On this episode Josh speaks with Michelle Seiler Tucker, Founder and President of Sieler Tucker, which specializes in selling businesses. They discuss things to keep in mind when thinking about selling your business.
Michelle Seiler Tucker is the Founder and CEO of Seiler Tucker Incorporated. As a 20-year veteran in mergers & acquisitions, Michelle has sold hundreds of businesses.
Recognized as the leading authority on buying, selling, fixing, and growing businesses, Michelle sees opportunity where many are discouraged or have given up. Her passion is to save businesses that might otherwise close. By identifying and correcting the top mistakes business owners make, Michelle will fine tune a business into a well-oiled machine. Sometimes investing her own money to help owners build their business, Michelle’s primary objective is to sell for huge profits.
In today’s episode you will learn about:
- Planning your exit
- Evaluations of your business
- Building your business to sell
- How to buy/sell companies
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 emergency strikes, fully fund the growth program, and fund your retirement program. When you do this, you will 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, how are you today? This is Josh Patrick. You’re at Cracking the Cash Flow Code. My guest today is Michelle Seiler Tucker. She has a new book coming out calling the Exit Rich book where you can find out more information about that book at https://exitrichbook.com/. We’re going to talk about succession and exit planning from your business. My first thing that I’m curious about with Michelle is what is Exit Rich? What do you mean by that?
Michelle: Well, that’s funny because this is my second book that I’ve come out with about selling your business. Exit Rich, the reason I came up with that title is because unfortunately so many business owners are exiting poor. So many business owners are exiting poor because they don’t plan their exit.
They don’t think about selling until catastrophic event has occurred rather that’s an internal or external. They just don’t plan their exit. The worst time to sell your business is when a catastrophic event has occurred or when in the middle of a pandemic. The best time to sell is when your business is doing well. Exit Rich is all about building a sustainable, scalable and when you’re ready, sellable business so you can exit rich.
Josh: So out of curiosity, I always like to ask people in the exit planning world this question, what is the most important thing a business owner can do to make their business attractive to a buyer?
Michelle: Well, I call it— it’s more than just one important thing, Josh. I call it six important things which are the six P’s. Number one, you’re going to have people. I came in begin to tell you how many business owners want to sell their business, but they don’t have a team in place.
They don’t have a management team in place. The business is 1000%, dependent upon them. If we pull that owner of the business, there’s not much of a business. I’ve seen this happen with even multimillion dollar companies or the owner isn’t everything and the business can’t really function without the owner. So number one is people.
The other most important thing when you’re selling a business is to make sure you’re in the right industry. Right now restaurants are not selling hospitality is not selling. You have to ask yourself, is your industry thriving or is your industry dying? You have to be in the right industry. You have to have the right product.
Josh: Yeah, but you have your industry, you’re stuck with the industry, you can’t change it.
Michelle: We can’t change the industry, but there are things that you can do the pivot. There’s things that restaurants can do and they’re doing them right now or restaurants are creating experiences online where they’re selling experiences, where they’ll have the chef send you a gourmet box of food and you can do cooking with the chef or you can do wine and tasting experiences.
There are restaurants in New Orleans joining us right now so no matter what industry you’re in, if your industry is dying because of the pandemic, you need to pivot. You need to get creative. You need to throw the box away and figure out a different way to connect with your clients. You need to ask yourself, what business are you in and what business should you be in?
Josh: Okay, my answer to that is the most important thing a business owner can do is they can become operationally irrelevant in their business and if they don’t, they don’t have a sellable business.
Michelle: Yeah, which is what I said with people. We just said it differently.
Josh: So only for an outrageous price. How do you go about doing that?
Michelle: The only way to sell for an outrageous price is to have a company that’s going to be attractive to a lot of buyers. We have over 25,000 buyers that we work with. Now we don’t work with them every single day. We have 25,000 buyers in our database. There are five different types of buyers. What we find is when we have businesses that have an EBITDA of over a million or over $2 million, we have more buyers for those type of businesses than any other type.
There are more buyers for good businesses and are good businesses to buy. We can easily bring 500, 600 700 buyers to the table. What we look at is what are those synergies? What is the buyer willing to pay more for? Are they willing to pay more for contracts? Yes, as long as those contracts are transferable.
Are they willing to pay more for patents? Are they willing to pay more for a trademark? Are they willing to pay more for certain contracts to certain customer relationship that they can’t get into right now and that will be yes. So we look for buyers that are willing to outbid others to pay for certain synergies and create a bidding war. That’s how we can sometimes get our clients a higher price.
