Anthony Mulkern - The Secrets of Exit and Succession Planning

Men, if you're ready to reclaim your edge, listen up. I used to be held back by constant bathroom trips with multiple wake-ups during my sleep and looking for restrooms whenever I was out. Then I discovered better man. After just two months, I started experiencing fewer trips to the bathroom, less urge to go, and I even slept through some nights. I feel a noticeable boost to my overall well-being, even sexual stamina. It gives me the Freedom and confidence to live life on my terms. Betterman is clinically tested and trusted by thousands of men over 25 years. Ready to take back control? Go to Bebetternow.com to order your supply today. That's Bebetternow.com. These statements have not been evaluated by the FDA. This product is not intended to diagnose, treat, cure or prevent any disease. Use as directed. Individual results may vary. Hi everyone, it's Bill Black, the exit coach from the Exit Coach Radio show. You know, one of the biggest questions. Get on the show is what exactly goes into a business exit plan and when should I start creating mine? Well, I always tell people that the best time to start was 5 years ago, but the next best time is now because you never know when you might need it. So we put together a free report that describes what an exit plan is and what you should know. You can get it free by texting exit plan with no spaces to 442-22. That's exit plan to 44222. Again, text exit plan to 44222. Welcome to the Exit Coach Radio show, the show for baby boomer business owners who are looking for cutting edge information as they plan their 3 to 10 year business succession and exit. Every week we interview top professional advisors for their. Best tips, strategies, and precautions so you can be well planned. And now here's your host, the exit coach Bill Black. All right, thank you so much for listening today. Really appreciate you being with us. It's always a pleasure to have you with me and uh. Listening to our fantastic group of guests that come onto the show today. My next guest is Anthony Mulkern. Tony works with CEOs, founders, and owners of privately held businesses to increase their enterprise value through increasing their executive leadership skills. He has over 30 years' experience as an executive coach and business consultant. Two C-suite executives in the US And internationally, and he currently facilitates the CEO roundtable on long range exit and succession planning so that when the entrepreneur eventually decides to go to market, his or her firm will be among the small 20% of companies on the market that actually accomplish a sale. So we're going to talk about that. Why 80% of businesses that go on the market, that go to market, never sell and what you can do to make sure you're in that 20%. Tony, thanks so much for joining me today. My pleasure, Bill. I thank you very much for the opportunity. Thank you for coming on. It's, you know, it's an interesting topic. A lot of people think, Well, when I'm ready, I'll sell my business. I'll go find a business broker. I'll find someone who can sell my business and just like my house, within a few months it'll be gone and I'll move on. That's not the way it goes, huh? Not at all. According to the International Business Brokers Association, no more than about 20% of businesses that go on the market every year ever sell. That means 80% of uh business owners who try to sell their businesses end up with a severe disappointment. Yeah, dejected and rejected. Well, we're going to talk about all of that and get into the reasons for that so our listeners can try to get into that 20% before we do tell us a little bit about you, you and your background, Tony. Well, I have a background, uh, first of all, as a, uh, managing director of an investment banking firm for several years doing mergers and acquisitions. I have on several occasions served as a vice president of human resources, um, at uh financial service companies. I was invited by clients to join their firms. Um, I have an academic background, um. I taught at uh numerous universities, the MBA and and undergraduate programs. I have uh many years as a psychological counselor, and, uh, so I, I bring together the executive experience, the, uh, the academic experience, the, uh, psychological counseling experience, and, uh. It is, uh, my, uh, purpose in life right now to help business owners to, uh, increase their enterprise value to uh have a uh profitable and fulfilling business and be able to enjoy the fruits of that business when it's, uh, they decide it's time to leave. Very good. So let's start with um the what we talked about just a few seconds ago, which was why most business owners that go on the market for sale never sell. Why is that? What are some of the the biggest reasons for that? There are, uh, yeah, uh, very good question. Very, there are 4 or 5 major reasons. Uh, one of the biggest is that the business is overpriced. Often the business owners don't realize that, uh, what they're selling is an earnings stream. I recall having a conversation with a business