A Financial Advisor talks Financial Planning and Selling A Business
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Financial Planning and Selling Your Business
We bring Erik Sullivan and Jonah Pollone from MidStreet Mergers & Acquisitions in to talk about the process of selling a business. We cover several main points:
1. Who do you call when you’re ready to sell your business? Who is your who?
2. Exit strategy and Exit Plan.
3. What are the markets like?
4. Evaluations and Strategies.
5. Fee Structure.
6. Marketing and Listing your business.
CHAMBERS: Hey, everybody. It's Trevor Chambers from Olde Raleigh Financial Group and the riveting Soundtrack to a Financial Advisors Life. It's a riveting podcast. And today it just gets -- we're going to go off the chart’s gentlemen, all right. I mean we're -- sorry, I’m spitting on you already here. All right, I got a little intro. It's all jacked up with Google keywords. So just give me a minute here. Financial Planning, people in Raleigh and financial planning, people in Durham and in Cary and all over the triangle. All right. Have you ever asked yourself, is there a financial advisor or a financial planner in Raleigh, let's just say, who can help me get clarity on how to sell my business? Is there a financial planner near me? How about those Google words right there?
SULLIVAN: Right.
CHAMBERS: Okay.
SULLIVAN: In Raleigh.
CHAMBERS: Oh yeah. Who -- who is networked in the business community? All right. To me, and who is vetted by the way, and who knows personally, and who has interacted with on a business level, business brokers. People who help you do mergers and acquisitions; help you sell your business. Because if you're a business owner in Raleigh or Durham or in Cary or in Chapel Hill, and the greater triangle and you have a business and you want to start thinking about financial planning and retiring. You have an asset, but you got to figure out how to sell it and get top dollar for it. So, I have some guys for you. So, the resounding answer is yes, there is a financial planner, a wealth advisor, who can help you. I'd like to introduce Jonah Pollone and Erik Sullivan from MidStreet Mergers and Acquisitions. Guys --
POLLONE: There you go.
CHAMBERS: -- how are you today?
POLLONE: Nice.
SULLIVAN: Good. It's a mouthful, isn’t it? MidStreet Mergers and Acquisitions. Yeah. It takes some training. It really does.
CHAMBERS: Well, you guys are in a new digs here. I'll just, they'll tell you all about it, but I've been invited in to do a little podcast. We're going remote on the Soundtrack today. So, tell me about you guys. Erik, we'll start with you and then and we'll go to Jonah and then if you guys could just tell us about the company and get just -- just start rocking.
WHO DO I CALL WHEN I’M READY TO SELL MY BUSINESS?
SULLIVAN: Yeah. Yeah. Let's -- let's jump into it. Well, my name is Erik Sullivan. I am the chief operating officer here at MidStreet. MidStreet is a lower middle market M&A company, which is a fancy way of saying we help business owners that do between one and 25 million in revenue, sell their companies. And that's really kind of the meat and potatoes of what we do. We don't really service buyers all that much. You know, we don't do capital raises anything like that, but if you are a business owner and you own a company and you're ready to cash out, sell for whatever reason, we're here to help.
CHAMBERS: Fabulous. Tell me, where are you from?
SULLIVAN: I'm from the triangle area. So, I've actually been in North Carolina for pretty much my entire life. We moved here when I was two years old. I say, we like, I was part of the move.
CHAMBERS: Yeah. You had nothing to do with it.
SULLIVAN: Like I was driving in the U-Haul.
CHAMBERS: Yeah, you wrote all the checks, Erik.
SULLIVAN: Yeah, that's right. That's right. But when I was two years old, we moved here to Raleigh and I bounced around Charlotte, Cary, Durham, Raleigh that whole time.
CHAMBERS: So, you know the area?
SULLIVAN: Oh, yeah, very well.
CHAMBERS: All right. Mr. Pollone, Jonah Pollone.
POLLONE: I’m going to slide this mic over. So, Jonah Pollone. I work with Erik. I'm training to be the -- I'm a young Erik right now. I'm Erik two, three years ago. So, I'm training to be in his position. I help out with a lot of the deals we do. I do a lot of client facing work. I interact with a lot of the buyers that come into our process. So, Erik mentioned we don't work directly with buyers. We don't advise buyers, but as part of selling companies, we deal with them all the time. So that’s a big part of my responsibilities and I also have a podcast that's called Owner Operated and Trevor’s been featured on that. So go check it out.
CHAMBERS: Let's just say it probably wasn't one of the better ones. I mean, you were awesome. But I'm sure I’m brought it down.
POLLONE: No, it was great, man. It was good.
CHAMBERS: But thank you. Yes, I had a ball. Guys, check out this, check out Jonah’s Owner Operator podcast. It's on all the major platforms. It is well worth it.