Josh: When you say a bidding war, are you talking about using what’s called Structured Auction?
Michelle: No, we’re not doing a structured auction. We just like I said, [inaudible 00:05:47] manufacturing company. I placed a $9 million range. We have 550 buyers for this particular business. It was all manufacturing. They had a few patterns. They had 60% of their business tied up MBP.
We found a strategic there wasn’t a similar business, similar products, but different, but had been trying to get into BP for years and never could get in. They wanted that BP relationship because they were confident that once they got into BP that they will be able to sell their products and services to BP as well.
Josh: Okay, that’s an unusual situation, but most businesses I’ve run across don’t have– there might be some strategic buyers hanging around. Strategic buyer for those who don’t know is somebody who can buy your business and make a bunch of your overhead disappear overnight typically as a competitor.
Michelle: Competitor strategic.
Josh: Yes. That’s an unusual situation. In my experience, most of the time, a business will have three or four or five people interested. What would prevent you from doing it auction for that? Structure auction, again is where you get a bunch of buyers who are bidding against each other for the business.
Michelle: Yeah. So you’re asking me what would prevent me from doing structure auction.
Michelle: Nothing would prevent me from that. I think the reason that we’re able to get so many buyers than other M&A advisors are probably what you’ve seen in your experience is that just, I’ve been in business over 20 years. We have so many buyers that we work with. We work with over 3000 private equity groups. Throughout the years, we’ve developed these relationships with buyers.
I have a sophisticated serial entrepreneurial who pretty much gives me an [inaudible 00:07:29] on I would say probably 20% of every listing we take. Again, we’re just able to bring so many more buyers to look at a business. Again, everything’s confidential. We have non disclosures, but we’re able to just get a lot more buyers than I think other advisors are.
Josh: Well, my experience is anybody who’s a real player in the M&A world has the same sort of database they go into. They bring it down to maybe 20 people who will get a look at the business and they usually bring it down to three to five. They bring into an auction process. That’s how they tend to get better prices. Everybody has their own way of doing that. Do you consider yourself a business broker or an investment banker?
Michelle: I consider myself to be mergers and acquisitions masquerading mediary which is my [inaudible 00:08:22] which is what I am certified by M&A source.
Josh: I didn’t understand what you just said, I’m sorry.
Michelle: I’m a mergers and acquisitions mastering mediary. M&A advisor is what I consider myself. Now I don’t just sell businesses so maybe it’s important for you to know this. I also buy businesses. I partner with business owners. I help business owners build to sell their business so they will have a sellable asset.
Josh: When you build the sellable business, what do you focus on?
Michelle: I focus on the people, the team, put in the right management team. I focus on making sure that processes are productive and efficient, designed with the customer experience in mind that is well documented, that we have [inaudible 00:09:03] everybody’s trained on it. I focus on IP, [inaudible 00:09:07] IP. I focus to make sure we have diverse client base and obviously profits.
Josh: Okay, of those what would you consider is the most important?
Michelle: Well, obviously, everybody wants profits, right? I always say profits are never the problem. It’s always a symptom of not having the right people in place or not having the right processes or not being in the right industry. There’s so many reasons that cause a lot lack of profits. I think they’re all [inaudible 00:09:33] but number one, I would say people.
Josh: Peter Drucker always said profits are a result not a purpose which always makes sense to me. So when you say people, what do you mean by people?
Michelle: Having the right people in the right seat so many times business owners pulled in many different directions. They are doing things that they shouldn’t be doing or working in the business not working “on” their business. I think you have to have the right people in the right seats. You need to have a management team in place. Like you said earlier that the business is not dependent upon the owner.
Josh: How do you go about figuring out who are the right people in the right seat and bringing them into the business? Also get the owner of the business to play by a set of rules and be consistent about it?
Michelle: That’s the challenging part. How do you do it, Josh? I mean, I partner with business owners all the time. One of the biggest issues with partnering with business owners is getting them to change their habits and getting them to grow themselves bigger so that they can grow the business bigger, but to take them out of the business because they’re so stuck in doing things the same old way.
That’s been my biggest challenge sometimes partnering with other owners is just getting them to get unstuck and look at things that do things differently. I’m sure you have that same challenge as well in consulting.
Josh: Well, we do have an issue with that. The way we look at it is we ask them to understand that systems are important for their people even though they hate them. We also give them a pass on not following all the systems to get put in place.
Michelle: I was going to say the other problem I see is that business owners, they just want to replace employees so quickly. They don’t want to give them a chance.
