Make Your Business Worth 20-30% More (With Scott Gabehart)

Speaker A: Welcome, everybody, to another episode of Built to Exit with me, your humble host, Jason Cisneros. And as usual, you know, I scour the known universe to find interesting, useful, and helpful conversations for you, the business owner, who have come to the intellectually superior, um, conclusion that you are building your business to exit. Those of you that don't know that yet, watch a couple of episodes. You'll get up to speed. I. Our belief here at Built to Exit is that you should prepare. You're building something that is about 90% of the value of everything that you own. And, um, at some point in time, our other punchline is everybody exits. Um, none of us get out of this thing alive. So you should bet. You know, it's better to prepare ahead of time because usually there's a lot of people that are depending on us, and we don't want to leave them a mess. And so that's the morbid side. The positive side is that the more that you prepare for an exit, the more that, um, you don't have to get ready for an exit, people. It takes, uh. I, uh, think in what I've seen, people wait far too long. They're like, I'll sell when I'm ready. It never really works out that way. And so that's what this show is about. Um, this gentleman that I've brought to the show today for you to, um, meet, um, he's created a technology. He's got a very long. It's what we used to call back in the day. He's an og, right? You know, used to mean original gangster. Uh, but he is an OG in the business space, business valuation, and incredibly knowledgeable, writes white papers, um, and has driven, I think, the valuation industry to a higher level. Uh, and by the way, we also operate on his technology. So when I find somebody like that that's willing to have a conversation, um, obviously I want to bring them in. So I'm going to go ahead and bring him to stage right now. Please, everybody, welcome to the stage Mr. Scott. Gabe Hart. Welcome, brother.

Speaker B: Thank you, Jason. It's great to be here.

Speaker A: Oh, uh, it's my pleasure. I'm so glad you can make it. I know we tried to put this together. We're both busy men, but. And, uh. And here we are. Here we are. So thank you for joining the show. Tell, uh, tell our audience a little bit about who you are and a little bit of your background so they know who they're talking to. Huh?

Speaker B: Okay. Educationally, I have a bachelor's degrees in German and economics. Uh, master's degree in international business finance, uh, from a school called Thunderbird. Two and a half years in an economics PhD program at Arizona State University. I'm not a PhD. I didn't finish, but it was a great experience and enough to allow me to actually teach economics full time for uh, four years. Work experience. Um, I actually started as a corporate auditor working for Shearing plow of Fortune 100 company at that time pharmaceutical, uh, consumer goods. And then subsequent um, to that I went to work for Motorola, uh, Electronics and Shearing Plow took me to Europe, Motorola took me to Asia. So good, uh, good experience. But uh, after that and then after teaching I became uh, a business broker, middle market specialist. And I did that for six years, uh, leading up to uh, 2000 when I uh, first became a certified business appraiser. And I can tell you uh, for sure that all of those experiences come in handy as a business appraiser. Uh, the corporate experience, teaching economics, all those things are uh, helpful for sure. But where the rubber meets the road is when you're trying to get a deal done. And in my opinion that probably is the very best way to learn about valuation, to negotiate a deal. Uh, and you see firsthand that there are literally dozens and dozens of terms and conditions, warranties, representations, indemnifications that have to be agreed upon. And through that process you can better appreciate what a multiple of five means, uh, you know, in the, in the real world, so to speak.

Speaker A: Yeah.

Speaker B: Uh, so then in 2010, Mike Carter, the co creation, co founder of Biz Equity, uh, he considers me a co founder as well, called me in and we started this online business valuation firm that has come a long way since 2010, uh, to the point now where we are uh, literally catering to at least a handful of the top five, uh, RIAs, wealth advisory firms and top five, five, uh, insurance companies and a number of large banks, uh, as well. So we cater primarily to advisors who then provide services to business owners. Uh, but we also get business owners coming direct to our site to run evaluation. And I would say the unique uh, strength of the Biz Equity algorithm is that it truly is mimicking what I would do routinely in valuing privately held owner operated businesses. Which is a, the concept of discretionary earnings is key. Uh, what's the pool of cash flow available to a uh, hypothetical buyer coming in to work the business on a full time business. That's, that's ultimately in many cases what, what drives the value discussion? Um, not always, but certainly a, uh, lot of the times so uh, as I said, we've come a long way. We, we started with the idea of being a business, ah, valuation platform, but we have just recently expanded that into exit readiness. And as we'll discuss it is absolutely, uh, uh, a no brainer that every business owner should be planning for their exit where, wherever they are in their entrepreneurial history.