POLLONE: Quick plug.
CHAMBERS: Yeah. Yeah, no, it's great. I love it. I love it. Now, just one thing about your team, you guys are young guys, but I believe that this MidStreet has a senior person or senior people in it.
SULLIVAN: Correct.
CHAMBERS: Can -- it's just important because you know, a lot of people that are maybe exiting the business or say are getting in their sixties and fifties, a little older. So --
SULLIVAN: Yeah.
CHAMBERS: -- which is good. Don't get me wrong.
SULLIVAN: Oh, no, no.
CHAMBERS: But --
SULLIVAN: Trust me.
CHAMBERS: Because he’s a secret sauce and we -- you know, I want to give shakes to the old guy, you know what I mean?
SULLIVAN: To the president.
CHAMBERS: Yeah, yeah.
SULLIVAN: To the senior leadership, right? Yeah. You don't -- don't go too hard on the senior when you talk to him.
CHAMBERS: I wouldn’t.
SULLIVAN: So, Jeffrey Baxter, the president of MidStreet, is a huge part of the firm. He oversees all of the work that we do here. He's kind of like a north star for us as a company.
CHAMBERS: Yep.
SULLIVAN: So, when we run into things in a deal that we've never seen before, or we are having some sort of issue or if it's just direction. And sort of helping us set the course for where the company is heading. He's the person that we go to --
CHAMBERS: Yep.
SULLIVAN: -- for those things. And he's part of the firm. He's here every day and is a huge help to us.
CHAMBERS: Oh, yeah.
SULLIVAN: He's been in the M&A world for over 25 years. So just a wealth of knowledge.
CHAMBERS: And I've been in climbing's with Jeff and these guys, and it's just polished, man. The other thing I want to point out about this scenario is these guys have, this company, MidStreet Mergers and Acquisitions, at 590 Waverly Place, Suite 210 --
POLLONE: There you go.
SULLIVAN: Cary, North Carolina.
CHAMBERS: Cary, North Carolina. These guys have a succession plan, so they have a process. They have mapped it out, these guys, and the next generation. Jeff has vetted these guys. He loves these guys. Jeff Baxter, the guy, you know, so this leads us perfectly into, small business owners, what's your plan? You're going to have to sell your business. It's a huge asset. So, these guys let's talk about exit strategy, exit planning from your small business. Go, what do we gotta (sic) to do? I want to do that. How do I do it?
EXIT STRATEGY, EXIT PLANNING FROM YOUR SMALL BUSINESS.
SULLIVAN: That's a good question. The best, I mean the first thing to say is, if you're a business owner and you know you want to sell the company, one day, you need to start three years in advance, at a minimum. And the reason is, you know, I had a client come to us probably two years ago and they said, hey guys, I'm ready to sell today. I'm ready to be done. I want to get out of here. And we said, great. You know, send us your books. We'll get the valuation complete. And we'll start taking a look at everything. Well, about a week later, he got all the information over to us. We sat down, took a look at things and unfortunately, he had run an entire beach condo through the financials of his company.
CHAMBERS: Makes sense. What could possibly go wrong?
SULLIVAN: What could go wrong? And -- and it happens all the time. To be honest with you, we see this a lot, but when you do that, you really hinder the company's ability to sell to the largest buyer pool -- the largest buyer pools available. And ultimately, we had to have this guy go and resubmit his tax returns because if you sit down and you take a look at those financials and you can't prove where that money is going, it's going to be tough to get someone to pay you for it. And so, in that scenario, what actually happened is he came to us, we looked at the numbers. We said, look, you're really not ready to sell based on the way that you've run things. And he had to run the company for two more years before he was really ready to get out. And in his case, everything worked out well. I mean, it was a good transaction ultimately, but a lot can happen in two years, as we've learned specifically in the last two weeks. And you never know what's coming down the pipeline for you when you own a business.
CHAMBERS: What's happened in the last two weeks. I haven't been paying attention.
SULLIVAN: Well --
CHAMBERS: Yeah, tell me how is that -- so in all seriousness guys, obviously the world changed a couple of weeks ago with our friend Vladimir Putin being well, not being friendly for whatever reason there. And so yeah, what's -- what's the market like, so yeah, what's the market like?
WHAT ARE THE MARKETS LIKE?
SULLIVAN: Not being friendly. Understatement of the year, right?
CHAMBERS: Yeah.
