Here is another episode of the Exit Rich podcast you won’t want to miss!
Don’t miss the chance to attend the special reunion of famous co-authors Michelle Seiler Tucker and Sharon Lechter exactly one year after the release of their important book ‘Exit Rich!‘ Sharon is not only a best-selling author but an international speaker, mentor, philanthropist, and CEO of her company, Pay Your Family First! Sharon and Michelle’s valuable insights shed light on effective strategies for business owners to optimize their businesses and make them more marketable. It is important to have work for hire agreements for your business. Outsourcing every aspect of your business has downsides. Tune in to today’s episode and experience the incredible expertise of Michelle and Sharon!
Watch the episode here
Listen to the podcast here
Sharon Lechter Joins Exit Rich Podcast!
I have another special treat. You always hear me say that, but it’s extra special because I have Sharon Lechter. I always have everybody’s long bios and go through a long, elaborate introduction, but Sharon Lechter doesn’t need an introduction because everybody knows who she is. Every time I talk to somebody, I’m like, “Do you know Sharon Lechter?” they’re like, “Of course, I do.” Sharon Lechter is my author. We both authored the book Exit Rich. Sharon Lechter is an entrepreneur, international speaker, and bestselling author. In fact, she is a five-time New York Times bestselling author.
She’s done a lot of work with Robert Kiyosaki with Rich Dad Poor Dad. She’s also shown as a premier expert in financial literacy and entrepreneurial success. Again, working with large names such as Robert Kiyosaki, co-writing a bestselling book, Think and Grow Rich, Disney, and Time Warner, which is also the CFO of Financial Literacy Company, Pay Your Family First, which lays the foundation of financial literacy among adults and teens alike. I need my daughter to read that book. I needed to get her involved in your programs. Welcome to the show, Sharon. We reunite two years later after Exit Rich.
I love it. It’s good to be with you, Michelle. What an incredible journey it’s been. COVID hit us right when we were supposed to launch the book and we delayed it for a bit, but when it came out, it was too amazing results. I can’t tell you how many people tell me, “I wish I’d read this before I sold my company.” I love it. People, over and over again, find that the jewels and the nuggets of how not to have a successful company, but how to make it sustainable and scalable and then ultimately saleable or exit without having to sell. It is amazing content and it was a fun project to combine your intellectual property with mine to create something that was exponentially good.
I’ve never heard a bad comment about Exit Rich. If you read the Amazon reviews, they’re good. I remember Sharon, we had the push to launch back several months, if not a year, because of COVID.
it was almost a year that we pushed it back.
We were going to come out in 2020. We ended up leasing, it was June or July of 2021. Years later, it’s been quite the journey to even get the book out because of COVID and had the pivot like everybody else did. I remember you and me doing pre-launch and business owners ordering the book. They would call me, or email us and say, “I got Exit Rich. I’m printing it out, 100 papers. I’m giving it to all of my department heads. I’m telling them to do what these ladies say to do and follow it word by word.”
Especially when it comes to The 6 Ps, which are you got to have to right people and the right team. You got to have the right people in the right seats. You got to have a management team. You need to work on it, not in it. You got to have the right products and you got to be able to have reoccurring revenues, and you have to be able to have that diversified revenue streams. We go through the processes and sharing processes is your big thing as well and then proprietary patrons and profits. There were companies going off the ledger paper of Exit Rich and teaching their teams or having their teams lead their employees on how they should be building this business.
it opened their eyes, Michelle, to where the value is in your company. People don’t think about the fact that your business systems, your processes add tremendous value to your business and give you a competitive advantage. We talk about intellectual property, which is under your proprietary. That’s something that you need to identify, protect, and leverage.
A lot of times, people have intellectual property, but they don’t even recognize it. By putting this all together in this book, it helps people analyze their company from stem to stern to make sure that they’ve done what they need to get ready. I love the story that you share about the company. I can’t remember what it was. It was $60 million you were going to sell. They didn’t have the right to transfer and their client contracts.
That’s something that a buyer doesn’t want if it’s not transferable. They had to go back and renegotiate. I believe you tell that story, and I love it. It’s such an impactful thing for people to understand. They have the right contracts. They have the right agreements so that they’re setting themselves up for the ability to sell. You need to do that upfront so that you don’t look like you don’t have everything lined up ready to sell. You don’t want them telling you that you have something wrong. You want to find it before you put your business and correct it.
Every time they tell you that you have something wrong, that’s when they start subtracting zeros. The more you have wrong in your business, the less infrastructure you have. You don’t have the right people in the right place. If you don’t have congruent revenue streams, if you don’t have the processes all buttoned up, if you don’t have those proprietary assets, if you have customer concentration versus customer diversification and you’re not profitable, you start losing zeros.
