On this episode Josh speaks with Barbara Taylor about selling your business, especially during this pandemic.

Barbara Taylor helps business owners measure, grow & realize the value of their largest asset and she is selling businesses since 2006.

Barbara is a nationally recognized author on the topics of selling, buying and valuing a small business. She spent three years as a blogger for the New York Times online feature “You’re the Boss – the Art of Running a Small Business.” Her work has also appeared in Forbes, Inc. Magazine, Entrepreneur, The Huffington Post, the Northwest Arkansas Business Journal, and Arkansas Money & Politics.

She is also an Honoree of the “Women in Business” Class of 2018, awarded by the Northwest Arkansas Business Journal.

In today’s episode you will learn about:

  • Mergers and acquisition world in the time of a pandemic
  • Why is this a great time to be buying the business
  • Who can help you to target the right business to buy or to sell your company
  • What makes this process different during a pandemic

Transcript

Narrator:             Welcome to “Cracking the Cash Flow Code”, where you’ll learn what it takes to create enough cash to fill the four buckets of profit. You’ll learn what it takes to have enough cash for a great lifestyle, have enough cash for when an emergency strikes, fully fund a growth program and fund your retirement program. When you do this, you’ll have a sale ready company that will allow you to keep or sell your business. This allows you to do what you want with your business, when you want in the way you want.

In Cracking the Cash Flow code, we focus on the four areas of business that let you take your successful business and make it economically and personally sustainable. Your host, Josh Patrick, is going to help us through finding great thought leaders as well as providing insights he’s learned through his 40 years of owning, running, planning, and thinking about what it takes to make a successful business sustainable and allow you to be free of cash flow worries.

Josh:                      Hey, this is Josh Patrick. You’re at Cracking the Cash Flow Code. Today, my guest is Barbara Taylor from the company of Taylor and Taylor. I’ve known Barbara for 8, 9, and 10 years, something like that maybe longer. Barbara is the person who was responsible for me being a blogger at the New York Times which maybe we’ll get into, but probably not. She decided to give up her job. She graciously paved the way for me to step in behind her. We’re not going to talk about how you become a blogger of New York Times. Today, we’re going to be talking about the mergers and acquisition world and why I believe and hopefully Barbara might agree with that. This is a great time to be buying the business. Let’s bring Barbara on.

Hey, Barbara, how are you today?

Barbara:              I’m great, Josh. Thanks for the opportunity.

Josh:                      Oh, my pleasure. You and I have been talking about mergers and acquisition and what’s the best way to position companies itself for a long time. Unfortunately, it’s kind of hard to position the company to sell today. Would you say that makes sense?

Barbara:              I think everyone’s in a wait and see mode for a number of different reasons. I think everything’s on hold largely when it comes to sellers selling a business. We need to see how businesses are going to manage right now in the midst of this pandemic.

Then I think we’re going to have to see some amount of recovery as well to see, how do they bounce back? How do they recover from this? Do they go back to normal? How long does that take? Is there a new normal? I think there’s going to have to be some period of time. I think that’ll be different depending on your business in your industry to just kind of see where the dust settles.

Josh:                      Just to let everyone know, today is April 10th when we’re recording this. You’re probably listening this in June or July. For those who are on YouTube, who broadcasting direct to YouTube right now. Because it’s tough to sell your business, you kind of have to do some disaster scenario playing to keep your nose above water. We’ve been talking about that a lot here recently.

I also think that for businesses that have put together strong cash positions, have emergency funds, have access to lines of credit. This is not a death defying incident necessarily. It appears to me that probably one of the best times you’re ever going to come across the buy distances. If you’re a buyer, or you’re in a position to be a buyer, what kind of recommendation do you have for those folks?

Barbara:              I think you’re probably right. I think in some circumstances this is going to be a really good time to buy a business. We just finished up fantastic seller’s market which basically was ended by this pandemic. It was not just a good seller’s market. It was a great seller’s market for probably at least the last two or three years, maybe more like four or five years.

Put the marker when this pandemic started and that’s when that seller’s market ended. Valuations were high. Valuation multiples were high. I don’t think that’s going to be the case going forward. Unless you’re maybe in one of these categories of business, the lucky few that’s doing really well, a result of this.

I don’t think you can compare this to the Great Recession because it’s different on a lot of different levels. I do remember, in the midst of that whole thing, a lot of business owners saying, “I don’t ever want to have to live through something like this again. It’s just too stressful.”

I’ll be interested to see if business owner sentiment is similar in this regard with this pandemic, with business owners feeling like even if I weather the storm and things are okay, I’m really open to some other scenarios right now as far as getting out of ownership, taking chips off the table.