owner, a few years ago, we were actually restructuring their debt and uh he said that he and his wife are thinking about selling their business sometime in the near future, and they expected to get $16 million for it. Of course I asked how he came up with the price. And uh he said that, well, they decided that's what they had invested in their business over the past several years. My next question was what, uh, what were your earnings last year? Uh, your EBI uh earnings before interest taxes, depreciation, amortization, he said we didn't make any money last year. So you know, I had to diplomatically tell him that, uh, not only was his business worth less than $16 million it was probably worth $16 million less. If there are no earnings, the business has no value, enterprise value, however much blood, sweat, tears, and love have gone on into the business. Even though the business is the entrepreneur's baby, the buyer is buying an earnings stream, except in those rare cases, which are called unicorns because they're so rare, where a high-tech company that's never made a a penny of profit sells for a billion dollars. Well, hoping for that is like hoping that you will dig up a 10 pound gold nugget in your backyard. It does happen, but it's so rare. It's almost as rare as winning the lottery. So the first thing is getting a sense of, uh, uh, getting a, a sense of what the real price is, what the real value is. The, uh, a second reason is that the owner is frequently waited too long to sell. Uh, they're at the point where they're, they're feeling it, I can't stand another day of this. I got to get out of here. At that point, you have a seller who probably has allowed the business to deteriorate over a number of years. Um, there have been very few new investments, products, services, or initiatives, look and feel of the business is very shabby. And the new buyer is not going to have an enthusiastic seller who will be willing to stay around 6 to 12 months to help in the transition. So at that point, you know, it's, uh, it is waiting too long essentially is what the problem is. The third is that there's often a lack of clarity as to what the value proposition of the business is. What is the, uh, are you selling really a a practice or are you selling an enterprise? Are you just selling a job? A lot of connections and revenue and a long list of contacts do not by themselves make an enterprise. They are practice and when the owner goes away, the customers go away. Some practices such as medical practices, uh, accounting practices can sell, but they sell at far lower multiple than most businesses do. And even then, there needs to be planning, careful, uh, pre-planning in order to make that transition possible. All right, let's pause. Let's pause for our listeners right here, right here. We've covered 3 points. Let's go back over theirs real quickly. The value is too high, so the owner's unrealistic about their value, and and they should probably not rely on what they heard their friends sell their business for, but go find a professional appraiser or someone who can tell them, hey, financially this is what you should ask for for your business or what it's really worth, correct? Right, yeah, the, um, And they need to be careful of business brokers who will overestimate the price they can get in order to get the listing. So business brokers have a very hard time making a really good living. You can imagine since 80% of the businesses they list are not going to sell. So they're working hard to get listings and one of the ways they get listings is by giving the, the owner potential seller an inflated price. You got to take any price you hear from anybody, your CPA, a broker, anybody with a, uh, a lot of skepticism and verify. Based upon what your real earnings are and what the real multiples are that are uh being used in the market to come up with a realistic picture. And if you have a target, I would like to get $16 million for this business and plan on what you will need to be able to show in terms of earnings and other features. In order to get that sometime in the future. Really, really good points. Now let's take the second one waiting too long so someone just doesn't pull the trigger because maybe they're, they don't know what they're going to do a lot of the time we find a lot of people don't have some, some other purpose in life they want to think about and we, you know, we hear a lot that you should, you should not be selling your business when it's at its peak. You should be selling it when it's on its way to the peak, right? Well, uh, either one would be, would be fine. I, in my, in my opinion, uh, I, I think, uh, on its way could be way much too soon. Uh, if you're not at your peak, then presumably if you're not declining, you're on your way. I would say, uh, somewhere around the peak and, um. Why you still have enough enthusiasm and care enough about it to make sure it's an ongoing concern. So you're not going to, uh, want to just walk away and not care. You're not going to be so sick of it that you can't stand to look at it, even drive by the