That’s what’s happening to a lot of Gen Z and millennial businesses. As they build these great businesses, but they don’t have the infrastructure, and it hurts them. Again, for every issue that a buyer finds, they subtract. We want them to add. We want them to say, “You have a great team in place. A business can run without you. Let’s add a zero.”
Yes. It is crazy that when you put your house up for sale, you go through and you make it look nice. You make it pretty and make sure everything’s up to date. When you sell your business, it’s like you don’t even think to do that. That’s so important to make sure you’ve got things straightened out, and you have the right legal agreements. it’s crazy.
They make you stage your house. I’m was looking at putting my house on my kitten. My real estate agent came in and said, “You’re putting not much need to empty out everything and start over, get rid of the clutter.” You’re right. Many people don’t do that with their business. They think about, “It’s a business. Here it is.” They don’t think about all the issues that could arise, like having independent contractors instead of employees.
That was a deal that we dealt with, in which a manufacturing company had 60 should-be employees. They’re all independent contractors working on the manufacturing floor and in the warehouse. What happens, Sharon, if that employee gets hurt, loses a limb, something catastrophic, and there’s no worker’s comp, they lose their business. Plus, we have to go back in and subtract all of that money because then we have to convert the employee over to W-2. There are so many nuances.
Along that line, a lot of companies, in fact, the vast majority when you’re talking about Millennials and Gen Z, outsource everything. They hire somebody to do their website, they hire somebody to do their pictures, they hire somebody to do their social media, and they don’t do a work-for-hire agreement. When they build this company big, and somebody comes up to buy it, they realize they don’t own what they think they own because they never got a work-for-hire agreement. I see this over and over and over again. You may think you own it because you paid for it, but you don’t, unless you have work for hire that says, “Once I pay you, the rights and that ownership transfer to me,” is such an important piece of business that people overlook.You may think you own your business because you paid for it, but you won't unless you have a work for hire agreement. Click To Tweet
We even take it one step further and say, “Seiler Tucker owns all this content that you’re creating,” and make it ironclad. I know your husband’s an attorney.
Our work-for-hire agreements are pretty ironclad. We make sure that people use those. As in businesses, people are loosey-goosey. That’s a tactical term for you. They don’t do what they need to make sure that their business is clean as a whistle. When a buyer comes in, it is exactly what you said. they start reducing zeros. If their people can find it, you should find it first so you can correct it. That’s the big issue.
Another thing, when we talk about the P for Patrons is a huge issue for Millennials and Gen Z. I’m sure you’ve come across this. In the world, we’re all about social media. You may have millions of followers on social media, but you don’t own those names. Many people have found out that sometimes they can turn them off on you. It’s so important.
You want to have that lead generation, you want to have millions of names, but you want to nurture them and invite them to your database. A lot of companies sell simply for their database. People tell me, “I have 2 million followers on Instagram.” I say, “How many are in your database?” “8,000.” I go, “We have a little work to do.” It’s important for people to understand the full picture of all The 6 Ps.
I always tell them, “You don’t get anything. Facebook has it.” What do you recommend there, creating a little lead funnel to giveaway a chapter, a book, or something to get that content?
You want to capture their emails. On social media, you can say, “For ten tips on.” For me, it’s like, “For 10 tips to improve your credit score, go here,” and there is a link to get it. They put in their email. “For a free eBook, go here and claim it. Take this survey,” and offer a survey on social media and that survey is housed on your website. All of those things are ways to nurture them. Give them things. I always say, “Give then sell. Give then ask.” Every time you give something, it’s an opportunity for you to have another connection point. People don’t want to do business with people unless they know, like, and trust you. The more you give, the more value, the more they’re going to elevate that level of trust.The more you give value, the more people will elevate that trust level. Click To Tweet
That’s so important. I don’t see too many people doing that on social media. That’s huge because your database is worth a lot of money like other proprietary assets.
Years ago, I did an analysis that Fortune 500 companies were 85% bricks and mortar and 15% intangible assets. That’s more than flipped now. Over 90% intangible assets and very little bricks and mortar. That allows us to compete with the big boys because everything’s intangible. Inherently with that, you also need to position yourself to protect those intangible assets, intellectual property, and goodwill.
You can talk for hours about goodwill because that’s the gray area in your business where you need to pull it together and value it. It’s important as a business owner to identify your goodwill. It could be location. It could be exclusive contracts. It could be intellectual property. Lots of different things comprise goodwill but add back those zeros that you talked about.