SULLIVAN: Yeah, it's -- nothing has really transpired today is what I'll say. It again, it's been about two weeks since the initial invasion. And as of right now, we're not seeing a slowdown from buyers. Everything seems to be kind of moving along at a regular pace, but it's a red flag, I guess, is what I'll say in the market. And if it continues, I think it will begin to soften the resolve and some of the sentiment in the market about how great things are going. And it could get a lot worse, I guess, is what I would say. Nobody's got a crystal ball, no one knows where it's headed, but it's been a very long time since there has been a ground war between two established countries where you have their actual military fighting one another and not, you know, a military fighting a terrorist presence, I guess is what I'd say. So, it's a different kind of war. Hopefully it slows down,
CHAMBERS: But you, to your point, you never know what's going to happen. And like, if you gotta (sic) get to a liquidity event sooner than later the point is you've got to get tuned up.
SULLIVAN: That's right. And to tie it all back in, if you're a business owner, the reason we tell you to get prepared or to start speaking with us or any other M&A advisor out there in the market early is these are the kinds of things that we can catch and make adjustments early on in the process so that you can sell on your timeline. You can sell in accordance with your goals because sometimes people come to us and they're just not ready.
CHAMBERS: Yeah. Would you like to add anything on the process side?
POLLONE: Well, just to that last point, I guess I'd like to say, you know, we've in the last couple of weeks, we've experienced some of the most interest from -- from clients that than we've ever experienced in the past. And I think, you know, just to Erik's point it really affirms the fact that we're kind of in unchartered waters and -- and sellers are concerned, and they don't really know what's next. So, you know, we've talked about this internally. I think that we're personally, I think that we're headed towards more of a buyer’s market where buyers get to control and dictate a little bit more of the process than in previous years, you know. Typically, you know, when selling companies, the sellers hold a lot of the cards. They have a lot of leverage. But when things are really uncertain, like we saw with -- with the, you know, special word right there, you know, the last two -- two years, you know, buyers gain a little bit more leverage in the -- in the process and ability to control, you know, just how they can, you know, prices that they can offer and all that sort of stuff. So, I think that that's going to get potentially even worse, like to Erik’s point, if things, you know, continue to get bad. So, we'll see what happens, but I'm anticipating more of a buyer’s market as -- as years go by. Not right now, certainly, but maybe -- maybe in a year. Maybe in six months. Who knows?
CHAMBERS: Yeah, and, you know, I don't like -- I don't like the idea of selling into chaos, obviously, you know, and it may rejigger your thinking people out there. Maybe I'll just let this thing settle out before I pull the trigger, to your point. I'm hopeful. I'll just leave it at that. I'm hopeful. So, let's talk about evaluations because, and strategies that people who own small businesses, let's talk about that. What do we need to do to –
EVALUATIONS AND STRATEGIES-EXIT PLAN
SULLIVAN: And I'll kind of tie that whole thing into exit planning too. Because it is -- it is related. So, when we say get started three years in advance, we're not saying you need to list your company, or you need to start the process of selling at three years in advance. We're really talking about, making relationship with an M&A advisor and getting an evaluation. That's the number one step. So, in the process before, you know, people always ask us, how long does this whole thing take. You know, from the moment you sign a listing agreement, it takes roughly six to eight months. But most people started planning three plus years in advance, or at least one year in advance. So, for exit planning, number one step, start early. And get an evaluation. Understand what your company is worth and understand how companies are valued.
CHAMBERS: I like it. That's sound advice right there. Jonah, do you have any additions to that right there?
POLLONE: One topic that comes up a lot is who should do my business evaluation. Should it be my CPA? Should it be my M&A advisor? My business broker, whatever you want to call it. And it really, you know, my opinion and what I've seen at the firm, it depends on really the specific individual. Number one question I would have for whoever's talking about valuing your businesses is, do they have experience selling companies? Have they sold companies before and or are they active in the M&A space? So, if it's a CPA, if they've done this a lot and it's one of their specialties, then, you know, I think that makes potential sense, but, you know, we come across a lot of professional advisors who may or may not have experience in the M&A space. And if they don't, it -- it often is to the detriment of their client. And I don't think a lot of people realize that. It's something we -- we run into very regularly. You know, my -- my particular advice is go with someone who's actively selling companies in the market because the market changes from a -- from a day-to-day perspective, as we're seeing with the news right now. That's the only thing I would add.
CHAMBERS: Do a lot of small business owners just do it on their own and what’s the pitfalls of that?
