Tom Gledhill - Position Your Company for a Premium Exit

Time is precious and so are our pets, so time with our pets is extra precious. That's why we started Dutch. Dutch provides 24/7 access to licensed vets with unlimited virtual visits and follow-ups for up to 5 pets. You can message a vet at any time and schedule a video visit the same day. Our vets can even prescribe medication for many ailments, and shipping is always free. With Dutch, you'll get more time with your pets and year-round peace of mind when it comes to their vet care. 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 don't miss our one minute exit coach tip of the day on Exit code. Radio.com and now here's your host, the exit coach Bill Black. Welcome back friends. This segment, it's, it's sponsored by Brad Hall and Associates, and we're going to feature Tom Gledhill from Murphy Business. He's a regional director from Bourne, Massachusetts, and Tom, welcome to the show. Oh, thank you, Bill. Pleasure to have you on today. We're gonna talk about how to increase business value in today's marketplace. And before we get into that, um, we always like to start by getting to know a little bit about our guests. Can you share a little bit about your background and how you got into this particular line of work, Tom? Oh, sure. Uh, first of all, I'm an Omni veteran and I have a degree in electrical engineering and an MBA. And when I got out of school, I worked in engineering for a couple of years and shifted to sales and eventually sales management. And I spent the next several years founding, building, and eventually selling several companies. And the most successful was a software company that I built and uh we provided healthcare, uh, information systems, and I eventually sold it to a large strategic buyer. And for the last several years I've been working in M&A. In the last couple of years, I finally did something I wanted to do all along, and that was to write a book. As a matter of fact, I've written 3 books in the last couple of years. Uh, I love sports. Uh, my favorite time of year is probably March Madness with the NCA basketball. Uh, I like reading historical novels and about business, and I have a gym off my office and I work out in there 4 to 6 times a week. Um, I'm married. I have 4 children. And a bunch of grandkids. Well, thank you very much. Congratulations on that and thank you for your service first off, and, uh, your, your background suits you well for what you're doing now. And Murphy Business is certainly a large group that helps businesses. How many, uh, how, how large is Murphy? Do you, do you have any idea about how how many uh franchises they have, or? We have, we have about 30 regions throughout the United States and Canada, though, and, uh, we probably have. Out of that, we probably have about 200 offices. And Murphy, 200 offices and Murphy Businesses, uh, for those of you who don't know, helps business owners to sell actually sell their businesses, right? That's correct. That's correct. Now, to sell your business, you call somebody from Murphy Business like Tom Gledhill and you say, I want to sell my business. And Tom, what's the first thing that you ask them? Well, the first thing that we like to do is we like to obviously learn about the business and we ask open-ended questions about the, about the business and try to get a sense for, for their revenues and their earnings and what they do, uh, in, in a conversational manner. And, uh, then we like to get their financials and we suggest very strongly that they get a business valuation. Um, most people don't know what their company is worth, and most companies think that they're, most people think their company is worth a lot more than it really is, and, uh, that can really cause a problem. I mean, that's the number, number one reason businesses don't sell. So because it won't fetch enough for the owner at the end of the day as as it sits. Yeah, their expectations are too high, and that, that's, that's a killer. Uh, is it, uh, is it double? I mean, do they think it's worth double what it's really worth? What's your experience been? Well, no, I think that sometimes it is, but most of the time it's probably. 20 to 50% more uh than it really is. And, and a lot of times that's because without the owner there, uh, without their management, it's, it's not gonna run as well and produce as much. Is that sum it up? Well, if the owner is critical to the business, it's going to be hard to sell. Um, the, the best thing that, that we can do and the best thing that they can do for themselves to make their company more valuable is really to become irrelevant relative to day to day operations and putting out fires. Uh, so the more irrelevant the the business owner is to the actual day to day operation of the business, the more valuable the business is. And you've written a couple books on this topic, so you know what you're talking about, positioning your company or position your company for a premium exit, which is available on Kindle and Amazon and Uh, how to sell your business or your company, excuse me, and not leave money on the table. So, uh, you've developed a methodology to help business owners find the right buyer. How did you come up with that? Well, when I sold my software company, Bill, I, I thought I got a good deal, and, uh, you know, the staff was being treated properly and they were, uh, the seniority was, was being passed on, and we thought, we thought it was a good deal. When I got involved in M&A and I started taking classes through the IBBA. I, as I was sitting in the classroom, I started thinking about when I sold my company, and I realized that I didn't position the company properly and I left a lot of money on the table. So I started thinking about, you know, how can I identify the right buyers for this company and what they're looking for in an acquisition. So the first thing is identifying the buyer types. And what they're looking for in an acquisition and the very first part of it though is Analyzing your company and then rating your company and seeing where it lies, what you have to offer vis a vis the various buyer types. So once you identified a buyer type, then you're in a much better position to know what to do to position your company for the exit. Very good. So we start off with the, the headlines of the two buyer type or maybe, maybe more, but what are the buyer types? Well, the buyer types that