Josh: That’s because business owners, as a rule, blame their people and not look at the systems or don’t look in the mirror to see what kind of problems they’re causing. I think that’s a really important thing for them to do is to understand that and this really goes to W. Edwards Deming, who wrote his 14 points, and two of his points were, don’t blame the person playing the manager.
Don’t blame the person blame the system. If you can get an owner to look at those two things, it generally becomes an easier conversation to have. The other issue is we focus on helping the business owner realize, what are the steps of becoming operationally irrelevant? Most of the time I find that owners when they first hear that word say, “Yes, that’s what I want.” Then you say, “Okay, great. Let’s figure out how we can do that.”
Michelle: But when it comes down to doing it, they don’t really want to do it.
Josh: Actually, that they might experience. I think it depends on the business owner. There’s a reason that businesses stay small. In my experience, the reason they stay small is because the owner has never learned how to be an effective delegator. They’ve tried it and they say, “Well, that doesn’t work so I can’t do that again.” We teach them how to become great delegators, or as I call delegating ninjas. You’re really not a good delegator in my opinion to your delegating to managers, of managers.
Michelle: I agree.
Josh: It’s relatively easy to delegate the first time because now you’re just having a bunch of helpers. When you bring that first level managers in who manage other people in your company. Now you’re managing managers. That’s where delegation gets hard or at least in our experience. We were just recurring revenue fit into your model for selling businesses at a ridiculous price.
Michelle: I think recurring revenue is huge. We’re working with a couple of ecommerce businesses right now. Whenever they have a recurring model, a membership, anything like that, it definitely adds value because that’s what buyers are looking for. Buyers are looking for a business that’s sustainable, a business that has congruent revenue centers, multiple concurrent revenue centers and has reoccurring revenue. That’s what every buyer wants to buy. It definitely adds value. It definitely brings more buyers when a business has that.
Josh: Most of the people listening to this podcast are on blue collar businesses. Blue collar businesses are construction companies. Construction companies by their nature are only as good as the last bit. So what advice would you give a construction company about what they should do to make themselves attractive to a buyer?
Michelle: What type of construction are we talking about?
Josh: Doesn’t matter.
Michelle: We’re selling a construction company right now in the $40 to $60 million range, but that’s probably not the listeners, right?
Josh: Well, there’s maybe some there. We have a construction company in town that was doing $500 million dollars very profitable. They ended up forming in [inaudible 00:14:50] because [inaudible 00:14:51] price was higher than they could get in the marketplace. They sold the business to an [inaudible 00:14:55] but assuming your sellers don’t want to do that or not in a position to do so, what kind of recommendation would you make to them so they become attractive to a buyer?
Michelle: One of the biggest issues that I see with construction companies is that they don’t have teams in place. A lot of them and it depends. I mean a lot of them have subcontractors. The businesses dependent upon the owner, the owner has relationships with the subcontractors. The owner has relationship with the clients, the owners doing the bidding. The owners pretty much wearing all the hats and doing all the work. I would say you own a glorified job not a company.
I would encourage them to build a business. I should probably hire you, Josh, but I would encourage them to build a business and make sure that they build a team and have people because no buyer wants to buy a job. The reason we’re able to sell our construction company right now in between that price range that I gave you is because I have 150 employees. The owner is on his boat all the time. His family run the business. He’s got good management team in place.
When I say his family, I don’t want to kind of give it away because it’s a Louisiana company. He has a couple of family members that help run the company. Plus he has a great management team in place. The business definitely operates without him. He’s got about $100 million of whip work in progress. The company does very well because he’s built an actual business. For any industry, rather its construction, rather it’s trucking, it doesn’t matter the industry, you have to build a business as the biggest issue that I see with the smaller companies is they’re just not building the business and the owners wearing all the hats.
Josh: Yeah, I would say that the vast majority of businesses don’t get sold or transfer. They just close up and go away.
Michelle: You’re 1000% correct. According to Steve Forbes, eight out of 10 businesses do not sell.
Josh: Yeah. That’s even true with sellable businesses. I think if I’m not mistaken about 50% of the businesses which are considered saleable, never sell either. They go on market and they can’t get a buyer for it for a variety of reasons. One of the things we always recommend is that before you even think about selling, go through a mock due diligence. Examine your own company and figure out where your weaknesses and your strengths are and what you can do to manage those weaknesses along the way, if you’re going to go through the process.
Michelle: That’s a great point. We do that with our clients. We always try to find the skeletons in the closet and bring them out. We point out the strengths, point out the weaknesses, try to get the owners to fix the weaknesses if they can during the process. We always do that. We want the buyer to know what the weaknesses are and where the bodies are buried.
