Chad Peterson - Tips from a top business broker about selling your business

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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. Well, everyone, thanks so much for joining me once again today. It's always a pleasure to have you with me. You know, one of the hallmarks of a great baseball player is that they hit somewhere in the range of about 3 to 4 of every ball's coming out. If they hit 4, they're really something else. If they hit 3, they're really, really good. Our next guest Chad Peterson of Peterson Acquisitions has a closing rate at selling businesses in the 90% range. So you might want to grab a piece of paper and something to write with him to get ready to take some notes. He's the author of Swinging Doors and also the host of the Business Brokers podcast. Ladies and gentlemen, Chad Peterson. Chad, welcome to the show. Well, thank you for having me on your show, Bill. I believe your audience is my audience as well. I look forward to being on. Yeah, my audience is the getting ready for prime time and you're, you're the prime time. You're, you're what we're getting them ready for is to monetize that business to turn all of their their life's work into a check that they can basically live on or move on. And so it's a pleasure to have you on as well, Chad. Before we get into the You know, talking about what it takes to get your business ready for sale. Tell our listeners a little bit about you and your background. Well, um, I'm Chad Peterson, I'm 41 years old. I'm more than likely one of the more younger brokers you'll find out there, and, uh, the reason that that I've done so well at what I've done is because I've been self-employed my entire life and I got into this this business by the natural way, by building my businesses and selling them. I didn't sell them myself, but I had gone through the process, um, several times with with another broker. And it was hinted to me ever so gently, Chad, you're so good at this, you're so good at, you know, building and selling businesses, why don't you help other people do it? So I began doing that and I was at first an unpaid consultant, which is one of the worst things you can be, you know, because people were coming to me asking me for help, and it was just after a while I had realized I need to start charging for this and turn this into a full-time business, and that was eons ago. But that's how I got into the business is is bootstrapping my way. Through every business that I had ever built and sold, and I came to the market with tenacity because I had lost $10 million in '08. My business that I had at that time was worth $10 million. I held on to it too long. When you're, when, when you're doing well is the time to sell. Where there's no passion, there is no profit. And I was losing passion, but I was making a hell of a lot of money. And I was approached to be bought. I wouldn't do it because it was a gravy train with biscuit wheels, and I just missed the ball. And so I just amped it up even more because I'm not going to let people go through what I did. And I'm gonna help people with a good exit strategy so they can plan on selling, maximize their their exit, and help them move on to their next adventure. Wow, that's a, that's a great background and uh sounds like uh experience was a uh a harsh teacher to you, but again, that gives you the passion to be able to tell people don't, don't wait too long and look what happened to me and, um, and now you're able to help people, uh, in their, um, area. What you know, the thing about today is a lot of people are saying, well, today we're kind of at a If if the economic clock is a clock face, we're kind of at 11 o'clock maybe right now is a good time to sell for a lot of business owners because for a lot of them they're busy and doing well and they remember not too long ago in 2008 through probably 2012, things were pretty tough. Do you find that a lot of people now are interested in in kicking the tires and seeing what the business is worth and trying to get it sold? I don't, um, we, I don't see a lot of people that are chomping at the bit to sell. Um, I have plenty of clients right now, but the the reason I don't see the people that, you know, anxiously waiting to sell is is because Uh, they're doing well and so it's a, it's a misnomer in the mind, you know, most people call me because, you know, they call me and say, Chad, I'm doing terrible. I need to sell and I'm like, well, I can't help you when you're doing well is the time to sell. Don't wait. You, you can't wait. You have to sell at the top of your game and. I believe the reason that I don't see a lot of people coming to sell in addition to the answer I just gave you, is because they believe they have to exit at either a certain number for their business or a certain age. Two of them are totally false. Disease can strike at any age, death can strike at any age, disability can strike at any age. There's there's no exact timeline when you should sell. If you're doing well, go ahead and sell now you sell for the most you can because we're in this Trump economy that we've never seen. It's unbelievable. The economy is roaring and you know we're, we're bound for a correction, right? I mean, we, we're gonna have to have some sort of correction. I'm not saying the sky's gonna turn black and it's gonna be 1930 again. I'm not even gonna say it's going to be 8 again, but this has to come down a little bit. We were due before Trump got into office. So now that everybody's fat and happy in their business, they're not really, you know, they're thinking they have to sell for a certain number and a certain age. But if you were to sell your business and you had a lot of dry powder, I can show you how to make 4,000% on your money if you want to move on up and go to a different adventure rather than thinking of selling. And just sitting on your duff and not doing anything the rest of your life, which that's also a misnomer. All