that I've identified and that I use are, you've got your strategic buyers, and then you've got your sophisticated financial buyers, which are basically pegs and and small investment groups. And then you've got your, your lifestyle buyers, which basically are people that are buying a job. And then at the, the bottom of the heap, you've got your industrial buyers. Now, these are people like you and me, perhaps that run a company, and you're looking for something that you can, you can purchase, assets you can purchase and pay at a rock bottom price. And when they come knocking on your door, uh, you have to be very careful. Uh, the best thing you can do is, is get professional help at that point in time. So those are the, the 4 biotypes that, that I've identified. Great. So we're gonna take a short break, Tom. When we come back, I'm gonna ask you to get a little bit deeper into that and share some tips, ideas and precautions for our listeners. We'll be right back after this message. You're listening to ExitCoachradio.com, the show for age 50 plus business owners. We're interviewing over 250 professional advisors for their tips, ideas, and precautions so you can be well planned. We upload new 20 minute interviews and 1 minute highlights every day at exitcoachradio.com. Come listen for a minute. 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 40 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-I. Call today. Welcome back friends. Just a reminder that we've interviewed dozens of advisors on a wide variety of topics. You'll find all of their interviews and highlights online at Exaoachradio.com or on iTunes at iTunes.exitoachradio.com, and I'm talking with Tom Gladhill, uh, from Murphy Business, and Tom, before the break we talked about the four types of buyers the strategic buyer, the sophisticated financial buyer, the lifestyle buyer, and the industrial buyer. Be careful. Uh, on that one. So let's talk about the difference between having your business ready for sale to, let's say the two major categories, strategic or financial. Well, for strategic and financial, strategic buyers are typically looking for. Uh, technology that will make them, uh, better in their, in their marketplace or they're looking for a geographic, uh, expansion or and you, you really need to know what the buyer, what that type of buyer is looking for. And typically they're, they're bigger companies in your industry, right? So much bigger than you, but they, they see that you have a niche or a special area or like you said, geographical, uh, correctness for them. That's right. That's right. Now the financial buyers, you typically your pegs, they're looking for recapitalization. They're looking to buy 60 to 80% of your company. They want the management, they want, they're looking for management depth because they want the management to stay on. They're looking for growth opportunities within the company. And what they'll do is they'll keep the company for 3 to 5 years and then they'll turn around and sell it. So, you know, you want to make sure that you have the management depth and that you've been growing. Uh, growth is a very important value driver, uh, for the, uh, financial people. And where will they get the best price for their business of those two, generally? Basically, you, you get a premium with a strategic buyer. If you can provide something that they need, whether it be geography, whether it be synergistic systems, whether it be um technology that they require, they need, if you have those, you typically can get a premium from a strategic buyer. The, uh, financial buyers. You can do very well with the financial buyers because oftentimes after the 3 to 5 year period when the investment group has been involved, it'll sell for a higher multiple and the, the business owner can make more money in the second bite of the apple than he can in the first. That makes sense. So, so a strate a strategic buyer wants you for what you currently are because you represent a way for them to expand and grow, and they're, they're gonna make, they're gonna make their money back very quickly because they're probably gonna do away with some of your operational expenses and costs and things like that, uh, right? That's correct. And then that, that financial buyer is looking to come in, give you size and scale, and maybe they're looking to turn it around and sell to a strategic buyer, so they're gonna help you grow into that. Uh, and so you only sell part of it up front and then you'll be able to get a second transaction down the road that should be much larger. That's the goal. That's exactly right, Bill. That's great. And but now we get into the smaller businesses and the lifestyle buyer and the lifestyle buyer is looking for a job, right? They're looking for a job. They're looking for, they're looking for the cash flow that's going to support a decent income. That's going to cover their debt service because they're, you know, typically they have to, uh, they don't have cash to buy the, uh, the whole business. So they have to take a loan. So they're looking for cash flow to cover their debt service. And they're looking for also some cash flow to help them grow because they want to, they would like to eventually create an asset that they can sell. So rather than them starting their own business, they want to buy something that's got an established reputation and more importantly, uh, a process and a system and employees in place so they can hit the ground running and then they're going to try to squeeze more out of that, um, so that they can pay you back as the, as a seller and also have a nice lifestyle for themselves, right? That's right. That's right. Oftentimes too, they'll, they'll be looking for something that's wrong with the business that they can easily correct, something like a lack of marketing, you know, something like lack of financial expertise that they can bring to the table and, uh, and it's something that they can grab hold of. It's an opportunity that they can grab hold of and grow the company. So, Tom, let me ask you a question. For every 10 people that approach you, how many of them are ready to, in your eyes, are you're saying, yeah, I can sell this as you are, and how many do you have to turn away? 20 to 30% maybe. Uh, so about 8 out of 10 you turn away and say, you know, you're not quite ready or the price isn't high enough, but, but, um, do some work and come back