This is pretty terrifying for a lot of business owners. You might find a lot of business owners right now adjusting their expectations about selling and leaving. Maybe wanting to move that date up, maybe being open to some more creative exit scenarios especially with people that are in their industry. I think you might be right in certain instances.

Josh:                      My own belief is this is not going to be a decision that’s going to be left in the owner’s hands. Obviously, depends on the industry, but even if let’s say you’re a construction company, or you’re a service provider of stuff for your people like we have a security company that we do business with. It has to be well capitalized so they’re going to do fine through this whole thing, but I know that some of their competitors are not well capitalized.

They’re not going to be able to get into customer’s offices or customers houses that don’t want them around. Their cash flow is going to dry up enough where they’re going to say, if I don’t find someone to buy my assets out and it really reduce price, I’m going to have some real economic pain that I don’t want to live through. Those folks will end up going from being business owners to employees again because they’re not going to have enough money to get out of their business to retire.

Frankly, most businesses, when they’re sold, if they don’t have other things, they’re going to end up going back to work for somebody else because they’re not getting enough money to retire anyhow even in good situations that happens. In this situation, my suspicion is that there’s going to be a lot of businesses out there that may not want to go out of business, but there really isn’t any other option other than bankruptcy.

Barbara:              Yeah, I think you’re right. I think business owners are going to have to sort of accept that reality if they are in that position. Like you said, whether or not they’re not well capitalized, they don’t have the wherewithal to be able to survive this. This sort of is what it is. Forget about some goals that they had for selling as far as having a [inaudible 00:06:53] something to add to the nest egg and retire and all that and just think more along the lines of the continuity of the business.

Keeping their employees employed and being able to somehow pay off some debt or to your point, I think there’s going to be a lot of business owners suffering. If you are in a position where somebody is going to scoop you up, or integrate you into their operations, that’s great. I think there’s going to be some businesses that won’t even have that option.

Josh:                      I would agree to that. So if you’re advising somebody I know in business comes to you and says, “Barbara, I want you to help find me some businesses to buy.” What are you going to be telling them?

Barbara:              This is my general advice and I’m not sure that it’s any different now than it ever is. I think the business buyers have to have a lot of tools in their toolbox in terms of being able to locate a target. Yes, there are the public business for sale websites which there’s 80% of the businesses on their garbage and 10% or 20% are really good. There are those types of listing and you should watch them as a buyer.

Really, the best buyers tend to be very well connected. I would say you’re two source versus in terms of referrals of businesses to acquire would be CPAs first and foremost. That tends to be a trusted advisor that every business owner has. When you’re talking about these types of situations with selling or exiting, or liquidity event, they always think two things.

What am I going to get? How much do I pay in taxes? They’re thinking in terms of the financial piece of it. The first person they think of to call is not their attorney, it’s their CPA. A CPA is a great resource if you’re looking to buy a business. I would say the second resource is typically a financial planner or somebody in your position, who’s having this conversation with the business owner about their complete financial picture and to a lesser extent, attorneys and bankers as far as referral sources for finding a target to acquire. I would say CPAs, financial planners, and for better or for worse, a lot of those public databases. You’re just going to have to be really patient. We threw a lot of junk to get to the good start.

Josh:                      Would it make sense for an acquirer to hire somebody like you to help them find acquisition targets?

Barbara:              Yeah, I would look for somebody who’s a [buyer side 00:09:09] specialist. My firm doesn’t do a lot of that. We do help buyers who have identified a target. Actually, doing a search is a very, very time consuming proposition. There are people in the M&A world who specialize in buyer side searches.

So, I would look for somebody like that and certainly they have a network. That’s one of the reasons you’re going to hire them is they have an extended network of all kinds of buyers especially if you can find people who specialize in a certain industry or maybe a handful of industries.

Josh:                      How do you find somebody who’s a buyer side? Do they list themselves as buyer side M&A people? Do you do a Google search to find them or just start calling people in the phonebook?

Barbara:              Phonebook? What’s that? Google search? Yes, basically, you can be looking for any M&A firm we’ll talk about typically, do they do buyer side, do they do sell side? Do they do both? If you’re just looking for M&A firms in general, make sure it’s clear what side they help.

You can do a Google search on something like buy a business, buyer representation, buyer side representation. That’s another area where we have a good network of CPAs and attorneys asked, do you know somebody who does M&A searches for buyer side?