these, uh, you know, money management companies that promote retirement and sitting around and drinking iced tea and linen on the beach, that doesn't work. I've, I've sold businesses for people that are 70 years old. They're ready to retire, and at 72 they come back to me and they buy another business for me because they're bored to death. So the the the retirement thing is um. It is a fickle misnomer because you must sell and and think about your next step, because even if you're 60 years old or 65 years old, you're still 35 in your mind, you gotta keep on going. Mhm. Absolutely right. And you know, you mentioned something earlier. You said no passion, no profit, which I really like, let's let's address that because a lot of business owners have been running the business for a long time, maybe 30, 40, 50 years even if they started really young, and then they're all kind of saying, I don't, I don't know, like, like you said, I don't know if I want to retire, but I certainly want to rewire my life and do something different and take on some other challenges and like you mentioned. Most business owners are Type A personalities. They, they didn't get where they are, uh, by, by being, you know, safe and, and sitting around. You are correct about that and, and you know, let me, let me address something within that question I think is important. I, I think there's two types of people, there's entrepreneurs and business owners. Sometimes the line gets blurred. So let's just say some of your audience, uh, uh, these baby boomers are entrepreneurs. That's truly who they are in their heart, which is a a big distinction from business owner. Business owner has a lot more management within them. An entrepreneur likes to go in there and build this company, get it going. He's got a vision, he's got a passion. You know, it's, it's the Henry Fords and the, you know, the, the, the triumphant leaders of the past. That's really what entrepreneurs are. But these baby boomers more than likely put themselves into a business management role within their entrepreneurial, um, being within their business, and they stuck with that. Well, maybe they're not the greatest business manager or business runner, maybe somebody else could do the day to day grind better than they could. And but, but this has been the milk cow that has been delivering and so they've held on to it for a long time. Now, even if you're in the wrong position and you're being you're more of an entrepreneur, but you're a business owner, being a business manager, the day to day, you know, nurturing guy, um, your passion can start to wane, and the reason your passion is waning is because you're in the wrong position. Entrepreneurs are usually good for 3 or 4 years and then they gotta get out. That's one of the greatest things about our country, you know, every 4 years we get the the gusto of a new president or the or the possibility of, if not 8 years, and that gives somebody with new energy, you know, being a president is is is kind of an entrepreneurial set up, you know, how much can you do in 4 years and then give it to somebody else? And if people haven't been abiding to that mentality, they're probably burning themselves out in some fashion, but to answer your question more. Clearly on passion and profit, people come to me and they say, hey, I think we're ready to sell, and I already know they're ready to sell, because by the time they've contacted me, they've thought about it for hundreds and hundreds and hundreds of hours. It might not be every day, but sometimes, you know, they, they have something happen and it's just a pain in the ass in their business and they're just like, damn it, maybe I should just sell this place and then a couple days later, everything's good again, you know, this ebb and flow happens for a long time before they contact me and. What they'll do is they'll contact me. Let's just say somebody contacted me in 2016 and they were thinking about selling, but they get so emotionally gripped to their business because of an age or a certain number, or they're just scared to sell because this is what's been doing it for them for so long and they have confirmation bias because, you know, this keeps confirming them that this is making their money and so they have to stay right here for any number of reasons people stay where they're at. But as their passion goes down, I can see the profit on their profit and loss drop. I've seen it countless times and so then they'll call me, let's just say they called me two years later, they'll say, hey, I think we're ready to sell, and I'm like, OK, and I'll look back on the records in 2016, they were up 15, 20% to where they're at now. Now that affects their end game, their end exit price quite a bit, you know, and and and so so again. Where there's no passion, there is no profit. When you're doing well it's time to sell. There's no time that's perfect to sell, you know, tragedy, disease, illness, disability can always hit you. Sell, take your money, and walk on to the next adventure, and it only takes 10% to buy a business. So let's just say you wanted to buy, let's just say right now one of your baby boomers is making $5000 a year, let's just say. And they want to sell their business. Let's just say I end up getting that business sold for 1.7 $1.8 million. We can sell that business. They can walk with let's just say 1.7 or $1.8 million. If they wanted to to go buy a business that fit their emotional needs at their point in their life now, what they feel comfortable doing, I'm not talking about going back to being 25 or 30 years old with an ax to grind, working from 7 a.m. to 8 p.m. I'm not talking about that. I'm talking about buying a business that would require them 5 or 10 hours a week, maintaining the books, taking care of their management, and if they wanted to go make, you know, $2 million a year. It would only take, you know, $700,000 out of their $1.7 million that they just got in their pocket. And