Terry Shope - Financial and Operational Preparation Prior To Sale

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, strategy. And precautions so you can be well planned. And don't miss our one minute exit coach tip of the day on exitcoachradio.com. And now here's your host, the exit coach, Bill Black. This segment of the show is brought to you by the Values Institute. And with me now is Terry Shope, who's the principal of MPL Consulting. Terry, welcome to the show. Hi Bill. Thank you for having me. A great show you have going here. Well, thank you. It's a, it's a pleasure to have you, and we're going to talk about preparing and managing your business financials and operations for a sale, which of course our audience is all about that. They're, ah, generally aged 50+ and thinking about how do we get our business ready down the road before we get into that. Ah, could you give us, tell us a few words about your professional background here? Certainly, ah, I've been managing businesses, ah, for over 20 years, been successfully growing them, ah, both, uh, sales and profitability wise. Um, I've held, um, many positions in a variety of industries including president, CFO, COO, VPGM, and, and several other positions. I, uh, you know, well my finance, well I have a strong background, um, background in finance, I also have a lot of work done in the development of the business and You know, the type of market that we're dealing with a lot of times is that we're developing the business from an entrepreneurial to and managed company, which is where I spent a lot of time with. I've done many different things including selling, merging, acquiring businesses, uh, working with the owners, operators for short term and long term, uh, strategic planning, the development of the employees, ensuring the right persons in the right place. And, um, done a lot in the business turnarounds in both in and out of chapter. So your experience well prepared you for what you're doing now with MPL Consulting and tell our listeners exactly what do you do when you work with a client and, and what's your marketplace look like? I typically do on the 5 to $20 million dollar range, but have worked with companies ranging from start up to well over $100 million. And typically what I do is I go in, uh, looking at the, I deal a lot on the finance side, so I deal a lot into the numbers, ensuring that the numbers are sound and solid because they tell a very strong story and many times there's, you know, both the hidden information and the opportunities that present themselves and from that there's an ongoing conversation not only with the owners, but different people throughout the company on where to take the company and how to get it there. And how do you help business owners with regards to exiting their businesses and, um, do you come in as an interim manager at some what tell us a little bit more about the detail there. The many times I can come in as an interim manager, and I have done that. Um, I've taken over as a CFO and CEO of companies and worked with them to improve the financial side and operational side and in the background be working with them to set the company up for sales, putting the financial packages together, helping them work with the brokers, the tax tax. Um, whether the tax people and the, the legal side of the equation, I understand that the intricacies that the buyer has and the benefits and the strength that the company has, and then when we start talking to buyers, I'm able to talk to them about what the buyer's going to be looking for and able to focus that business and the and the presentation to what the buyer's looking for. And then what happens many times is that I'm also very heavily involved in the negotiation and deal structure. So when the buyer comes back and says they want this, I'm able to understand what is a real cost to the buyer versus where there's a real opportunity. So there's, there's many small deal structures that can be happening that benefits the buyer and don't really cost anything to the seller, so they're easy to implement, and these small changes make. Big payoffs big payoffs, yeah, so you're helping the business owner, uh, get their business ready for transferable type of a business, right? And it sounds like you're also going out and doing some matchmaking as far as who would be an ideal type of a buyer to maximize. The the value to the to the seller, that's very valuable. How, how far in advance do you like to get involved with the business owner before they're thinking of a transaction? I believe the ideal time that most business owners should be looking to start setting things up is at least a year. I don't, you know, depending on the business and where they're at and their internal resources. I don't have to get heavily involved, but the closer the transaction, my involvement becomes heavier because the manager's time is also becoming, um, much more in demand, and so they're attempting to still manage the business and run the business, and here they're trying to get all this stuff done for a sale. And so therefore I'm able to offload some of the both the daily operations and the deal operations in in a very organized manner so they can continue running a very strong profitable business. That's so important because I've, I've talked to people in the past that said, oh, I'm gonna handle this one. I'm gonna do this, and I'm like, oh wait a minute, you realize you still have to run your business, aren't you busy doing that as well? If you're not, maybe we should talk about what you're doing because you should be focusing on growing the value of your business if you're not operationally. You know, involved in some way, shape or form. Exactly. And I find many times that the things that we do to set the business up for sale are strengthening the business, so it gives them a better option to say no to a deal that if they don't really like it. There's a lot of people out there that are offering very interesting deal structures, and sometimes the companies position themselves, maybe the owner's not doing well or something of that nature and so now they're in a position where they have to sell it, where if they bring in an interim manager such as myself or somebody, I can either groom somebody within the company to take over or if something unforeseen happens to them, then I'm able to step in and and manage the business. Make sure that the spouse is getting everything that they need or deserve out of the business. So having options at the point of sale or transition is very, very important. It