Speaker A: I agree with that. I mean that's why we built, built to exit. You know, it's uh, it's one of those things. I, I had three sort of different types of exits. My first one was an involuntary exit, which is nobody wants to experience. You know, that's where you just run out of money and uh, you're no longer in business. Um, those are painful, right? And then secondarily I was like, okay, I learned some things along the way and then I was able to put myself in a position where somebody wanted to buy my business. Well, I was an expert at what I did, which there's ignorance, impatience, arrogance and wrong team. Those are the four biggest indicators of somebody who's not prepared for an exit. I had all four of those going for me. And so sit down. Yeah, it is a bummer. And uh, and I call that a dictated exit because I sit down across from somebody like you who knows what you're doing, right? And the more arrogant, ignorant, impatient and wrong team I have, the less I'm going to get for my asset if the sale ever goes through. And, and so that was my dictated. Then I learned a lesson after that because I don't like getting beat, right? And they beat me, they whipped me like they just kicked my tail. Um, but in doing so I reached out to them afterwards and I said, hey, you guys just, you just crushed me. And I know you did. It took me three years to get my money. I got probably half of what I should have. I had to drive, jump back in two or three times to make sure that I was going to get paid. All my, my payout, all of the mistakes that you could make, I made. So. But I called him afterwards and I said, look, I know you guys just whoop me here can teach me why, teach me how, you know. And so these three guys that had come together, they taught me the game. And so I then formulated my next, uh, phase of my business career around the idea of custom tailoring my exit. And um, and so that's really what we're talking about here is in your terms exit readiness and, and in everything that you say and everything that I've read from you and every, you know, uh, you know, public, uh, place that you've been able to go to. You say that exit readiness is the single biggest value driver that most owners, um, and even most advisors, because there's a ton of advisors in this space that are not really, um, up to date on this stuff. But why do you, why do you say that exit readiness is the single biggest value driver?

Speaker B: Well, I say it's the single largest potential value driver due to the fact that there are so many owners who ignore it. It's the idea of leaving money on the table, the value gap. There is so much to be gained by a proactive management experience that is uh, geared towards very simply, uh, ultimately maximizing the value of the uh, uh, business as well as its transferability or the liquidity. So there's, there's really two parts, there's maximizing value and then optimizing whatever that ultimate transfer is. And there are a lot of different possibilities in terms of those exits, uh, each with their own pros and cons. But that all needs to be fleshed out and in advance. Yeah, you know, three to five years in advance. I, ideally, or you could say at a minimum.

Speaker A: So in, in terms of what we tell people that you want to position yourself, and again, all out of my experience, all out of my mistakes, what we tell them to do their best to get their arms around is three to three things. Price, timing and terms. You want to be in control as much as humanly possible. Now you, you add your exit readiness in there to that conversation. It feeds that concept really, really well. Because if you're going to control any aspect of your business, your profit margins, your, the longevity of your staff, the, you know, the turn and churn of your customer base, all of that takes thinking, adjusting and intellect. Uh, you heard me at the beginning of the show. I say playing, you know, playing this game of business, it's an intellectual sport and a lot of people play it on feelings and gut. M. Right. Another mentor of mine said gut is giving up thinking. So when we start talking about the exit, um, you know, the exit readiness, what is a, Ah, give me your definition of what that means. When somebody's exit ready, what does that mean to you?

Speaker B: Um, well, being exit ready means that you have taken all of these steps ahead of time to do, uh, what I just described. Maximize business value. And that is a, uh, multifaceted, multi year plan, uh, essentially to maximize cash flow and minimize risk. If you want to cut it down to the basics while at the same time planning for not just your desired exit but, uh, unexpected exits, the 5D death, divorce. You get the idea. Disability. Yeah.

Speaker A: Disagreements. All of the disagreements.

