought that up. Having sold businesses in the past and then hearing on the back end, on the flip side, um, the, the dedicated employees who, okay, they're going to live through this transition and they'll come back and say, you didn't really vet that one. This guy and I, to which I did that I had employee. I was, I was um, on contract for an additional. I, I can't remember three months or six months. And my employees who I did such a great job stopping the revolving door of turnover, but they really were upset with me for not doing better. Due diligence on the buyer and how that husband and wife team was going to impact the culture of the business. And it wasn't all about me. It wasn't all my culture. These were my employees. I had 57, 60 employees. I wasn't the only builder of that. But so I'm glad you brought up that point because it's, it's highly impactful for those left behind. It can be great. Uh, and then going back to the topic of private equity, I've worked with big private equity and I've worked with boutique and the smaller, the smaller they are for sure. In my experience, the more sensitive they seem to be, the more sensitively they go into negotiations versus being big brother and elbow. Get out of here.

Speaker A: Mhm. Interesting. That's good to know.

Speaker B: Yeah. This is what I love about the world that I live in is that I'm not just a franchise consultant. I'm an employer, business owner, an angel investor. You should be a fly on the wall over here. Conversations that we have are really fascinating because people come upstairs and they'll say, I got another offer. We're not soliciting offers. But uh, back to one of the points you made. We're in one industry where there's a lot of rolling up going on right now. And so there's a lot of conversation about transaction, buy, sell side and then another one of our businesses, if we wanted to sell it tomorrow. I think we really have to plan for a five to seven year exit on that one because it's not, it's not a hot market or approachable for the average business buyer.

Speaker A: Yeah.

Speaker B: So you have to know your marketplace.

Speaker A: Yeah.

Speaker B: Do you, You've been in Wisconsin all of your career, right?

Speaker A: Yes.

Speaker B: And how far and wide is the net cast? And what I'm getting at is geographically are there certain areas where you see hot industries? Um, whether that's Wisconsin or even more Micro Climate. Madison vs. Milwaukee vs. Green Bay, Appleton.

Speaker A: That's a really interesting question. I had not thought about it with respect to geographies. It really just looking. I just kind of focus on the industries that we're working with.

Speaker B: Okay. Okay.

Speaker A: Um. The other exit strategy that seems to be popular at the moment at least is investigating is we do some work with sellers looking to transition their companies to ESOPs. Just employee stack ownership plans. And those tend to be. And again it's industry, it seems to be a fit for certain industries and not others. Um, but that's another exit option that people are starting to investigate. But you know, so our, our reach is generally Wisconsin. Uh, some of our ESOP work is more national. So our client base as far as Industry goes generally reflects the Wisconsin economy. So manufacturing, construction, right engine, you know, service type businesses and agriculture, those are kind of our big four that we. But you know, it's. Which is kind of reflective of the Wisconsin economy and which ones of those are. You know, it seems like the hotter industries are, that we've seen are things. Well really anything that's got recurring revenue. So I do have some lawn care type clients that have that kind of recurring revenues. Yes, that, that's a big, that's a big attractor for private equity. And then, um, just any. The growth of, you know, energy efficient consulting. And that's my engineering way of explaining it, my accounting way of explaining engineering. Um, that seems to be a really popular industry. But you know, it's, it's really amazing how many different types of businesses that we get the opportunity to work with.

Speaker B: Are you seeing any shift? Because everybody's talking about artificial intelligence and jobs being lost and industries. We see farming shifting dramatically and wondering, uh, when it comes to evaluating a business or putting a valuation on that, are you seeing the impact of AI for any of your clients in either elevating or decreasing the value of their company?

Speaker A: So my opinion is that's going to show up in efficiencies and margins. We haven't quite seen, uh, significant impact of it yet, but I wouldn't be surprised if we do. However, yesterday I was talking to a client who still. They're not on the, they're not on the wagon yet. They don't trust it. They think they can do everything just fine themselves. And so they're not. Look, they really don't trust it. So I think depending on the end with, you know, Wisconsin, they don't even like borrowing money. So like a very, very conservative, generally speaking, fairly conservative market. I don't know. It's going to be really interesting. You know, we use it as a tool. We get some efficiencies out of, you know, it helps, it helps polish it. When none of us are great writers, it helps us polish up our writing. So I mean, I think it's definitely a tool. It'll be interesting to see how widely accepted it is. And my assumption is that when we do start to see the impact of it, it'll be shown through margins, people start to get more efficient where they'll be able to potentially either make the current workforce more productive or ease some of the hiring challenges by using AI instead.

Speaker B: Got it. So for people who are listening to this and saying, all right, Jane, just give me the top three things I need to do to get the best valuation for my business. What would they be?

Speaker A: Top three. One is really do a solid, you know what a strategic plan. I'm going to go in a different order. Have a strategy. That's your first, first and foremost, have a strategy, know where you're going. Secondly, make sure that as you progress towards that goal that you have the right people in place to get you there and that whoever the key people are could go on vacation for two weeks without disruption. And when I say go on vacation for two weeks, I mean no checking email, no I instream telephone calls. Like truly vacate vacation for two weeks. Uh, so evaluate your people. And then the other thing that I is to be perfectly clear and honest is still on my to do list. I've been the president for now going on four years. Oh Lord, this is a terrible confession. We don't have any of our processes documented either or not either. Just we don't have any processes documented. So one of the things as you move towards your strategy, as you get your people in place, making sure that your key standard operating procedures are documented is also critical so that somebody else, if something happened, there'd be very little disruption if somebody else had to come in and do somebody else's job. This has been on my to do list since 2022. It's not something fun and easy to do. And so one little might, one little thing, you could take one process, just take one process and document it this month and that would be a huge step forward because I think kind of feel like even for myself, if I did one, then it won't be as hard to do the rest. But those are my three have a strategy, get the right people in place and then start documenting your processes.