now they walk with a million dollars and now they got a business making them $2 million a year. And so people get so focused, it's it's an inflection point where they just don't know, you know, what's going on and they got to make a decision and they make no decision and the best decision is to sell and move on to something that's that's gonna work for you, not immediately. I tell people this, listen, sell your business, help the buyer transition, and then and then go go take a break. Why don't you take a year-long break and why don't you and I work on getting you to the next business that suits your needs at this time in your life. And that way they, they have enough time to sit around on their ass for a year, not do anything, enjoy their time off and say, you know what, I'm kind of ready to get back into something. That's great. You know, I think that adds a whole new dimension to what most people think about as your role as a business broker. You're more of a of an adventure consultant because, you know, in some ways people think, you know, I just need this person to sell my business. Well, that, that's true, but you need somebody that can help you think about what's next after that and in terms of like you just put, I think that it would appeal to a lot of people. Chad, I, I read the statistics. That I'm sure you see that only about 1 to 2 out of 10 business owners that go to a business broker actually are able to sell their business. What, you know, I don't know if that's your experience as well. I mean, you have a very high closing rate, but you're probably very selective. What are some of the biggest reasons that business owners aren't able to sell their business and what can they do about it? The main reason that business owners are not able to sell their business is because of The way that the arrangement and the relationship is uh started. Between the broker and the seller. Brokers are paid on a commission basis and a lot of times the brokers will tell the sellers whatever they want to hear to get them in the door. That includes overinflating the price. So it goes back to a little blurb of what you said just about a minute ago that I'm very selective. I will not bring a client on if they have unrealistic expectations of their value. I also won't bring a client on if they're a problematic personality. Because those two things are the biggest deal killers now they can go down the street to some broker who just wants a commission. I don't need the commission. I'm not saying I'm not here to make money, but I'm not going to tell somebody that their business is worth, you know, $3 million when it's only worth $2 million only to go through a year or a year and a half of a whole lot of headache and pain for no results. So what I do is I say, listen, let's let's talk about value. I spend hours on, I mean, actually, I'd say 5 hours with the with with each seller before we even discuss me working for them. And I'm gonna talk about value and why that value is such value, and it all comes down to bankability. It all comes down to the debt service on what that business is healthy enough to provide in the way of debt service and what a buyer is gonna be, uh, you know, what a buyer's appetite is gonna be to buy such business and everybody believes that their business is worth far more than what it is. That's and and by the way, me too, me too, you know, I'm sitting here, you know, I mean my car. I drive a beautiful S63 Mercedes Benz. In my opinion, it's the greatest car on the road, and I've driven in in luxury vehicles like Rolls-Royces and things like that. I'm telling you this S63 is dynamite. I think it's worth far more than what it's actually worth. You know why? Because I own it. All right, so if I wanted to go sell my bins, I would be disgusted at what the, the, uh, the dealership told me. I'd be, I'd be flat out insulted. And so whenever somebody calls me, I gotta make sure that that seller understands we we gotta be in the norm of reality regarding the value of your business and and they cannot be a problematic personality because that is probably the biggest deal killer of all is a seller who. You know this is a big thing in their life. It's a really big step and sometimes that can bring out the worst side of them, and I have to get that seller to be able to work amicably with a buyer and a bank, and everybody's gotta get along and so um that's probably why my closing ratio is so high is because I weed out what I know, you know, I I know what horse isn't gonna come through, OK, so I don't I don't I don't mess with it. Is that if that answers your question, that answers the question, but what do those people are, you know, I'm sure a percentage of them are dejected because they, you know, their valuation is a lot lower than they thought, like you said, you know that that happens all the time. And then there's a certain number that are rejected. A by you because you say look, you're you're you're not salable you know there's OK, there's a percentage that are problem personalities like you say, and a lot of business owners are strong headed. That's what got them to the, you know, to where they are. But for those that you say, look, you're not ready, your business isn't going to be. It's not going to win a beauty contest right now. It's not attractive. What are, besides unrealistic expectations for valuation, what are some of the things that business owners can go back and work on and come back to you in a year or two and say, Hey, Chad, I listened to you. I'm ready. Let's go. I'm much more salable now. Well, a lot of it, it really comes down to earnings, so if the earnings are low. They're not gonna be as viable to sell their earnings are low and so oftentimes what I'll say is, you know, do X Y Z and come back to me, you know, come back to me in 2 years, get your numbers up and come back. It all comes down to the seller's discretionary earnings or the cash flow. The net earnings of the business has to be, uh, up in order for them to to sell. If I've seen declining revenue, you know, for instance, let's just say 17 was incredible. 