Speaker B: Yep. Yep. So to me, I've always been kind of shocked by how few business owners, uh, know what their company's worth and. Or have an actual exit plan. But that's changing. It's definitely changing. And it's changing right along with the growth and the explosion of the number of exit planners that are, uh, out there, you know, like, uh, SEPA. The SEPA designation. There were like 130 of them, uh, or 60 of them 10 years ago, and now there's over 600.

Speaker A: Yeah.

Speaker B: And. And that's just that one group. And there are a lot of advisors of all different types who are kind of presenting themselves as exit planners. Yeah, um, to varying degrees.

Speaker A: I agree with that. I had the, uh, founder of sipa, um, and the owners of it, one of them, on my show the other day, and it was a fascinating conversation. To your point. Um, to your point, there's a lot of people who understand that they need to get ready. That's our whole mission. We have a business to help prep companies for sale. Um, and I do this show. Yeah. It's built. Exit. It's in the title. It's in the title. And I do that. And I do this show and I get. Bring a lot of people on that. People go, oh, uh, why are you. Your competitors with it? I'm not. What, uh, I'm trying to do is to say there's going to be 6 million businesses that are going to change hands over the next 10 years.

Speaker B: Right.

Speaker A: I want to get into some stats that, you know, that, uh, I read in your white paper here in a second. And what I'm trying to do is say my family is business owners. My wife and I are still business owners. I was able to have a very nice exit myself back in 2019. Um, I love this community. And there's so many. There's been an explosion of people who call themselves exit advisors that I bring people on this show that you should listen to, you know, and maybe do. Do business with them over me. Or you do business with us or do both. Business with both. In, in our instance, you do a business with both because we utilize your tool. Uh, right.

Speaker B: Yeah.

Speaker A: And, um, and so I really do appreciate, um, the white paper was, you know, I said, I get a lot of people send me white papers. I read yours three times. Uh, it is very, very well written. It's loaded with content. And, um, what were some of the industry stats that were in there. That, that blew your mind.

Speaker B: Well, let me go to, um, page eight in the report, which I assume, uh, everybody will get a copy of this.

Speaker A: They will. All they have to do is just, just uh, put in white, ah, paper and we'll make sure that we get this report to you. Yeah, in the comments.

Speaker B: So the, so the bit, the big picture is just what you described, that over the next 10 years there's going to be this dramatic transfer of wealth. But interestingly, it's not just baby boomers. We've all kind of been conditioned to think that, uh, oh, it's the baby boomer transition. But if you actually look at the stats that are in the uh, EPI study, other generations, Gen Z, millennials, Gen X, they are even more active in pursuing exit planning advice.

Speaker A: Yes.

Speaker B: So it's not just the baby boomers. And evidence of how it's already changed would be a, uh, statistic that during 2013, roughly 38% of business owners sought outside advice with respect to exit 2023. That number is up to over 60%. So it's happening, it's going to be happening even more as we go, uh, forward. Because again, it's not just the, um, baby boomers, it's, uh, uh, the other, uh, generations coming up behind. Younger owners demonstrate a greater inclination towards embracing exit planning. So they've been enlightened to it at a younger age because 30 years ago, 20 years ago, exit planning wasn't really a, um, big, it wasn't a big market. Uh, you know, there were business brokers and advisors. But, uh, it's just, it's a different world for sure. 52% of millennials view exit planning as a top priority versus almost 14% of baby boomers. So, so you, you don't necessarily want to be targeting the, the oldest. You know, maybe there'll be a quicker exit, all other things equal. Uh, as an Advisor, let's say 57% of baby boomers plan to sell their business in the next five years, but are unprepared in terms of a formal valuation and or estate plan. So only 1 in 4 have a valuation report and 1 in 10 have uh, a state or exit plan. So that's, that's pretty shocking.