Speaker B: Yeah, everybody I talk to in the world of franchising is there. They want to get in to make money. They want to get in to make more money. They want a better lifestyle. What Fill in the blank. But it's tethered to something financial. And so uh, when I'm working with any of my candidates as they're going through their evaluation process, a bunch of them will come to the towards the end and say, well, I really want to get approved, but. But if I start talking about an exit, like I don't want to do this forever, am I going to scare off the franchisor? And I said no, flip your thinking around the other way. They're going to look at you as more intelligent, possibly more sophisticated because you're starting with your end mind.

Speaker A: Yeah. And we have done a fair amount of work with franchises. And that's a tricky exit because that, that exit strategy is not usually like sky's the limit. There are usually some restrictions on who, when, where, what that transition is going to look like. So those are tricky. So definitely if you're going into I making sure that you understand how you're going to get out of it, owning your own business is wonderful. I mean it's a lot of work, there's a lot of risk, but you're the boss at the end of the day. You get to your quality of life, your sense of accomplishment and all the pride and everything else that goes with owning a business is phenomenal. And so I would never argue, uh, against it. But also understanding how you're going to get back, you don't want to be in forever. And every one of us is getting out of our businesses one way or another. So better to go out on your terms than, than somebody else's. And franchises can be tricky that way.

Speaker B: I've had a number of people who, and the number is increasing, who come to me and say, I want to buy revenue. I don't want to start from scratch. I don't have an original idea, but I don't want to buy a franchise and open from scratch. I just, I want to buy out somebody. And the logic from the franchisor side is if they've got a Meg with five great clips who wants to sell, they want to replace Meg with a batter producing franchise owner than the person who's leaving. And so a lot of the philosophy in the, I, um, would say the stronger older franchise systems is understand that you're coming in, maybe you're boutique private equity, you're coming in with a, uh, strategy in mind to acquire. But we need you to start. It's kind of like having a baby, your own baby first and then go and be a foster, then go and adopt. Because now you've, you've done it from scratch. And that's where the franchise companies have their greatest confidence in a transaction is that it's somebody who's already on the inside and knows how this, how the culture and how the operating system works.

Speaker A: Yeah, yeah, that's a good observation.

Speaker B: Yeah.

Speaker A: But I've seen some really strange things. I mean, but I get that's a really good point. That when they're approving a um, new owner to come in that they, that you've got a track record that you've, as an owner.

Speaker B: Yeah.

Speaker A: Operator. That you have a track record that you can succeed. Yeah.

Speaker B: Just like that example we were talking about earlier where the, the seller should do the same due diligence that the buyer is doing.

Speaker A: Yeah.

Speaker B: If great clips. And I could go back and do it over again. I had a great exit. I had a seven figure exit. I was happy all day long, happy to take it. That couple got approved by the franchise. But he, they were not as strong a, uh, pair of operators, owners as I, who was now leaving. And so that. That set of five studios that I used to own has now transacted multiple times because the buyer who took it over from me did not have a track record. He had no experience in the industry and he just started, you know, blowing things up unintentionally, but he was blowing it up. He, he did not have a real solid understanding of the business or the industry or the, or the culture that goes into that particular type of work, which is cosmetology.

Speaker A: So. Interesting.

Speaker B: Yeah, well, going back to that word of unintentional, um, versus intentional.

Speaker A: Right.

Speaker B: And how, how to build your business so that you get the highest valuation and the best exit opportunity.

Speaker A: Yeah.

Speaker B: Well, thank you for joining me today to talk about all. Uh, I still have a million questions and you might, you might be a repeat visitor because there's, I think the, the landscape is only becoming more robust for family businesses to transact outside the family and there are more people who want to get into business ownership and acquire revenue. So I, I'm sure that I will have more questions for you another time.

Speaker A: Well, I would love to be a second repeat guest. So thank you very much for the opportunity to be here today. And I don't feel like we talked a lot about valuation, but that really does. That. It really is the foundation of everything else that we talked about. All the other things that we talked about today directly, directly impact the value of the company.

Speaker B: Well, uh, what would be really easy to do is to have you come back and just teach a masterclass basically on valuation 101 here from start to finish, from soup to nuts. This is how you want to position it? Well, why don't we do that? We'll have you come back and you can, you can take the mic and I'll ask you questions, but you can lead the direction.

Speaker A: That sounds amazing.

Speaker B: All right, well, we'll do it again.

Speaker A: Thanks, Meg.

Speaker B: Thank you.

Speaker C: Thanks for listening to Free Agent and especially, uh, thank you for sharing the show with other people and reviewing the show on itunes. Every time you share the show, you're potentially changing someone's life. To get Meg's free ebook that outlines everything you need to know about franchise ownership. Visit megschmitz.com and enter your email to receive your downloadable copy instantly. And stay tuned for the next episode of Free Agent

Speaker A: Sam.