18 suffered, and now 19 is even worse. I know it's passion. I know their passion is lost. So, so now we have to make the critical decision. Do you have enough passion to go, you know, whip this thing into shape for the next 24 months and, and I'll gut check them. And if they say no, I really don't, I just need to get out of this. OK, then we'll sell it, you know why it's their passion that's waned. It's not the business. There's nothing wrong with the business, you know, it's it's heaven or hell, right? One's man heaven is another man's hell. And so this person's been running the business for however long he's tired of it needs to move on and he held on to it for too long. So if, if they're. Uh, not sellable because their numbers are low. That's going to be weighed against their passion. And so that's something I helped them with to determine if now's the time to sell at a reduced value and move on to the next adventure, you know, seeing the forest through the trees instead of getting stuck on a high number, I helped them with that. Otherwise I say come back to me in a couple years whenever your numbers look better. Yeah, and it's it's for some people it's, it's kind of like running a marathon, you know, they hit the wall at a certain point and if they and a lot of people experience an end of the race kind of an energy burst because they know the end is near. So as a business broker and kind of a coach. For for people that you work with, and I heard you say this earlier, is it about a year that they should expect, you know, don't expect any kind of a turnaround here or offers or sales, is a year a good timeline for people to think about in advance for selling their business if it's salable? No, I can usually get a business sold in 6 months, but they need to be prepared for a year. Um, most of the time I get it done within 6 months, but let's just say I hit a snag. Let's say that, um, the buyer doesn't qualify that I had in place and we have to start again with another buyer, then I need to have the runway to land this thing. So I tell him I tell him to plan on a year plus, even if it takes me 6 months to sell the business. The the owner, the seller is going to be around for at least 90 days to help them transition, so you're at 90 days, and um, you know, sometimes the sellers like to stay on for another 3 months just to help out, just to remain useful, just to make sure that it's going well. So I tell them a year from start to finish, and I can usually get the initial transaction done within 6 months. Terrific. Now I know you know a large percentage of businesses out there are family businesses, and they think about the family transition. If, if you were to be able to take a business owner aside and say, look, I know you love your family, your, your, your kids are really nice, great people, but A family business sales are, you know, are very tough. They don't work out a lot of the time. Would you counsel people to look for an outside buyer as opposed to a family sale, all things being equal? Well, I think the people that want to sell to their family are pretty nostalgic. It doesn't work. It never does. I've, I've been doing this for a long time. I've done countless transactions. I have, I have met two companies, uh, two company owners that were 3rd generation and one of them was 4th generation. That is incredibly rare. And I believe the reason that they kept it in the family is because um they didn't drown the kids in it. Throughout the journey of getting there, in other words, they sent the the kids to college. This is what they did, they sent the kids to college, they let the kids go out in the real world, get some experience, and then gave them the option to come back into the business if they wanted to with specific roles to fill. That's how they were able to do it. One of them was a popcorn company. It's been around since, like, you know, 1840 or something, you know, I mean they they exist, but they're so rare. The problem is, you know, they, well, it's actually fraught with problems really selling your business to your children, it's impossible. Number one, they usually don't have the money, um, they don't have the down payment, uh, there's there there ends up becoming a required uh seller carry from the seller to the son or daughter or whatever. And it ends up just crossing too many family business lines and if there's problems in the business, it becomes very painful for both sides, father, daughter, father son, you know, it's, it's, it's just a bad idea it really really is and um and it's the worst idea actually so there was uh not too long ago there was a father son ish relationship I mean they. Might as well have been father and son. Uh, this kid didn't have a father. He had worked for him for a long time. They met each other in church group. It was like a father son ran operation, and he wanted to sell it to him and we were like, OK, we'll we'll do it. Well, about 3 months into the process, problems started to happen. Their relationship started to change because of this financial transaction that was about to happen. And it was the responsible decision in this case of the child, I will call him the son of the fathers son. He called the ball on it and said this isn't the right thing to do. Let's just sell it to somebody else. This guy's like my dad. And I thought that was really wise of him and so stay away from it. I mean, that's the answer. Stay away from that thought process. If you love your family, you'll sell your business and then you can, as we say, you know, have happy Thanksgivings forever. So it's really important to have, you know, someone at your side audience that that knows what they're talking about has done this many times before and gives you straight answers. As far as you know what's realistic, you know, what's going to, what's going to happen and can it