SULLIVAN: We see that a lot. And it, you know, it really depends on the size of your company too, right? The smaller, more mainstream type deals, you know, if you're doing less than a million in revenue, typically maybe less than 750,000, a lot of those folks will try to do it on their own. And, you know, it's tough to say, right? For some -- some industries are easier to calculate than others. It really depends on your books. It depends, number one, honestly, on your background. Do you have a financial background? Have you valued companies before? Like if you're someone who has, you know, three years of M&A experience working at an investment bank, or even an M&A company, mergers and acquisitions company, maybe it makes sense for you to do it yourself. But if you've never valued a business before, if you've never sold a business before, it would be kind of, you know, not ideal to sell it yourself. You know, you're dealing with, and a lot of times sophisticated buyers who have done this multiple times over. If they're an individual, they've probably done a lot more research on the buying process. They probably talked to brokers and sellers in the market multiple times in the past, maybe even delivered offers, right? Some individuals we've talked to they've delivered five to ten offers before talking with our seller. So, you know, your kind of going up against a really difficult situation when you don't have the experience or the knowledge behind it. That’s one of the reasons why we always recommend sellers use a deal team, right? So, you know, M&A advisor or business broker, depending on the size of your company. You know, transaction attorney, some, or maybe just an attorney who's experienced in mergers and acquisitions. You want to have a wealth advisor on your team. Ideally more years in advance, but you know, you're going to sell your company. There's going to be a huge liquidation event after that. You need to be prepared for that step in the process. And where does the money going to go? Are you going to put it in the market? Are you going to use some of it to 1031 your real estate? What's that strategy look like? And then obviously a CPA. That -- that is one of the more underrated roles, in my opinion. A lot of times we'll see sellers who have grown over the years, we're dealing with the deal, right now. Large company, and, you know, they have a CPA that they've been using for -- for many -- many years, since they started the business. And it's, they've sort of outgrown their CPA role. And what we did was we brought in a -- an experienced CPA who's more experienced in the mergers and acquisitions side, and that person is working alongside their CPA as part of their, again, deal team. So, you know, think about when you're going to sell, think about things in terms of your deal team. You've got a team of people that you're using to help you in the process. And it's -- it's really underrated for a lot of folks.
POLLONE: And Trevor, you asked about people doing the valuation on their own. Absolutely. You can -- you can do that. But the mistakes, when the numbers get big can be pretty detrimental. And if you've got someone who contacts you out of the blue, they make you an offer on your business. You don't know if that offer is a good offer or not, and you try and do your own valuation. You could either vastly underestimate the value of your own business or miss a good offer because you think it's worth way more than it really is. Just work with a professional. It's worth the five, $10,000, even, some people charge that. We do them for free. And there are a lot of good M&A companies out there that will do them for free. But it, even if you do have to pay for it, it's worth the $10,000 to save you losing out on hundreds of thousands of dollars.
CHAMBERS: Okay. So, I'm going to say just one thing on that to add to that. The other piece that these guys didn't mention, but I know when I say this, they're going to be like, oh yeah. Emotions, because like, you know, we do financial planning at Olde Raleigh Financial Group, we do the buys and sells. And the reason you -- we get paid to do that is because we deal with that stuff every day. And we keep our -- we get paid to keep our emotions in check, so you guys don't have to worry about it. So, emotions are a big part of -- I've worked 30 years at this business. I got to get top dollar. Well, sir, you're running, your whole, your -- all your personal expenses through it. And so, it's not worth that. Is my, you know what I mean?
SULLIVAN: That’s right.
CHAMBERS: The other thing I want to ask, what's really not statement is, can you talk to me about the fee structure and how that works with you guys just so these guys know. It doesn't have to be a deep discussion, but roughly how does it work?
FEE STRUCTURE
SULLIVAN: Absolutely. If you look around online, you might have some trouble finding what M&A advisors cost and what, you know, what they charge. Our fee structure at MidStreet is generally this; 10% commission on the first million in sale price. 8% commission on the second million in sale price. 6% on the third, 4% on the fourth, 2% on anything thereafter. Now the next question most people ask is, is that negotiable? Is that your fee every single time? It is negotiable and it is not our fee every single time. It really does depend for us as a firm on the size of the company that we're working with and a lot of the other factors of the company. And the only reason I say that is we deal with companies of a pretty wide size range. You know, we might be dealing with a $2 million in sale transaction size company one day and then a $10 million in sale -- sale price the next. And so, it doesn't always make sense to give the same pricing structure for both companies. And you may have real estate involved. There's a lot of factors, but generally that's our structure.
CHAMBERS: Got it. Did you want to add something?
POLLONE: It might make sense to talk about the range of companies we typically help out. And -- and to Erik's point, it's typically going to be greater than a million in sale price. We will go all the way up to maybe 50 million just depending on the -- on the structure of the deal and if it makes sense for us. And like Erik said, we're -- at the end of the day, so another thing to bring up, a lot of business brokers out there, we operate at what we would call the nexus of MainStreet and the middle market. Okay. So, a lot of business brokers are mostly selling companies doing less than a million in terms of their sale price. We're kind of in between that and 50 million, which would typically be in between a business broker and an M&A advisor. And so, because of that, we operate at this weird little nexus point where some of our deals and, you know, that are less than $5 million in purchase price are going to go most likely through the SBA 7a loan process, which I'd be happy to explain. And over that, it's likely that the deals are going to sell to private equity or strategics. So just something to point out, we're a little bit different. We're structured as a team. We work on all our deals together. We've got Jeffrey Baxter Jr. here. He does a lot of the financial analysis and due diligence for us. Erik already talked about his role. I talked about mine and, and Jeff Sr. as a part of our team as well. We also have a big content team folks who help us market the companies. So, you know.