Speaker A: Uh, and I love that because that, that's where, you know, we, we signed on with your tool because for years and years, evaluation is the very first step. We do a process called scan A name. Right. We scan where you are so that we have a benchmark. Right. Because we, there's no way to measure a Lot of consultants work on emotion. We don't work on emotion. We say, okay, where are you? Where do you want to go? Okay, if that's a feasible act, those of you that then I. Let's get evaluation on where you are. And for years and years and years, uh, $25,000 here, $45,000 there. It was 25. And then the time that it took for us to be able to get that valuation back, um, you know, and they were good valuations. I'm not, I'm not saying they were bad, but the time and the money and the effort and the energy. I'm a guy who's owned my own businesses, who owns my own business. I have a payroll to meet every single Friday. Just like, you know, still to this day. I sold, um, you know, 26 businesses, you know, 6,800 employees. But then I do what every other entrepreneur does. I'm going to keep working is what else am I going to do with my life, right? And, um, but, but then we come across your tool and we're able to do for our clients something, you know, pretty much real time. Like what? You know, once you get the right data and you get the right inputs and that kind of stuff, I can do that right off the bat and we don't have to charge you anything.

Speaker B: Right.

Speaker A: It gets us to work faster. It gets us to work faster because knowing where you are is only one step of the plan. Like you said, three to five years. Um, you know, we work on 18 months to three years, but three years to five, three to five years is really the wisest time frame to start thinking about this. But when we're in that process, I've got to get to work. So I know where you are now, I know where you want to go. That's going to inform the delta of the things that need to be worked on and in what sequence. That's the whole idea of exit planning, is how are we going to get you to your specific outcome the fastest way possible. And that's where we aligned, um, perfectly with what your tool does. Uh, um, and so I love it. Move. Let's talk a little bit about the tool. You guys just added, a new exit readiness module, um, inside of your program. So tell us a little bit about that.

Speaker B: Okay, well, this represents our evolution from discovering business value and monitoring business value to optimizing business value. So the asset readiness, uh, as we've used the term and as our module, uh, reflects also goes to business, um, value as kind of the heart of the matter. And we have a couple of different, uh, tools within our platform that help the business owner look to the future. There, there's something called potential value that we have, but then there's also, uh, exit value. So, and they're two different things. So the, the exit value page or questions and, or page and or analysis is asking the question what, what is it that you want to sell your business for when you're done and, and therefore how long will it take for you to get to that point? How many years? Yeah, so that conversation is very important. Now there's also a valuation potential number that looks at what the current value is and then says, assuming typical average, uh, economic growth over the next several years, what's, what's the potential value for, for the company? It's, it's based on assumed typical GDP growth, uh, basic financial and operational improvements that improve cash flow. With the bottom line being that basically if you can grow Your revenue by 5%, 5%, 5%, 5% over three years, 15%, that's going to increase the value of the business by 25% or more. And our exit readiness tool is prepared such that uh, the higher, the, the lower your score, like you're not ready for exit, the greater that potential value is. So the, the less planning you've done to date, the more of an upside you have.

Speaker A: That's right. And that's most everybody. That's most everybody. You know, that's, that's where that tool comes in really handy. And like I said, we, we got the tool just so that we could add value to our customers. You know, anybody that uh, calls us and says, hey, we gotta, we'll have a conversation with them just over the phone and they'll get, we'll get uh, this, this information for no charge because we both. That helps inform, uh, how much help you need. And if it's not us, we have people that we can shoot you off to. If it's us, then we'll help you. If it's, you know, because again, my passion is for the business owner. My passion is for somebody who, if you break down the psychology, the work, the blood, the sweat, the tears, you know, this, you own your own, uh, the amount of work that goes into building a successful company. You can't explain that to people who are not running a company. No, you can't explain it to them because there's sacrifice, you know, spending time away from your kids and your wife or your, or your husband and uh, and there's the constant impending. Yeah, there's the constant impending, you know, Threat of doom and going out of business. You know, there's all of these, these things. So that's where, that's why we, why we align so much with you. I know that you have the best interest in minds of the business owners. You have a great tool, it aligns with what we do. And um, I really am appreciative of the work that you guys have put in it. LinkedIn perfectly for what we do for our clients. So I'm really appreciative of that. Let's jump into a little bit of tactical uh, on your side, the three biggest value drivers, um, you talk about three big value drivers advisors should obsess over. Which means that the three ones that a business owner should obsess over and you um, call it, um, let's see, you call it revenue quality, management independence and scalable profitability. Give us that playbook.