happen so that because you can get all tied up in this business sale, right, Chad, and all of a sudden, you know, you're, you're busier thinking about that than you are running your business and problems start to happen, so. Yeah, correct, you are correct and well thank you I appreciate that. I I've been at this for a long time. I understand the psychological and emotional journey that that entrepreneurs go through the business owners suffered through. I understand the dynamics of this entire process because I've been through it and I've, I've helped countless people do it, but I'll tell you this just, you know, real quick, um, there's a, there's a restaurant about 100 miles north of me and they called me 3 years ago and I told them their number that it was worth and they said no it's gotta be worth more than that. I said I'm sorry it isn't. I didn't take them on as a client. They went with another broker. This broker gave them all the rainbows and rainbows and unicorns and, you know, pot of gold and everything else, sales pitch. She came back to me about 3 months ago and she was just exhausted. She went through that huge process. They, they've lost a lot of their revenue in their business. Uh, the broker didn't handle it correctly. People found out about the sale. It hurt their business, it hurt their employees, and now she's back in my lap. And, uh, you know, it's, it's one of these things where, and I'm gonna, I am, and I told you so, guy, I mean, I am for sure. And I will say I told you. You know, and so I'm the kind of guy that's gonna give you the honest answer. I'm, I don't have any time for shenanigans. I just don't. And so if, if you know I'm gonna give it to you straight if you don't like it, then move on, go, go use somebody else because you're you're gonna wear yourself out and um so I I I told her I told her so and I allowed her to come in as a client, um again, but you know it's pretty tough to sell this business now that they've suffered. You know, and I've seen on your website, which is fantastic by the way, it's a it's Peterson acquisitions.com audience, and I've seen on your website there a very good quote, and I'll let you finish it. I'll just start it to jog your memory. If you go to the market with too high of a price tag. What's the rest of that? Oh God, I've got a big website, my friend. I don't know what it is, it is. If you go to the market with too high of a price tag, the banks won't finance the buyer. Correct, yeah, I mean it's yeah, it's yeah. It's it's you go. It is based on debt service, yes. Yeah, based on debt service, it's a financial equation. It's got to make sense, kind of like if you go to buy a house and it's overpriced, the appraisers are going to come back and tell you, Hey, you, you're not going to get this financed at this price because you're, you're overpaying for it. So anyways, it's great to talk with you and our listeners can find you again at Peterson P E T E. P E T E R S O N acquisitions dot com. Peterson acquisitions dot com. And uh what's the there's a lot on your website um and you've also written a book and you do a podcast. So tell us a little bit quickly about the book and the podcast if you would. Well, the podcast, I've, I've done a few episodes, but it's still developmental. Um, it's I'm I'm doing, I'm I'm I am interviewing some business owners that have a story to tell. I'm also interviewing CPAs, people that are professionals, uh, you know, in within my industry, you know, existential to my occupation but still within my industry because they help a lot with what we do, uh, financial planners, things like that. So business owners, financial planners, CPAs, and even sometimes attorneys is is who is on my podcast. It's rather developmental at this point. Um, but as far as the book, uh, your audience can go to Peterson acquisitions.com. They can, uh, contact me and as long as they stay that they heard, heard me on your podcast, I will send them a free download of the book. Oh, excellent, excellent. Yeah, it's uh it's swinging doors, it's a guide to selling your business. It really is meat and potatoes. It's only a, you know, I don't even know, 80 page book, but it it really is the meat and potatoes. There's no fluff in it and so it's gonna help you understand various things. Having said that, um, you know, just because you read an encyclopedia doesn't mean that, you know, you're ready to go sell your business on your own. I mean, I've got to walk. People through the process, but it is a good guide, a manual terms, understanding of various aspects of the transaction. It's really good and if they go to Peterson acquisitions.com, I will send them a free download of the book. Well, we appreciate that. I'd love to have you back sometime and Talk talk about some more of these business owners stories. I think they're very interesting for our listeners to hear some actual stories of success and failures out there, you know, so they can learn from the failures and strive for the successes. And again, it's Peterson acquisitions, do you want to give out any other contact information or should we just send people to the website? Yeah, just, uh, just go to the website. I'm very responsive. I work 7 days a week, not because I have to, but because I want to. I'm always plugged in. There's only so much time I can watch TV, only so much time I'm gonna give to give to the gal. There's only so much time I can, you know, you know, sit around. So every day I'm working on something. I'm very responsive. I wouldn't be surprised if I call you back on a Sunday. Just contact me through the website and I will get back to you. Terrific. Well, thank you so much for joining us, ladies and gentlemen. This has been Chad Peterson, the hardest working business broker you'll ever meet. Chad, thanks so much for joining us. We're going to take a short break and we'll be right back after this. Thank you for listening to Exit Coach Radio. 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