CHAMBERS: Yeah, that’s a big role with the -- yeah tell, just give us the once over on that, because I think you guys do an exceptional job because, you know, folks listen, they're gonna (sic), you know, what these guys do, and I'm sure there's other people, peers in your space that do this too, but I think what these guys do really, really well is the marketing end of it. So yeah. Erik, tell us about that because it's not just like put it up on a listing. It's a lot more than that.
MARKETING AND LISTING
SULLIVAN: Yeah. So, we'll tie that into the process discussion too. Like I said before, once you sign a listing agreement, the process generally takes six to eight months. The first step in that process is usually the business valuation. And that's already done by the time you signed the listing agreement, because we all have to come to an agreement on what's the price going to be? What do you, you know, what do you want to sell for? Once you start, for the next three to four weeks, MidStreet's going to be working on your marketing materials. And what that looks like for us is a 40 plus page write up. We call that the CIM, which stands for confidential information memorandum, and then a marketing video. The video scares a lot of people when they first hear about it. Because they think well how -- how the heck are you going to do a video with all my employees in the building? Everyone's going to know what's going on. And it's a valid concern. Before I tell you how we do it, we've done this for many, many years. We've never had an issue with confidentiality. And the reason is we go into the business under the guise of we're here today, doing a marketing video. Again, no issues with confidentiality, but you may be asking why do we do it? The big reason we do the marketing video is as a client, your company is going to be out in front of the buyers in the market and up against companies from all over the country that are also being represented by M&A advisors. And to date, we are one, probably the only company in our size range; there's one other company in the country that does this, but in our size range, we’re the only company that produces one of these videos for our clients. So, for you, as the business owner, that means when somebody gets your marketing materials and compares them with the other business opportunities that are in the market, it looks way different. Way more attractive. And we get comments all the time from lenders, from buyers; these videos make a huge difference for us. We can see into the business; we really get a chance to see the owner. Understand the opportunity and it makes a big difference in the sale price, too. It's all about driving that competition.
CHAMBERS: Absolutely. Do you have anything to add?
POLLONE: Yeah, so just to go back to the process, you know, say we start the process of the marketing materials. When we go live with a listing, we will go live with what we would call a blind ad on several different listing sites. And we will do buyer outreach as well. And that blind ad describes your company at very high level to gain interest from the buyers without revealing any of the confidential information. So, what happens is buyers come across the listing. They inquire on it and express their interest. And then we reach out to them. We talk with them for 15, 20, 30 minutes, depending on the type of deal. We vet them, we qualify them. And then after that conversation, we'll send them an NDA and a questionnaire. Or request -- we're a little bit unusual. We're, you know, we like to put ourselves in the seller's shoes and think if we were selling our company, and we were advertising on the market, you know, what would we be comfortable with? Some brokers, and this sounds crazy, but it's true, some brokers put the listing out online, they receive inquiries and then they send an NDA out and the buyers sign the NDA and then they get access to all the confidential information without ever speaking to anyone on the phone or confirming their identity. And to us, that's just not how we do business. That's -- that's not right. If you're selling your company, you're going to, you know, the CIM is going to have financials in it, very sensitive information that you don't want to get out there. And so, we found the best way to do that is to thoroughly interview the candidates and -- and receive a lot of information. And we put them through a big questionnaire. We asked for their personal financial statement, we asked for their driver's license and it's -- it's kind of a hefty ask, but the rationale there is we're sending a lot of confidential information. So, I just want to make sure, that's clear. We don't just send these videos out. You know, they're very sensitive pieces of content, but we don't just send these out to whoever inquires. Right. We, we qualify the buyers pretty thoroughly and that's a very big, important part of the process.
CHAMBERS: Yeah, absolutely. All right, so we touched on the market a little bit. Do you, I don't know if you guys wanted to just get into like, you know, I mean, you know, the sense of valuations right now. Let's see, I know, just pick some categories of companies. Maybe service providers or something like that. And then I have a follow up question that’s kind of specific, but you know, like I'm running a, you fill it in, I don't know. Tell me like a, what are valuations at and where's the money coming from and --
SULLIVAN: We'll do a landscape company.
CHAMBERS: Yeah, that’d be perfect.