gives the buyer some assurance they don't have to take whatever deal comes along, right, because they're exactly ready for sale. And then I also helped them a lot with the employee transition aspect of the things. Uh, many times, you know, I've seen where companies, they like their employees and they want to give them these huge raises and things of that nature. And many times that's a detriment to the, to the employee because now you're pricing them above market, so if the new owner doesn't like them or something that they see them as being a high expense, and now this employee is going to have a tough time finding a job somewhere else. So there's a lot of employee side issues that are also, I'm acting as a coach or psychologist or something of that nature to help. The the this owner through this transition time, it's a very challenging time. Yeah, there's a lot of details and like you said, I mean they, they don't know where to turn for a lot of this type of thing and maybe they have, of course they have CPAs and and maybe attorneys, but a lot of times they're not going to be able to give them the type of in-depth knowledge that someone who's been doing it can bring to the table, right? Exactly. Well, it's great. We're gonna take a short break, Terry, and when we come back, we're gonna ask you to share some stories and tips and ideas for our listeners so they can get prepared. I'm talking with Terry Shope of MPL Consulting, and we'll be right back. Whether you aspire to grow, sell, merge, acquire, turn around, or develop a business, MPL Consulting Inc. provides the resources to move you forward through understanding the business, its shareholders, employees, and markets, MPL turns business issues into opportunities and opportunities into reality. To find out how MPL can help you. Visit MPL Consulting.com or call Terry Shope at 949-244-7727. That's 949-244-7727. Olive Crest is a local nonprofit organization dedicated to preventing child abuse, treating and educating at-risk children, and preserving the family one life at a time for 4. Years Olive Crest has provided safe, loving homes to at-risk youth throughout Southern California, Nevada, and the Pacific Northwest. There are many ways you can help, including volunteering or becoming a foster parent. Go to www.olivevecrest.org or call 1-800-550-IL to learn more. That's 1-800-550-ILD. Call today. Welcome back friends. Just a reminder that we've interviewed dozens of advisors on a wide variety of topics, and you'll find all of their interviews and highlights online at exaoachradio.com or on iTunes, and I'm talking with Terry Shope of MPL Consulting, ah, having a really good conversation about preparing business owners to have options so that they can maximize their sale price, and, ah, Terry, um, One of the things we talked about during the break is that not only does your firm work with, um, uh, businesses of all types and sizes, but you also have a specialty area where you work with, um, uh, business owners that speak Spanish, is that right? Yes, my, my wife is uh very fluent in Spanish. She's multilingual, and she's been introducing me more to the concept that. You know, the Spanish speaking population in the US is roughly about $53 million and a lot of businesses are not necessarily tapping into that. On top of that, 95% of the businesses are international outside of the US, and so there's a lot of opportunities to address them either through a business transaction whether you. Whether a website translation and to really structure it and improve the the multilingual aspect of our culture is becoming. Oh, that's great. I mean, that's a, that's a great asset and like you said, a lot of the, the, uh, workers, uh, especially around in this area are Hispanic work or Hispanic and they're, um. Uh, the ability to communicate with them effectively in their language is, is very important, right? In fact, more and more of my clients are actually of the Hispanic population, and I'm finding the more I know of Spanish, the better I'm able to communicate, and it makes a big difference in being able to know and communicate. Because even if you're saying a few words in Spanish, it really endures you to, to the population. So managers that know and speak and able to write Spanish or to improve it is greatly helping. So we're helping people do that. Excellent. So one of the best ways to illustrate what you do is is through a client's story. So if you could tell us a story about how Uh, someone gave you a call, you went in and worked with them. What was it like before you worked with them? What were you able to do and what was the outcome? That would really help our listeners understand, right? One of the many, uh, situations I step into is that you're dealing with the entrepreneur owner who's very creative, many ideas, uh, they, they, you know, one day they have this great idea and they work to implement it and the next day they have another idea. So in a situation like that, I typically step in maybe as an interim manager, or CFO, CEO role, sometimes even as president. And we start working together to create a structure for the company, uh, a line of path, you know, both short term and long term. And so in these situations, you know, after a few conversations and then they allude to me after they, they developed a bit of trust that they're looking to exit their business and of course they don't want their employees to know. And so we start, you know, so what I've done in the, in one particular example is I, after a period of time we set it up, we found opportunities to, um, strengthen the top line. They had very sporadic sales revenues and so we found ways to, to stabilize that top line and even grow it, which Which greatly helped the bottom line, and from that we were able to uh take some money. They had a profit sharing plan in place, but they weren't able to fund it. So now we set up a target sell date and we started funding that profit sharing because the pro the business was doing much better and we were able to manage a budget and things of that nature. At the same time, a lot of business owners don't want to be investing in capital infrastructure. And in this particular instance, we needed to do it because it was a technology company and so we made some very strategic acquisitions of technology that had a very high payoff and it looked great from the buyer stepping in because it showed that the, the, the owner was still investing in the business and growing the business. So after a period of time, we, we qualified several different buyers, a couple of them