That’s what we want to keep doing is adding back those zeros. A lot of people think, “Evaluations are so easy. It’s based on a multiple of EBITDA or a multiple of revenue.” It’s not that simple. You do want to take into consideration the people on your team. People are buying companies for talent. It’s very hard to get good people these days. It’s especially hard to get people with good talent.
People who are smarter than you. What we do when we evaluate a business is identify those synergies. What sets this company apart? We were selling the manufacturing business. One of the biggest things that we thought could be attractive to some of our buyers is that this company did manufacturing distribution all over the country, but they only have one manufacturing.
They only have one distribution center. They have a manufacturing plant. What we start trying to do is add back those zeros right away. We found a buyer that had the same manufacturing and similar products distribution nationwide. The first thing that that company can do is subtract the cost of that distribution center which was hundreds of thousands of dollars. It was several million, actually. What we look for is, if we find a strategic buyer, the not-right buyer can go in and buy the company. Take advantage of the economy of scales, but also see what they can cut because they already have it. Does that make sense?
Yes. When you think about location, the company may be very successful in the Southwest. They don’t want to put in the energy to do bricks and mortar, but they have a ready market in Florida. You find a company there and you do a strategic alliance. You expand based on location. In doing that, you have a whole new revenue stream. You have the ability to attract more buyers and you become more attractive. There might be a company in Florida that wants to enter the Southwest market. 1 plus 1 is 11, not 2 when you have something like that because you have the ability to exponentially increase your impact, your sales, and your reach.
We have a few comments. Charlotte says, “Hello, ladies.” Tim asked a question. “What are some common challenges or mistakes that business owners make when preparing for an exit? How does Exit Rich address these challenges?
Some of the things we’ve been talking about are very much covered in the book. Some of the common mistakes are they don’t prepare, they don’t get themselves ready for sale, they don’t go through and do a checklist, an audit of, are they ready? Have they audited their legal agreements? Have they audited to make sure the contracts are transferable? Have they audited to make sure they have their intellectual property in-house?
It is identified and protected. You have to put all those things together. We talk about in, Exit Rich, a marketing look-book, and then the basic due diligence book that you’ve gone through. You’ve done the work. When somebody comes in as a potential buyer, they’re impressed. They see you have your acting together, and so you don’t lose those zeroes.
All of those things we cover in the book about lots of mistakes. Michelle has incredible examples of actual real-life stories where mistakes happen. She was able to step in, correct those, and help sellers get a lot more money. It’s important to make sure you have the right advisors. Make sure you have people who have experience in what you want to do. Don’t hire somebody to learn on your dime.
Make somebody coming in that knows the industry, knows the market, and more like Michelle, they have a database of potential buyers ready to go. A lot of times, it’s matchmaking, not just listing. It’s important, all those things we talk about in the book. Not having your database up to date is a very big issue. A lot of businesses falter on not having work-for-hire agreements, third-party agreements, and things transferable are some of the biggest items that I see with companies that are unable to sell.
I agree with all that. It’s very difficult for an owner to do that because, first of all, many owners are working in their business, not on their business. It’s very difficult to set everything aside and start working on gathering all this stuff together and fixing your business. Before you even put your business on the market, you should get with an expert and make sure you have all your ducks in a row and tweak your business as you go.
There are so many things like making sure you have employment agreements. It’s making sure you have the work for hire, the non-competes, and all your documentation buttoned up. It’s making sure that you have your organizational paperwork, your LLCs, and all the minutes that you’re supposed to keep up with. Many companies don’t even have that.
That’s so true. Also, documenting business systems. I know this is so true for you. Many business owners don’t own a business. They own a job. Their business can’t survive outside of them being there. It’s hard to sell a business when you are an integral part of it. The first step is to build your business with the systems, the intellectual property, and the processes that it can run without you. In essence, you’re exiting your position before you exit the business because you’re creating a sustainable business that becomes an asset that is working.
Assets are sexy. Those assets and that business is working for you. You have the right people in the right seats. You have the right systems, processes, and it becomes a singing machine. That’s what you want. As you have a singing machine that is scalable and sustainable, that’s when you can exit from the standpoint of getting a big payday. First, you have to create the opportunity to exit. Get your time back first so that you have a smooth operating machine.When you have a singing machine that is scalable and sustainable, that's when you can exit from the standpoint of getting a big payday. But you must create the opportunity to exit with a smooth operating machine. Click To Tweet
Little challenges pop up when you’re trying to sell a business that people don’t think of. We’re in the middle of selling a company with SBA, and when you have SBA involved, it’s even more difficult. The seller’s CPA did not pay a franchise tax. That’s now holding up the sale. I thought the CPA paid and the CPA goes, “You didn’t give it to me.” It’s going to be a constant battle back and forth, but there are all these little things that are going to pop up.