SULLIVAN: Yeah. So, landscape companies. Interesting market right now for landscaping. If you are running a landscape company of any kind. Maintenance is your best friend, whether you are mostly focused on commercial or mostly focused on residential, the maintenance aspect of your business, as in going out to people's homes or to their places of business and maintaining the grounds, that is an integral part of having a valuable landscaping company. The install work that landscape companies do is also very valuable. But if it isn't paired with the maintenance, people see it as a massive risk.
CHAMBERS: Cashflows --
SULLIVAN: Correct.
CHAMBERS: Reoccurring cashflow.
POLLONE: Reoccurring --
SULLIVAN: That reoccurring cash flow, correct. Now between residential and commercial, there is also some distinction there. So commercial is going to be more valuable in the eyes of the buyers in the market today than residential. There is a little bit of a growing wave of residential investment because the commercial side is getting more consolidated. There's so many players going after that side, but still to date, if you own a landscaping company and you are on the commercial side, you can expect a higher multiple for your business, especially if there is maintenance involved and on the residential side, still a good amount of interest, but less so and a little bit softer from a multiple perspective.
CHAMBERS: Cool. So roughly, it's a clean business, doing a million in revenue, dropping whatever to the bottom line. I don't know what those are. I mean, not just -- what are the multiples, roughly? Based on, by the way, what are they based on? The cash flows, right?
SULLIVAN: Cash flows, right? So, let's say it's a, it's a million in revenue and we're clearing $350,000 in what we call seller's discretionary earnings, which there's a ton of info on our website about how to calculate that. I would recommend going there. But. $350,000, seller's discretionary earnings, you're probably looking at a multiple, within a range of 2.8 to 3.5, highly dependent on the area that the company is located in. That's another big factor. If you are located in a strong market area, that's growing; Raleigh, Cary, Wilmington, Charlotte, then your company is going to be a little bit more valuable. If you're located in one of the outer markets, Winston Salem, sorry guys, Greensboro, sorry guys, Fayetteville. These markets are not growing quite as fast as some of the other markets in North Carolina. And it's not that your multiples going to be dramatically less, but it does have an impact.
CHAMBERS: Right, right. Okay. All right. I have a follow up question to that. If -- if you have a company that is safe, like a flooring carpeting company. Okay. And you have 12, 15 guys in your crew, people on your crew. They're all 1099. And you're; basically, what you do is you drive around and make sure all the jobs are getting done, but you're just phone work, you know, you're -- you're having stuff sent through -- is there value there? I mean, basically you're a phone and a computer, right. And then you've got 1099 guy or people working for you.
SULLIVAN: Sub-contractors.
CHAMBERS: Yeah. Which is, by the way, a great way to do business. I'm not --
SULLIVAN: Awesome way.
CHAMBERS: But is there value there? Is there a sellable thing? And I'm giving you guys a little bit of a softball quite -- I mean not, a curve ball question, or maybe I'm not because you're awesome. I don't know. But yeah. Is there a -- is there a value there that somebody could trade on?
SULLIVAN: So tough to say without a little bit more info on the company. So, I'll give you a sort of a qualified answer. If the company has a brand wherein the people are calling for, you know, XYZ flooring company rather than to talk to Brad or, you know, is Charlie there, right? If you've got a brand and the company doesn't completely rely on you as the owner from a sales perspective specifically. Then yes, there is some value there. If you are the only sales guy and everyone knows to call you and has your personal cell phone number. It's going to be a little bit more tough to drive a lot of value.
CHAMBERS: Yeah, and this is kind of what I wanted to bring up because there's a lot of people that think more grinch, more grungier than there could be, yes. And I think you guys and your firm and my firm, we deal in reality. This is reality. It may be tough, but this is reality.
SULLIVAN: And reality serves you.
CHAMBERS: Yeah.
SULLIVAN: I mean, to live in fantasy land does not serve you.
CHAMBERS: No.
SULLIVAN: And -- and it’s a, not an easy conversation, but I have it with people all the time
CHAMBERS: And all you young people out there that have businesses, right? Think about what these guys are saying to you, right? Because you have to think about future self. There's not just, you know, all you guys out there that are making a living like you guys meet well, we're fine. You, mergers and acquisition people, and wealth advisor people, we help people get to future self, which is an important person you got to think about because they're going to have needs and desires and that you have to fuel, right? So, building a brand and that 1-800 number that everybody knows and on the, and the web listings and all that intrinsic value; be building that stuff into your model, so you can get more value. Because to your point, like, oh yeah, this -- this installer of floors and rugs, they got a really good reputation. There's something to trade on, there.