Speaker B: You know, to me it seems simple, straightforward and obvious but it obviously isn't to everybody, uh, who, especially business owners who are you know, worried about m meeting payroll and uh, just keeping keeping their business afloat. But at the end of it all it really comes down to risk and growth. You want to minimize risk and maximize growth. I mean that's, that's kind of in a nutshell, uh, where you want to head with your exit plan. And quite possibly the single most impactful change revolves around management independence and having a uh, solid management team that is capable of running the business while you, the owner are out of pocket for six months. The more stable that outcome is, the more transferable the cash flows are. It's just, it's just that simple. It's not solely about how much money you're putting in your pocket, but how much money can you transfer to some other owner's pocket who may or may not be working full time. So management independence very important. Buyers and lenders place a premium on companies that have a capable management team and documented systems that allow operations to continue smoothly after ownership changes. EPI has found that firms with strong second tier management and transferable operations can achieve 20 to 30% higher enterprise values than otherwise, uh, owner centric businesses. 20 to 30%. That's, that's a lot of money. If your company's worth 5 million. A lot of money, A lot of money. And it's, it's worth taking three to five years to build that, that structure and take uh, advantage. Now revenue quality in a sense comes down to uh, maximizing recurring revenue and minimizing the concentration of revenue in any one customer. So basically reducing the Riskiness attached to those expected future cash flows that will accrue to the ownership by diversifying the customer base and or increasing the percentage of revenue that's recurring, uh, that you can count on into the future and then scalable profitability. That's essentially growth. Buyers pay higher multiples for companies that combine strong margins with, with clear opportunities to grow revenue without proportional increases in cost. And companies that demonstrate this ability to grow faster and have higher profit margins. Absolutely. Sell for higher multiples. Whatever you want to call it, uh, GF data calls it the quality premium and they track it statistically and it can be anywhere from 20% to 40%. Um, uh, that quality premium. Private equity research shows that 70 to 80% of enterprise value growth and successful exit comes from operational improvements and earnings expansion rather than financial engineering. So it's just, you know, it's hard work. It's the hard work of, of expanding your business, scaling your business, adding a new location, uh, buying new uh, equipment, etc. Firms with higher EBITDA margins, strong returns and demonstrated growth get higher multiples.

Speaker A: Yeah, period, Period, period.

Speaker B: So if it helps to have somebody there to coach you in that direction, do it. I mean you, even if you, even if you were to spend $25,000 to let's say a consultant who can increase your cash flow by 30% every dollar, that incremental cash flow is going to put four to five to six dollars back in the owner's pocket.

Speaker A: Yes.

Speaker B: So that 25,000 is nothing compared to what you can garner from doing these things and having a successful exit.

Speaker A: Yeah, I love that. And no, we're not going to discount our rates to $25,000.

Speaker B: Okay, 100,000.

Speaker A: There you go, there you go. Um, so let's talk, let's talk about, about the multiples, um, for a second. Because when we talk about price timing in terms a multiple is part of the terms area and that's where business owners, especially ones that are uneducated or don't know or they have a bad advisor with them or again, arrogance, ignorance, um, impatience and wrong team, uh, they get killed here. So what's your current market read and a couple of real world examples of like some war stories maybe that you have on how uh, terms can make or break an exit.

Speaker B: Yeah, I would say the multiples go to the price. So uh, if you, if you're willing to pay six times earnings, um, that's the purchase price, let's say a million dollars. But it's, it's not just about the price. It's also about the terms, how quickly are you going to get that million dollars and under what scenario are you going to get those, that million dollars? You know it's one thing to get 90% cash at closing like you can if you, if your business is financable through an SBA loan, that's great, you can get 90% cash at closing, but that's only due to subsidized lending by the federal government. Uh, but it's there definitely. Use it if you can if your business is in that range. But um, terms, all those uh, uh, uh, conditions, warranties, representations, they also can make or break a deal and ultimately determine what your actual final return is. And as a business broker, one of, one of the best tools that, that I uh, became familiar with and love to use, even though it came with a little bit of risk, was, was earn outs. And uh, you know, overall in the big picture thing, maybe one out of eight sales have an earn out. And what is an earn out? An earn out is an agreement that ties the actual final purchase price to the actual future performance of the business. So if there is a gap between the buyer and the seller in terms of what they think the company is worth, one way to bridge that gap is with the uh, earn out. And for example, um, I kind of specialized uh, in the sale of uh, tax accounting, CPA practices, smaller practices. Every single one of those deals was based on an earn out. It was 120% of expected collections subject to an earn out, subject to what the actual final collections were. So there's risk, um, but it helps to bridge the gap when there's no other way. So I really like the earn out tool when it comes to trying to make a deal, uh, get to the finish line.