Josh:                      I hadn’t thought about calling CPAs, but it would make sense to do that. By the way, in this particular market that we’re in, I would be also not afraid to call banks. The reason I would not be afraid to call banks is because you’re going to see a lot of loans go into default which means the banks are starting to get into the workout realm.

They would be very, very anxious and very happy to see a lot of these clients get absorbed by other companies with the hope that they’re going to get a higher recovery rate on the loans and if the guy just goes out of business or a woman just goes out of business.

Barbara:              Yeah. The center in which you can be specific about that when your buyer—I get a lot of emails from private equity in particular, also search funds and just people who are looking for a business to buy. Whoever it is you’re communicating with, the more specific you can be the better especially with regard to how quickly you can move to get a deal closed, what kind of equity you have to inject, or what size check you can write especially if you have operational expertise, what industries you’re looking for.

Again, just general advice to anyone buying a business is be specific, whatever you may or may not think about private equity. They’re professional business buyers. They do a lot of things really well. It’s not a bad thing to imitate a lot of what they do. They’re very specific about all of it, who they are, what they’re looking for. The more specific you can be the better.

Josh:                      That’s good advice. What kind of things should they be doing as you’re going through the process of buying the business in today’s environment versus before Coronavirus? With [inaudible 00:11:56] different to be recommending to a buyer today than you would have recommended back before the virus became reality in our life?

Barbara:              That’s a good question. I’m not sure that there’s a new set of rules for buying businesses based on this pandemic. I think a lot of basics still apply. I think it’s going be really important. It’s always important to remember that this is an emotional event for a seller.

Now, you’re talking about this is a devastating event for a seller. As a buyer to try and be sensitive to that, to be patient, to be ready for there to be a lot of stress, or maybe not. I mean, maybe somebody is going to be really grateful that you’ve stepped in and you’re going to scoop up the business and employees are still going to have jobs.

Josh:                      In my opinion, I think something else is going to change also is that when times were good in businesses, we’re seeing a high multiples was because there were multiple buyers coming to the table for every deal. They were bidding the price up. I don’t think you’re going to see that now.

If you’re listening to this podcast, you say, “I need to get a business.” It’s going to be likely finding a buyer, not a multitude of buyers. Your strategy as a seller is not to pit one buyer against another. I think the buyer that comes to the table is likely the buyer you’re going to have to dance with.

Barbara:              I think that is a very good point. I think you’re absolutely right. In different times, there are all kinds of sayings about one buyer is no buyers, and you have to get competition. I think you’re right. I think that’s probably going to be the case.

Hopefully, it’s somebody with operational expertise, whether they’re a competitor or somebody that you know from your industry, but somebody who also has some sort of operational expertise that’s going to help fix this problem. Because there’s just going to be so many businesses that before this, I would call distressed which to me buying and selling but buying distressed businesses is sort of a specialty for a lot of people. Not only do you have to be able to buy them well, but then you have to be able to get in there and fix whatever the problem is.

Josh:                      If you’re in a position where you need to sell your business, it’s not a bad thing to start calling all your competitors and say, “Will you buy me?” Because the truth is in this particular environment, unless I’m getting all cash, or I’m getting cashed out of all my debt, I’m not going to be on the hook for anything.

I’m not selling my business to somebody who doesn’t have operational expertise and is a strategic buyer. For those who are listening, a strategic buyer is somebody in your industry who was just going to take your operation in fault to theirs. It’s not a separate thing all together. It seems to me that this is really a strategic buying sort of time in our life.

Barbara:              Yeah, I agree. It’s certainly much easier should be very, very straightforward.

Josh:                      Those folks know your industry. They know how to run the company. They’re likely not going to take your office staff or your overhead staff, but they’ll take your direct providers because they’re going to need at least some of that.

If your business is down by 30, 40, 50%, realize that it’s really kind of a, “Well, gee, do I get more money by liquidating my business? Do I get more money by selling my business? You’re likely to get a little bit more money by selling your business. There’s a good chance you will negotiate with your bank to get them off your back to say, “Here’s my choice, I go bankrupt, you get nothing, or you let me off the hook and we do this transaction.”

Barbara:              Yeah, I agree. I think everybody’s going to have to negotiate a lot more and be a lot more creative in this environment.

Josh:                      I’ve been doing a bunch of videos recently around this situation. I’ve been talking about scenario planning. If the scenario is bad, you have to take all the rules that you thought existed thrown out the window. For example, if you’re wanting to stay in business and you’re going to have a really hard time getting enough cash to do so, you need to be calling your creditors up and say, “Look, I can’t afford to pay you now, but I will turn this over two or three years. I’ll let you secure the note.”