SULLIVAN: And they've got really great employees and salespeople who are dedicated to the company who have been there for many, many years. They have relationships across, you know, all different sectors in our market, whether it be residential or commercial. Those are the types of things that really are going to drive the value. But one thing that you said that I -- I really want to touch on is, so we talked about dealing in reality. And part of the reason people rarely want to deal in reality is that it's really painful to see in black and white where you're at. And for a lot of business owners, you know, kinda (sic) to tie it back to the beginning, the reason that they never begin planning is because it's not comfortable. Planning is not comfortable because there's so many things that you have to confront. You have to confront the fact that you're not going to be in the business forever. You have to confront the fact that one day you're going to have to make this change. And unfortunately, the brass taxes you're going to have to confront that one day, you're going to die. And that’s uncomfortable for all of us. For all of us. But it's the truth. And it's the most important thing that you can do to improve the quality of the rest of the life that you have left because none of us are going to be here forever. And you guys, I'm sure you deal in this all the time.
CHAMBERS: It's just part of it. But anyway, I think the points taken. No, my friend?
POLLONE: I’d like to add –
CHAMBERS: Yeah.
POLLONE: So, you know, at a basic level, if you're looking at, you know, how do I make my company more valuable? You know, I'm listening to this multiples, cashflow, et cetera. One of the biggest takeaways for me, whenever I'm looking at opportunities or whenever we're evaluating opportunities, the more of your business -- you got to put yourself in the buyer's shoes at the end of the day. The biggest question is, you know, the question of value; what we're really talking about is, what is someone willing to pay for my company? It's not this sort of abstract, oh, what's the true value blah, blah, blah. It's really, you know, if I were to market this business, what could I get for it on the marketplace? And the marketplace is going to bring buyers to me that will be interested. And we deal at a really micro level of this because we're talking about negotiations with individuals, private equity, strategics, but that's really how it's done. So, when I say, you know, you need to get a valuation and a really good way to do that is to go with someone whose doing deals. That's why I say that. That's kind of point one. Point two is repeatability. When you're a buyer, again put yourself in their shoes, if you're a buyer and you're looking at buying your company that you have, right. What are the -- what are the things you're most scared of? Number one is business going to continue in the future? What's one of the best ways you can ensure that business is going to continue in the future? Repeat -- repeatability of the business, right, of the revenue. So, we talk about landscape companies. We talk about maintenance, but even if you have a retail store, right, the repeat customers that come in, maybe. Maybe you can service them again. Maybe you have a customer list that you can upsell to. Whatever that looks like for your business. There's a ton of different industries we've served over the years. Whatever it looks like, as much repeatability as you can get, the better. The companies that have the lowest multiples are typically the companies that are only doing things like new installs, new construction, you know, one-off sales that they can't upsell into. The companies with the highest multiples are always have the most potential for repeatability and automatic, you know, structure. Right? So online businesses, you might hear crazy multiples. Maybe you've listened to podcasts before, you know, some of these online businesses sell for crazy multiples. Why is that? They're re ridiculously scalable and they're really repeatable. So, I just like to make that point, because I think it's one of the fundamental, you know, backbones of our business. And when you're talking about valuing your company.
CHAMBERS: Yeah, and also your business model, what's your business model? Like, are you, could there be things that you could be doing better to increase that, you know? Cool. Is there any other things you gentlemen would like to finish with maybe? Who knows?
PROCESS OF SELLING A BUSINESS.
SULLIVAN: Yeah, we didn't talk too specifically about the process, so it might be good to just cover it. We've talked about a couple of different pieces, but never the full thing. So, starting out, you've got the marketing process. Once you decide to get started. Three to four weeks after that is complete, then you go out to market. And unfortunately, that's the least predictable part of the entire process because it's all hinging on when you're going to find the right buyer. So usually, I'd say one to three months is the maximum period of time that it takes to find a buyer. Sometimes it can go longer. And if it does, there are things that you can do to attract more buyers. But assuming that we get it under contract within two months, then you're at about three months, total for timeline. From their due diligence, generally 60 to 90 days and another 30 days to closing. So, you're getting close to that six-month mark. That is a good case scenario. I wouldn't say it's the best case scenario. It can go a little bit faster. Can take a little bit longer.
CHAMBERS: Right. Okay, cool. That's great guys. And I will kind of break that out on the transcript of this recording because that's key.
POLLONE: And we've got blogs on that, Trevor, so maybe we can link to some of our blogs.
CHAMBERS: Perfect.
POLLONE: We've got guides on all that stuff.
CHAMBERS: I love it. I figured – I was hoping you were going to say that. All right.
SULLIVAN: Any more keywords we should stuff in here?
CHAMBERS: No. Yeah. Tell me your websites.
SULLIVAN: Our websites www.midstreet.com. That's M I D S T R E E T.com.
CHAMBERS: Cool. And these guys have the corporate headquarters here at Waverley Place up in Cary.
SULLIVAN: The international headquarters.
CHAMBERS: Yes. The -- in Cary, the vacation capital of the world.
SULLIVAN: That’s right.