Speaker A: Love that, Love that. Yeah. Earnouts, um, in my world they're risky and you know, it's a percentage of uh, um, the percentage of people that actually get their full out. But this goes to your earlier point. The reason why only like 80% of the earnouts don't get paid, the reason why is because the business was not built to sustain that when that business owner went away.

Speaker B: Right?

Speaker A: Yeah. So exit readiness. Now if you do an earn out it's going to be a more solid because you know, you know, within reason that those earnings are going to continue.

Speaker B: That's a great point. 100%. Uh, yes. The risk of an earnout no doubt would decline if all of these other uh, uh, traits or factors were considered and implemented uh, over a three to five year period. 100%. Yeah, that's good.

Speaker A: Well, one of the things that you, that you said that I agree with wholeheartedly, I can't wait to see what you're, you're gonna say. But you mentioned emotional readiness. Right? And, and it's not a just. This goes beyond the numbers. This goes beyond all that. It's. I tell people all the time, yes, we're going to prepare your business for exit, but more importantly, I'm going to prepare you to at least be a junior M and A expert. Because you have to know the game. It's not roofing, it's not H Vac, it's not car washes. It's not, you know, it's not whatever it is that you happen to be an expert about and have gained some, um, um, you know, uh, understandable, incredible ego. You're going into a whole other game, and it's called mergers and acquisitions. It's an M A game. So when you talk about the, the emotions, one of the emotions that comes up, and I want to hear what you have to say. One of the emotions that comes up is arrogance.

Speaker B: Right?

Speaker A: Arrogance, ignorance, impatience, Wrong team. And if you're getting ready for a sale, if any of those are present, something that is about 90, it's going to cause an issue. So tell me what, what your take is on the emotional readiness. What do they need to do to prepare?

Speaker B: Well, I think the answer is, comes back to what we're kind of promoting generally, and that is to have executed a plan. And that plan, if effectively implemented, should reduce any emotional stress. In other words, by the time you get to that point of exiting, you should know what amount of money you think you're going to take away and what are you going to do with it afterwards. Uh, because as you know, uh, you can become very attached to a business and selling it and walking away can leave a, a vacuum. And they need to prepare for that, uh, as as much as anything else. What, what are they going to do afterwards? But I think clearly by implementing an effective plan, you're going to minimize that emotional strain. That's, that's just a side benefit.

Speaker A: I heard it from, I heard it from someone, um, wiser than me. That said, when you're thinking about an exit, you think about six months after you've sold and you're sitting there on a Tuesday with your spouse looking at each other in the eye again, what are you going to be doing? Right? If you're not prepared for that answer, then, uh, there's a lot of things that go in because it's Again, it's about being prepared. Yes, but then what are you preparing for that battle that you're about to have with the buyer of your business? And it is a battle and they are trying to win. Right. And so understanding that you don't. You want to get everything out of the way that is controllable on your side, and this emotional thing that you're talking about is one of the biggest things that you could get out of the way. Because I've seen so many people sitting at the final thing and they go out to dinner and they have a little bit too much tequila and they blow the deal.

Speaker B: Right.

Speaker A: Or they subconsciously or unconsciously, they feel I'm not going to be needed anymore, and so they tank the deal unconsciously. Right. This emotional positioning that you talk about is so crucial for people to think about. What are you going to do next?

Speaker B: Yeah, yeah, Joe, I think in terms of preparing, you just have to be. You need to be prepared for the fact that you're not going to get everything you want. And if you're not willing to compromise, then there's never going to be a deal. It's. I mean, it's as simple as that.