didn't pan out. We, you know, I, I always made it early, um, whether I liked the buyer or not. And then, you know, when the, the buyers didn't pan out, we went back to somebody else that, um, unfortunately was disqualified in an earlier process, and we set up a meeting and two months later we had a deal close. It was a very successful deal, um, it was very close to what the, you know, what the value of the business was and more importantly, the people paid paid out on the deal as they said they were going to, which because a lot of times there's a carry back and so. It, it's really important to make sure you, you know, there's the documentation side of things, but also what is the quality of the buyer because you can document them, but you need to make sure that the individual or the organization behind them have the intent as well. And you brought up something important there and you said that the first buyers that were coming along didn't work out, and a lot of people think a buyer comes along and they drop everything and Great, I'm gonna be able to sell my business, but a lot of times it doesn't work out. What are some danger signs that that they should look for when somebody comes along and it's not gonna, it's not gonna go anywhere? Some of them are sometimes can be a little obvious and in this particular instance, the buyer was proposing, you know, notes that Uh, senior corporations were two times removed. They were unsecured. It was just really, really weak and, you know, I told the, the owner early on that, you know, when it came time to sign it, I was 99.9% sure I wasn't going to recommend it and I was gonna walk them through it, but I felt that it was necessary to let him know that I was really concerned about it at that point in time. Sometimes it's a financial instrument that they're bringing. Do, do you ever see situations where people are saying, hey, just, ah, send me your, ah, all the information about your company, and I'll come back with an offer. I mean, are there people trying to steal the trade secrets of companies? You can do that and sometimes, you know, many times. People within the company are the highest potential for buyers, and so there's always this fine line of how much information you put in the package to sell the company versus where it is really critical information. You know, this many owners already know people that are going to buy their companies and so. You know, I, I can act as a conduit to help make that, you know, make that introduction and be the go-between and censor that information, and typically after a conversation or two you can tell that the buyer's intent. OK, so, ah, besides the story, and you've given us some great tips already, but do you have any other tips or ideas or precautions that that our listeners should be aware of when they're thinking about this, this type of subject matter? Exactly, you know, the deal structure is extremely important and of course, you know, good legal counsel is always important and a good tax person is important, but there's also, but there's, that's the legal and tax side, but there's business structure that just make, you know, as we talked about earlier, just make little things make some big changes and it's important to the owner but not necessarily important to the buyer. Um, run your business better now than you ever have in the past because what you're doing, you know, again it goes back to giving yourself options. Run it better, find ways of improving the systems, and, you know, think of it like you're preparing for a big ball, uh, a dance or something of that nature where you really want to present yourself well and, and follow through, you know, think of the runner or the karate expert that looks past, you know, their, their, their immediate objective. Uh, a couple of other things is, as we've talked about already, start your process early, you know, at least a year early, you know, find your tax person, find your, uh, find your attorney. These are all great things. Make sure that you, you know, you're treating your employees well and, and that you're also, you know, if you have a couple of key employees, make sure you structure a pack. And make the critical decision whether to bring them into the fold or not, you know, there's, there's, uh, termination packages as we all know, or, you know, bonuses that can be structured, and these are important because sometimes the buyer needs to talk to these people. So, you know, ensuring and preparing for that is great. And, and also be, be sensitive on your price. Um, I'm not saying ask for too little because you can do that, but also don't ask for too much. I've seen sometimes where a buyer is asking for a little bit more than what the market will bear, you know, there's this old analogy that says, you know, if you buy a pencil, you know, a pencil's worth $1 before you buy it, then after you buy it it's worth $2 because now. Own it. So it's always easy to see your own anticipation in something, so make sure that you're realistic what the market is expecting. Be realistic, understand how you're, how you're going to be valued and work towards that value driver, right? Great tips. And then there's probably one more. I mean, this is something that we're all very interested in, but you know, the statistics indicate about 7 in 10 businesses will transition in the next 10 years. There's a lot going on there and we're entering the left side of the bell curve now. So prepare early, get your business solid, and manage it well, be ready to compete. Exactly. Well, great tips, Terry, how do people get in touch with you? Uh, feel free to call me at 424-277-7024 or look us up on the web at MPL Consulting.com. And is there a free consultation? Will you take a call from someone if they give you a call and give them some time? Absolutely. I always have initial conversations, and if I don't see an opportunity, I always enjoy partying as much information as I can. Well, great, this is a great interview. I got a lot of great ideas out of it. I learned something. I hope our listeners did. Thanks very much for coming onto the show today. Bill, again, thank you for having me. I've been talking with Terry Shope of MPL Consulting, and we're gonna take a short break and then we're gonna come right back, so please stay tuned. At Exitcoachradio.com, we're interviewing over 100 top advisors to get you one minute tips, ideas and precautions so you can be well planned. We upload new content daily at 6 a.m. and 10 p.m. Exitcoachradio.com. Come listen for us. Thank you for listening to Exit Coach Radio.