CHAMBERS: Yes. Absolutely. Well, gentlemen, thank you so much for this. I really appreciate it. You guys are just a great resource for any of you people out there that want to do -- want to sell your company. And -- and the sale of that company is important to you and important to your future. Give these guys a call. So, thanks for coming to the soundtrack. Erik, Jonah, thank you so much. Have a wonderful weekend in sunny Raleigh, North Carolina. I mean --
SULLIVAN: Let’s go –
CHAMBERS: -- I don't know, man, does it even rain here anymore?
POLLONE: Gosh I don’t know.
CHAMBERS: I mean what is going on?
SULLIVAN: Never. It’s always 70 degrees, sunny.
CHAMBERS: Yeah. And also, these guys gave me a JUST water, which is, I mean, this thing is like --
POLLONE: We’re fancy.
CHAMBERS: (Inaudible) pack. I like it. It's like full of, like, I feel -- I'm just bouncing off the wall.
SULLIVAN: That’s M&A water right there.
CHAMBERS: I think it has a New York State thing. I like it anyway. So, I'll give the plug to this thing, so. All right.
POLLONE: Well, thank you, Trevor.
CHAMBERS: You guys. Thanks a lot. I love it. All right. Yeah.
POLLONE: Where are we going to lunch?
CHAMBERS: I don’t know. Where are -- where do you go to lunch around here? Good point.
SULLIVAN: There's all kinds of places right behind us.
CHAMBERS: Is there any particular place you want to give a plug to, that’s locally owned? Come on, I should have brought this up. I always bring this up. I forgot.
SULLIVAN: Locally owned is a really good question.
CHAMBERS: Well, it doesn’t even have to be nearby. I mean, where do you guys go? Where did he take your hot dates?
SULLIVAN: Is Jose and Sons locally owned?
POLLONE: I don't know. That's a good question. I think it is.
SULLIVAN: I think Jose and Sons is locally owned --
CHAMBERS: Yeah, I think it is.
SULLIVAN: -- and I believe they have a location right behind us.
POLLONE: I feel like we should be recommending a barbecue place because we're in North Carolina, though.
SULLIVAN: Well --
CHAMBERS: Where do you take a date?
POLLONE: Glenwood South. The Hibernian. Got to go there.
CHAMBERS: Nice. Oh, that’s right. Well, he took me there. So, it's a hell a date, right there. And where do you take? Where -- where you going, you know, when you got to take somebody out? I don’t know --
SULLIVAN: Morgan Street Food Hall.
POLLONE: Oh yeah.
SULLIVAN: There's nothing but options there.
CHAMBERS: Yeah.
POLLONE: Good point.
SULLIVAN: Gotta (sic) have options.
CHAMBERS: Yeah, see, I mean he kinda (sic), he got you on that one. Yeah. I actually just -- Namu in Durham.
SULLIVAN: Namu is so good.
POLLONE: Delicious.
POLLONE: That is the secret date place.
CHAMBERS: Jammer.
SULLIVAN: Love that place.
CHAMBERS: And then, I got another one that I’ll have to circle back on and throw in the transcript. Do you guys get any place like that -- any Asian place like that that’s killer?
POLLONE: Garland.
CHAMBERS: Oh yeah.
POLLONE: In downtown Raleigh.
CHAMBERS: Garland. I mean, yeah.
POLLONE: So good.
CHAMBERS: Jammer.
SULLIVAN: So good. Have you ever been to Bittersweet?
CHAMBERS: Yes. I have been a Bittersweet. It was a long time ago, but yeah, it's -- Blake Paro is a partner with me. He loves that place. Yeah, that place is cool.
SULLIVAN: It's right across from Garland too. So, it's a good one to hit.
CHAMBERS: I wonder what their multiples are.
POLLONE: Oh, let's not talk about restaurants and bars.
SULLIVAN: After 2020.
CHAMBERS: Yeah, exactly. All right, you guys? Thanks a lot. Thanks for those plugs. Appreciate it. Have a wonderful day.
SULLIVAN: Thank you, Trevor.
CHAMBERS: You too, bye.
(INTERVIEW CONCLUDED.)
Trevor Chambers
Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing. Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.”
Erik Sullivan
Erik is an award-winning photographer, videographer and content writer with years of experience in the field of digital and print marketing. Erik holds a Bachelor of Arts in Sociology & Technical Writing from the University of North Carolina at Charlotte, as well as an active North Carolina Real Estate License.
Jonah Pollone
Jonah graduated from UNC-Chapel Hill’s Kenan-Flagler Business School. He holds an active North Carolina Real Estate License as a full broker and is working on several other professional designations. During his time at Carolina, he was the co-president of the school’s undergraduate real estate club and fostered a community for real estate networking and investing on campus.