and see me when you're, or we'll help. Do you help people at that point? We like, we like to help people at that point, Bill. I think ideally, if we could get people 2 years before they, um, they really want to put the company on the market, you know, that would be ideal. That would give us a chance to work on them to help them position their company, so they could. You know, and, and it's getting to the point now where it's not just a premium price I get for it, they might not be able to sell it at all because there are more sellers coming to the market. Baby boomers get older and there are going to be fewer buyers. So that, that whole pendulum is going to switch in favor of the buyer. So there's going to be a lot of companies out there that 10 years ago would have sold that won't be able to sell in the future. Because uh they're competing with prepared buyers or sellers, excuse me, so those that have done their preparation will be a lot, will transition faster, sell faster, um, get a better price, all the things we've we've been talking about, right? That's right, and be able to sell at all. So a lot of companies out there, when you talk about the 10 companies, you know, they're some of those companies are not sellable at all. They're just not sellable. So we, and we realize that and, you know, we tell them good luck. But, um, but then there are some that are not quite ready, but they will be ready or should be ready in a couple of years. And, uh, but there are very few that are, that are ready, um, at, at this point in time when they call. So is the best bet for some of those that aren't sellable at all either to have an insider transition or just be prepared, maybe you can go from overtime chairman or excuse me, overtime president to part-time chairman and maybe take a Uh, take a few days off and settle in for the long haul, right? That's right. But, but there is, there's a huge glut. There's 12 million baby boomer business owners, and they're all thinking the same way just like they always have. And now the thought is about retirement or, or, uh, changing up their life a little bit. So there's gonna be a huge glut, and we preach that, but 2 years, uh, you say. If someone comes to you 2 years beforehand and says, I want to sell in 2 years, Tom, what can we do to position this business for sale? What are some of the top line things you talk about? Well, the top line things really are just positioning the company. So that it's, it has the things that the buyers are looking for. For example, in my company, what I, what I missed was I had invested a lot of money in expanding into New York and New Jersey, you know, that cost well over a million dollars to do that, open sales offices outside of New England. And we also developed an electronic medical record that cost us, you know, a million dollars over a million dollars. Now what happened was when the, when the buyer, the, the potential buyer, the ultimate buyer came to us, they already had an electronic medical record system. They already had offices in New York and New Jersey. What they wanted were our customers in New England. So what we should have done 2 years prior to that, we should have hired more salespeople for New England. And got more customers here in New England. I see. So, uh, what you're saying is the best thing a a a seller who wants to sell to a strategic buyer should do is take a a lot of time to try to understand what you need to look like to that strategic buyer out there and do your research and your homework and become that target. Exactly. That's exactly right. Yeah, and, and that takes uh You know, not everybody knows, uh, what exactly the strategic buyer is looking for, so it takes someone who understands the industry and, and has been around the block a few times to say, well, here's, here's where we're gonna start. Um, we're gonna beef up your, your sales in this particular region because they're weak in this region. Uh, we're going to specifically identify a niche that we can go after that they, that they can't get to, and, and, uh, let's work on that for a couple of years and then, and then everything looks great. Uh, very interesting stuff, Tom. So, uh, if you could, uh, let us, let our listeners know how to get in touch with you, because I think anybody, especially in your area who's saying, you know, I, I do want to sell my business, but maybe I should talk to Tom 2 years ahead of time. Maybe I should start talking now and start preparing for that instead of being disappointed because I, I didn't do my preparation and, and there's just a glut out there. So how do people get in touch with you? Well, one of the things, Bill, that I've done as I, as an outgrowth of my last, uh, book, I have just about completed a, a workbook that will allow people to look at the, the core value drivers of their business and not only look at the, the core value drivers, but also the components of those value drivers and, and rate the company based on, based on this workbook. And if people will get in touch with me, send me an email, and my email is T dot Gluhill, G L E D H I L L at Murphybusiness.com. They'll send me an email. I will send them a free copy of my workbook. Excellent. And uh, also take a look at our website at exit coachradio.com. We'll have that content or that contact information on there. People can get in touch with you and get the workbook. Tom, thanks very much for joining us today. It's been a pleasure. Thank you, Bill. Thanks for your time. I've been talking with Tom Gledhill of Murphy Business, and we're gonna take a short break, so please stay tuned. You're listening to Exit Coachradio.com, the information station for age 50 plus business owners, where we're interviewing over 250 top advisors for their best tips, ideas, and precautions so you can be well planned. We upload new one minute tips every day. Exitcoachradio.com. Come listen for a minute. Thank you for listening to Exit Coach Radio. Time is precious and so are our pets, so time with our pets is extra precious. That's why we started Dutch. Dutch provides 24/7 access to licensed vets with unlimited virtual visits and follow ups for up to 5 pets. You can message a vet at any time and schedule a video visit the same day. Our vets can even prescribe medication for many ailments, and shipping is always free. With Dutch, you'll get more time with your pets and year-round peace of mind when it comes to their vet care.