building another day. I'm exaggerating a little bit, but I've, I've seen it where people hang on to the company they own in the same way. Say somebody in a, a, uh, A job they don't particularly like, but they needed to do because they need the money to hang on to it in the same way, and you cannot do that and have the business maintain vitality, growth, uh, enthusiastic people and be an attractive acquisition target. Yeah, great points. And the third, the third point you made about not being clear what it is that you're selling, in some cases you have a practice like you mentioned. A lot of people are in the service industry and they have a service-based business, but more people, and I think the books, the e-myth books, things that were written like that kind of help people understand that hey, maybe you have a business and maybe you just have a crazy job. Yeah, it, it's possible, and there's nothing wrong with that. It's great to, to have a, uh, be self-employed, uh, your, uh, uh, like some tradespeople, some, some independent plumbers, they have a truck and they have a, uh, all the equipment they need and they have all the licenses and they're happy and making a great living, but As long as that's what you have, fine, um, but don't expect that it's going to sell because you don't really have an enterprise, you have a practice. Another example would be, you mentioned franchises, let's say, I, there's a mom and pop sandwich shop, and they do well and they do a great job and they have a lot of loyal customers and they decide, uh, they'd like to sell. And they find a buyer who's always wanted to own a sandwich shop, but who are your competitors in that sale? Your competitors are franchises like Subway. You buy a Subway franchise and you get all of the, uh, Uh, you, you have the supplies, you have the procedures, you have the policies, you have the, the corporate support and accounting and HR and on and on and on. And you as an independent standalone business are going to try to compete with that. Making it on your own, uh, versus having the support of a huge franchise. It's a very, very tough sell. And uh so you, you that's a really good point. A lot of these businesses that have been around for 20 years or so didn't have franchises to compete with. They weren't there. That's why that's probably why they started their business in the first place. Let's, let's move on to a very interesting part of the discussion, which is you say that you increase enterprise value through effective executive leadership. What does that mean? Let's let's talk about that. Well, uh, sure, the typical entrepreneurs, the genius of bringing together a core idea, team, core team, and the capital to start the business. They typically are not highly skilled executives. Give you an example, one way in which I've helped people, uh, CEOs, entrepreneurs a lot. is in hiring other executives. This is a very expensive enterprise or undertaking. And uh it's critical that you build a great team if you're going to have an ongoing enterprise. But, you know, the typical entrepreneurial interview. Is 30 minutes of the entrepreneur bragging to the candidate about their business, telling them all about it, not asking questions, and then they almost telegraph what they're looking for. You know, we need somebody who is, uh, a self-starter, has a passion for the industry, uh, does whatever it takes to, uh, get the job done, and as a team player. And then after 30 or 40 minutes of this, so what, so tell me about yourself. And the candidate responds, well, I have a passion for the industry. I'm a team player. I do whatever it takes to get the job done, etc. uh, so, and then the entrepreneur says, well, you sound like just the kind of person we need. Now, it's a bit of an exaggeration, but not much. So the selection procedure for hiring executives is not something that most entrepreneurs are familiar with, and they go by the seat of their pants, or they go strictly on the basis of the recommendations of an executive recruiter. Now, I have used the executive recruiters a lot in the past. In many cases, they're invaluable, and I, I want to emphasize their importance. However, They're trying to make a sale too. And the executive recruiter themselves, they need to be managed. I say that because I have found that many executive recruiters use the, uh, what I call the wine tasting gambit. If you've ever gone to a wine tastes to get in the, in the vineyard country, you go in and they have 5 wines that they want you to taste. The first two are real swell, and the last one, think, oh this is great. That's the one they're trying to sell. And many executive recruiters, they will send you 4 or 5 candidates. And If you have not bought by the end of the 5th 1, they begin to lose interest. Some of them will even require you to repay the, uh, pay again the upfront fees if the search goes on for more than a year. It is really important that the executive hire process be well managed, that the interviews be done professionally, that uh there'll be penetrating questions asked, and that uh A careful assessment