Speaker A: Amen.

Speaker B: Just common sense, I suppose. But, uh, that's. That's the reality.

Speaker A: Coming from a man who's seen a ton of them.

Speaker B: Right. Yeah. Yeah. You got to be, um. Uh, if there's, if there's no flexibility at all, then everybody's just wasting their time.

Speaker A: Yeah. I got a couple more conversations or questions for you, and one of them is what's the. What is the single big, biggest mistake that owners make when it comes to exit planning?

Speaker B: That's simple. They don't. I mean, that's, that's just. That's obvious in the statistics. There's a good portion of the. Of business owners that aren't taking it seriously for. For what reason? I'm not exactly sure other than they're just too busy keeping their business afloat. Uh, then. Then to step back and invest in the future.

Speaker A: Yeah.

Speaker B: So. But I think. I think that that is slow. By the statistics. You can see that it's already changing. There's a much greater awareness now, uh, for, for sure. Um, as compared to 10 years ago and especially 20 years ago or 30, because I don't think when, when I was working, uh, as an intermediary, I don't think there even were exit planners in the early 90s.

Speaker A: Well, it's interesting you bring, you bring that up because. Right. You talk about millennials. The difference between Millennials. What? Baby boomers. Gen X. Baby boomers. Really, there was a value during that generation for longevity. Right. And the, and the quality of the business was based on how long had you been in business? Right. Am I going to pass this over to my kids? Right. And so the thought of exiting really was, hey, I'm going to live forever. Everybody has that unmitigated, uh, falsehood in their brain. And then I'm getting. My kids are going to take over. Well, they're all finding out their kids don't want to have anything to do with the thing that took them away from them for most of their childhood.

Speaker B: Yeah.

Speaker A: Yes.

Speaker B: And. And when you realize that there really was no business brokerage industry until the late 70s.

Speaker A: Yes.

Speaker B: When the, uh, VR business brokers came, came along and then kind of grew from there. Sunbelt. So, yeah, I mean, the business valuation and exit, uh, paradigm has changed markedly, you know, going back to the 70s to.

Speaker A: Until now, which right around that time was when the first private equity firm got in there. Because it's such a good value.

Speaker B: Yeah. Right.

Speaker A: And that's when they started. So that I think they, they tickled each other along the way.

Speaker B: Yes, they did. Yeah.

Speaker A: Good. Um, what is one thing that a business owner should do to move the needle between now and, let's say, uh, third. Let's see. I guess we'd be going into the fourth quarter. Right. So third quarter, what. What should they do between now and the next quarter?

Speaker B: Find a good exit planner, if, if they haven't. And among your listeners, what percent do you think are already working with an exit planner?

Speaker A: If you have, um, a guess. That's a great question. I would happen, I would say that probably my audience are just coming to the conclusion that they need to be having this exit conversation. And obviously we present ourselves as the solution to the exit planning for them, but I would say probably 15 to 20%. Um, so they're all hearing the right exact message at exactly the right time.

Speaker B: Yeah. And of that 15 to 20%, do you believe that they, they already have buy sell agreements?

Speaker A: No, no, I, again, I think that they're. Welcome everybody, to the challenge again that I've run into in the marketplace. I'll tell you, the biggest challenge is that you have people that read a book about how to exit a business and they're putting on weekend events. And then business owners, or not even business owners, people who want to buy businesses, are going to learn how to buy businesses. And then they come out and they were working at McDonald's, no shade on McDonald's, but they were working at McDonald's, but now all of a sudden, they're an acquisition expert. And I see that as a massive problem because in LinkedIn, which, you know, we want people to follow you on, but in LinkedIn, um, you get these messages, I want to buy your business. I want to buy your business. And that's typically somebody who's running a script from a weekend event that they just went to.

Speaker B: Right.

Speaker A: And so I see a lot of people that are wasting time because all of a sudden, oh, maybe my business is, is sellable. And I'll. And they go down this path with somebody. I say two questions, and you tell me if you agree with this. Due diligence saves lives. That's number one. But number the two questions are, do you have the money to pay for my business? Number one. Number two, do you know how to run a business? Right. And if those, if the answer is no to either one of those, then you should not be talking to that person as an acquisition. Serious conversation. Do you agree with that?