Josh: For me the businesses you’re dealing with private equity is your logical buyers, is that correct?
Michelle: We have private equity. We work a lot with competitors strategic. We also work a lot with serial entrepreneurs as well that buy lots of businesses from us.
Josh: Well, serial entrepreneur, would you put them in sort of in the private equity bucket?
Michelle: I would not put them in a private equity bucket. Now, Private Equity buys two ways. It buys based upon platform that I buy based upon add on. Serial entrepreneurs, they’re industry agnostic. They’re more EBITDA focused. I have one gentleman that is in trucking. He owns hospitals. He owns construction. He owns manufacturing. He just started owning retirement homes. He’s all across the map, but he’s more EBITDA specific than anything whereas private equity groups are going to look at platforms or look at add-ons.
Josh: Well, speaking of it, EBITDA by the way, for those who don’t know is stands for Earnings Before Interest, Taxes, Depreciation, and Amortization otherwise known as your cash flow from your business. What kind of multiples can someone expect to get from their business? Why should they be looking at EBITDA versus multiple sales?
Michelle: Have you ever seen a client get a multiple of gross revenues?
Josh: Yeah, but they’re always done buyers to do that. Sophisticated buyers do not do multiple gross sales. They always do multiple cash flow.
Michelle: I don’t want to offend anybody, but it’s also CPAs who tell their clients so they can get a multiple they can get three times so gross revenues. Like you just said it, educated buyers are not going to pay a multiple of gross revenue. A first time buyer might, but then that’s a lawsuit waiting to happen because they’re going to try to sit on reps and warranties or something else.
No, it’s always a multiple of EBITDA, SDE as never almost [inaudible 00:19:34] gross revenues for sophisticated buyers. We typically deal with sophisticated buyers. I would say that really depends because that’s kind of all over the board. It has a lot to do with how long the business has been in business. What the industry is. The higher the EBITDA, the higher the multiple. Again, it depends upon synergies because those who hold the gold make the rules.
Buyers, I’ve seen buyers offer a lot more money and pay a higher multiple because they want that particular synergy. They want that patent. They want that contract. They want that team. They want something that they don’t currently have. They’re willing to pay more for it, but multiples for smaller companies, they can be anywhere from two to three and a half.
The construction company, we’re at seven. We have an agriculture company that we’re selling that their EBITDA even has about 16 million or probably be around seven, seven and a half for that particular company. Does that answer your question, Josh?
Josh: In a sense, but what you’re really saying is, the higher your EBITDA, the higher the multiple.
Josh: The reason for that is higher the EBITDA, the more stable the company is.
Michelle: The more stable the company, yes. The more the company operates and again, what I call the six P’s as outlined in Exit Rich. You got the right people in place. You got the management team in place. You’re in the right industry. Industry is thriving, not dying.
If it was dying, you wouldn’t be having a high EBITDA. Usually I have efficient processes. They’re well documented. Everybody’s trained on them. You have IP in place, proprietary. You have patrons, diversify clientele, loyal clientele, and you’re making money.
Josh: Those are all good things to do. Michelle, unfortunately, we are out of time. I’m sure some people are going to want to find your book and find you and maybe think about getting your advice about selling their company and how would they go about doing so?
Michelle: They can go to https://exitrichbook.com/ which is right here on the screen. To purchase the book, they can also go to Seiler and I’m going spell that for your listeners. That’s as S-E-I-L-E-R Tucker https://www.seilertucker.com/. That’s our website.
Josh: Okay, cool. I have two things I would like you to do. First of all, I’d like you to go visit our website at https://sustainablebusiness.co/ and that’s co not .com. It’s one those fancy new URLs. There you can find our podcast. When you find our podcast, I would love to have you go wherever you’re listening to your podcast and leave an honest rating and review is really, really important for us.
The second thing is since we’re talking about having your company sale ready, I’ve actually written an eBook on having the sale ready company. It’s the eight steps you need to do to have a sale ready company. It’s easy to get. Just go again to https://sustainablebusiness.co/saleready and you’ll get our eBook on the eight steps that you need to take before you get your business ready to sell and contact somebody like Michelle. This is Josh Patrick. You’re with Michelle Seiler Tucker. You’re 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 Cracking the Cash Flow Code where we ask the question, “What would it take for your business to still be around 100 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 firstname.lastname@example.org.
Thanks for listening and we hope to see you at Cracking the Cash Flow Code in the near future.