be done of the candidates that you have in front of you. So that is one way in which I have to build enterprise value. You cannot grow the firm without a good team. You cannot have a good team without really qualified candidates in the executive roles, especially that fit. And there are many executive candidates on the on the market. They are very well coached in how to get a job, but not particularly well coached in how to do the job. And entrepreneurs, growing entrepreneurial companies I find are often soft touches for Candidates from Fortune 500, Fortune 100 companies who think it's going to be very romantic to go work for an entrepreneurial company and find out it doesn't fit at all. They don't have the budgets, they don't have the support, they don't have the perks that they come to expect and feel entitled to. So that's one example. Yeah, and as these business owners that you're talking about as they as they find people and hire people, a lot of times they have expectations that that person, if they can't sell the business to an outside buyer, that person will take over and run their business, but in many cases they haven't had those conversations and the problem is that key employee. As I call them, becomes a valuable commodity for the competition out there who's trying to figure out their succession strategy. So it's important if you find somebody good to keep them. Let's talk about the businesses that are able to sell the 20%. What are some of the characteristics of businesses that are on the market that have accomplished or can't accomplish a successful sale? Uh, uh, sure. Uh, I'd love to cover that. First of all, I tend to have a history of significant earnings. Now, again, there are, there are the unicorn exceptions, but in general, for 90% of the businesses that sell, if not more, they will have a history of uh significant earnings. They also have a history of significant capital investment. New equipment, new processes, uh, new, uh. Infrastructure has constantly been renewed. They have a they will also tend to have a, a very strong Uh, motivated focused team that's gonna want to stay. They see the, the potential, they see the, they're excited about the growth opportunities. They, uh, are looking forward to the continuation of the firm. There is also a, a financial or business model that can be scaled. It has built within it the potential for growing, uh, maybe geometrically, but uh uh you refer to the EIth book where things are franchised in the sense of, of being reduced to or being organized by processes which can be replicated. So, Replicated scale, I mean, it's sort of the same thing here. They also have incredible growth plans. They don't just have some vague hopes based on no research on the market, the economy, technology, or anything else, but they have some credible growth plans. They've got customers that are loyal, counted on not to flee at the at the the uh. I have the news of a new owner coming on board. They've got a distinct brand identity. are valuable intellectual property so that they have, they have distinct competitive advantage. They're not just a commodity, they're not just one more thing. So it, it adds up to, uh, you know, they got all of these things give the, the business the capacity to attract investment bankers, um, the best brokers in the field, and to, uh, Achieve really what he called a virtual auction where you have buyers that are competing with one another to get the deal. But those are the, the, if a company has all of those things that I just listed, that your chances of selling have gone up, uh, at, at a great level, exponentially. Excellent, excellent tips, Tony. I can't tell you how much I have enjoyed listening and learning from you today, and I hope our listeners have been taking as many notes as I have because it's really been terrific, and I want to let our listeners know that you have an e-book called The Secrets of Exit and Succession Planning, and all they have to do is sign up for your bi-monthly email column at www.mulerassociates.com. I'll spell that. M U L K E R N associates dot com. We um We covered so much ground today and you gave us so many great tips. I really appreciate it. Love to have you back and have you bring, bring us some more of your great knowledge and wisdom, but we're going to have to move on today. Thank you so much for joining me, and I hope to talk to you again very soon. Great, thank you. Me too, Bill. Thanks so much. Thank you for listening to Exit Coach Radio. This podcast is sponsored by TalkSpace. May is Mental Health Awareness Month, and TalkSpace, the leading virtual therapy provider, is telling everyone, let's face it, in therapy, by talking or texting with a supportive licensed therapist at TalkSpace, you can face whatever is holding you back, whether it's mental health symptoms, relationship drama, past trauma, bad habits, or another challenge that you need support to work through. It's easy to sign up. Just go to Talkspace.com and you'll be paired with a provider typically within 48 hours. 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