Speaker B: From the seller's perspective?

Speaker A: Correct.

Speaker B: Um, all other things equal. Absolutely. Yeah. I mean, it get. It gets back to the idea of wasting time.

Speaker A: Yeah.

Speaker B: If, if they don't have the money, and believe me, we, you know, we call them looky, lose, um, other names as well. You know, people have reputations of looking to buy a business for the last 10 years.

Speaker A: Right.

Speaker B: But that's another story. But, um, yeah, absolutely.

Speaker A: Yeah. 93 of the businesses that get put on biz by sell don't sell. You know, that's a, That's a huge indicator.

Speaker B: You mean biz buy don't sell?

Speaker A: Yeah, biz buy don't sell.

Speaker B: Oh, my God. I didn't know that it was that hot.

Speaker A: It's. It's 93. And, and that, that it's not just something I use them because they just publish that number themselves.

Speaker B: Right, well, and, and those are, those are. Those businesses probably are predominantly very small

Speaker A: and one and represented by brokers who don't know what they're doing. So you're, you're right. You have to do some due diligence when you have a business that you've built that is substantial enough to have built at least a half a million dollars in ebitda. Uh, you know, then. Now you're. Now you want to be right team. Not ignorance, arrogance, impatience, and, uh, wrong team. You want right team. Great information.

Speaker B: Yes.

Speaker A: That's why I brought you on the show, brother. And you've given us a wealth of information and Um, I think everybody will reach out for your white paper. Just again, if you get a chance after this show, put white paper in the comments and we'll make sure that we get you a copy of it. It's very, very much worth the read. So, last parting shot from you to the audience. What is your best piece of advice for them as they're building their business and wanting to exit their company?

Speaker B: Well, I don't want to sound like a broken record, but plan ahead.

Speaker A: Yeah.

Speaker B: Pure and simple. You got to start, uh, if you, especially if you have multiple owners, you, you need to start right away with a buy sell agreement to protect against those 5Ds, if nothing else. You don't, you know, you don't want to spend months, uh, or years in court trying to determine what a 10% interest of the business is worth. And all the money that goes with that, it can be very expensive. Be proactive. Uh, start reading, listening to, uh, Jason and, um, other reputable, uh, speakers, and look to the future. Plan ahead now, and don't wait, uh, until you regret it. Pretty simple, really.

Speaker A: I love that. Great advice, Scott. Thank you so much for joining us. Uh, um, everybody please follow Scott. Go to LinkedIn. Um, incredibly intelligent when we talk about playing a game of intellect. This is one of the men that you want to listen to. He's a very smart man. Been at this game for a very, very long time, and, um, and has a wonderful reputation, a great company. Like I said, to experience his company. We put this out all the time. Call us up, we'll give you a free valuation conversation about your, about your business. That's how him and I are connected. And I was super excited to be able to get you on the show. So thank you so much for being here. I appreciate you very much.

Speaker B: Thank you, Jason. Uh, it was my, my, uh, privilege. And, and, um, I hope that, uh, all of the listeners today follow through and, um, do what they need to do to have a proper exit.

Speaker A: Yep, I agree. I agree. All right, well, thank you everybody for watching this episode. Make sure, like you've been doing. I just want to give a big shout out for all of you that have been sharing this show. Um, that means that the information and the people that I'm bringing to you and the conversations that we're having are valuable to you and your business.

Speaker B: Right.

Speaker A: We want to, we want to make sure that we drill in the idea that everybody exits. Right. Everybody is going to exit. So I want to make sure that you have the best information that you're making the best decisions. Whether you utilize us or you find somebody else that's reputable in the business, just balance them against the information that we put out.

Speaker B: Right.

Speaker A: Because that's all we want. We want to make sure that you end up with reputable people so that you don't take your life's work, uh, the sacrifice, the risks that you've taken, and hand it off to somebody who may not care or be capable in order to shepherd you through one of the most significant interactions and transactions of your life. So thanks for being with us, thanks for sharing the show, and we'll see you on the next episode of Built to Exit. With me, your very humble host, Jason Cisneros. Ciao.