That can buy you some time. If you want to sell your business, you still have to be thinking the same way. You have to be teaching the seller how to work with their creditors as you’re going through the buying process. A thought just occurred to me, one of the people you might be wanting to put on your team, if you’re on the buying side is to find a turnaround consultant to work with you.

The reason is turnaround consultants will do things that normal business owners would never think of doing. They just do it as a regular way of keeping the business alive and running. Frankly, the turnaround consultant knows how to talk to the bank when they have to. We’re one of these positions where workout is going to be a common thing, not an uncommon thing. Does that makes sense?

Barbara:              Yeah, it does. I agree with you. That is a very specialized expertise. I think that is probably a good idea to have somebody that’s got some experience doing it. Because like you said, the business owner probably isn’t even thinking about certain options that a turnaround specialist would go ahead and pursue.

Josh:                      It’s not something that I’ve ever really done especially, but it’s something I know how to do. I had to deal with my own business more than once. What you learn when you’re looking at the wall is that wall really isn’t there. It’s just a bunch of things you think are rules which really aren’t rules. Barbara, you guys focus mostly on buy side, you see any opportunity for selling businesses right now that are not distressed sales?

Barbara:              Yeah, I’m kind of thinking about this as businesses kind of falling into four different categories. Would have one category, that’s the ones that we’re talking about here that already gone out of business or they’re weeks or months away. They’re in this distress situation. I think that a lot of the options that we’re talking about today are good for those types of businesses.

After that, I would say you have businesses that they’re going to take a big hit from this, but they’re going to recover and the recovery may take months or years, but they’re going to make it. After that, I’d say there’s a category of businesses that’s actually not going to feel a lot of impact. In fact, things might be up a little or things might be down a little, but they’re going to weather it fairly well.

Again, as I’ve mentioned, they’ll be kind of a small percentage of businesses that then this is some kind of windfall because they help set up home offices or whatever they’re in some industry where this is a windfall for them. I think there will be some businesses that come out of this that are really badly tested and they have proven that the businesses it’s tough, it’s resilient, it’s possibly recession proof, or whatever you want to call it. This is an amazing test for a lot of businesses.

There are a lot of them that are going to come out of this looking very, very strong and capable and resilient. I don’t know multiples in general, it can be as high as they were. You might have to settle for valuations that aren’t sky high as they used to be. Your business may be in a good position or even if one of these businesses that recovers and shows, “Hey, we recovered from this thing.”

I think there will be some businesses that are positioned to sell. I don’t see anybody having trouble buying businesses, at least not right now? During the Great Recession, the problem was selling business. It was hard to find buyers because banks weren’t lending. They certainly weren’t lending to anybody that anything to do with small business. As long as there’s still access to capital, I still see lots of very active buyers even right now. I do think that there are some businesses that are going to have a very compelling story to tell when this is over.

Josh:                      Cool. Barbara, unfortunately, we’re going to have to leave it there. If somebody wanted to find you guys, how would they go about doing so?

Barbara:              The name of our company is Allan Taylor & Co. Our website is allantaylor.co I am at LinkedIn, Facebook and Twitter. So pretty much everywhere in the digital universe.

Josh:                      Cool. I have an offer for you which you might be interested in and especially now. For years I’ve been talking about becoming financially free from your business. I’ve used this tool on a piece of yellow pad which I’ve called the Four Boxes of Financial Independence. I made it into a little quiz is now a widget which is online. It’ll take you all seven minutes to find out whether you’re on the road to financial freedom from your business or not.

To get there, you just go to thecashflowcode.com that’s thecashflowcode.com. You click on the big orange button and you just put some information in and seven minutes later, you’re going to find out whether you’re on the road to financial freedom for your business or not. If you’re not, there are certain things you need to be doing and if you are you might be able to take advantage of some stuff that you’re not. Anyway, this is Josh Patrick here with Barbara Taylor. We’re here at Cracking the Cash Flow Code. Thanks a lot for stopping by. I hope to see you back here really soon.

Narrator:             You’ve been listening to the “Cracking the Cash Flow Code” where we ask the question, “What would it take for your business to still be around a hundred years from now?”

If you’ve liked what you’ve heard and want more information, please contact Josh Patrick at 802-846-1264 extension 102. Or visit us on our website at www.sustainablebusiness.co. Or you can send Josh an email at jpatrick@stage2solution.com. Thanks for listening and we hope to see you at Cracking the Cash Flow Code in the near future.

Topics: how to sell a business, sustainable business podcast, Sustainable Business, barbara taylor, buying business during pandemic, mergers and acquisition, how to target right business to buy, selling business during pandemic

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