There are all these things you should do to prepare your business for sale, like making sure you have the right team, the right products in place, making sure you have your processes. Everything buttoned up, and making sure you have customer diversification. There are all these things that pop up that you don’t think about, “There was a lawsuit that was filed, but it sat dormant for the last eight months to a year. You forgot about it. There’s this tax issue or this or that you thought.”
A personal guarantee on something that you forgot that you ever signed comes to bear later.
She speaks from experience. All these different little things pop up and you do need an expert to walk you through all that. I agree with this is what I always say, most people own a glorified job and not a business. It’s very hard to go through all those things. Plus, it’s hard for a seller to identify, “There’s a manufacturing company that has distribution nationwide. They’re going to shut my $10 million plant down or whatever it costs,” and that’s a $10 million-plus in EBITDA for them. It’s a huge increase in EBITDA. “They’re going to pay a lot more money because I have this database, and I have all this detailed.” I sold the app business, and I can’t tell you what they were doing, but they collected data and data day after day where people traveled.
It’s so important to separate the emotion from the business because, as an owner, it’s your baby. I always tell people of high emotion and low intelligence. That’s why you need to have somebody like Michelle on your team, somebody who’s coming into it from a seasoned experience. She can help you understand that even though it may seem like they don’t want a piece of your baby, you’re going to get a bigger piece of their pie. It’s important to separate the emotion from the actual process of the sale.
There is buyer’s remorse and seller’s remorse. I used to say, it’s always seller’s remorse and buyer’s remorse, but now it’s not buyer’s remorse. There are so many businesses out there for sale at any given time. There are 30.2 million businesses in the United States. 40% to 60% will be up for sale, believe it or not. It’s a pretty competitive landscape. In the businesses that we sell, which are typically $10 million up, it’s private equity. It’s venture capital. They don’t care. They’re not emotionally attached. It’s all financial. It’s all about strategy. It’s all about how they can be strategic and hold their businesses to the next level.
I don’t see too much emotion on the buyer’s side, except when they get excited when they find a problem that brings down the price when they get emotional about that. They like that. The seller is like, “What do you mean you’re not interested in this?” It’s like their baby.
When it’s first-time buyers, they get emotional. When it’s a buyer that only has a few companies, when you start talking to pegs and venture capital, we’re not emotional. We’re all financial buyers. Does it make sense? Is it logical? There’s another question here. “The book also explores the concept of building a sustainable business that can thrive without the owner’s direct involvement. What are some of the steps of principles discussed in Exit Rich? “
One of the first things that you can do is take inventory of your team and take inventory of your task and assign seats. You need to look and say, what are the seats in the company? Who are my people? Make sure that you have the right people in the right seats because Sharon, I know that you’ve seen lots of organizations where you are trying to fit a square peg into a round hole and it doesn’t fit. They don’t want to take the time to retrain that person for another position or let that person go.
When somebody is preparing their business for sale, it’s so important to strategize when you are going to disclose things to your employees and how you’re going to keep them. What I see what happens is somebody’s ready to sell their business and the employees hear the wind of it and they start exiting, which is not good from the standpoint of the buyer if they want to maintain the operations as is. It’s important to understand what you are going to do. When we sold the talking children’s book back company back in 1991, they were absorbing it into this large publishing company. I had 127 employees that were going to be out of a job.
We negotiated that they would get very nice severance packages and outplacement and all but two people we found new jobs for. We didn’t need to do that. We didn’t have to do that, but we wanted to do that. Those two people made the decision not to continue working. When you are looking at staying viable through the sales process, you need to maintain your workforce. That’s an issue a lot of people don’t think about. When do you tell them? Do you tell your executive team and then your employees? You have tons of experience with that, Michelle, but it’s important to address that too.
It’s probably one of the biggest reasons to buy or not buy a company. Private equity groups, strategic buyers, and venture capital, typically will not buy a business without the seller staying on and retaining the percentage. A lot of the offers that we’ve been seeing over the last several years, they’ll buy 60%, 70%, 80%, 90% of the business. Most of them want to sell it to have at least a 20% to 30% stake in the company. A lot of business owners think, “I’m going to sell. I’m going to travel the world. I’m going to be done.”
In most cases, that’s not happening, unless you’ve built a sustainable, sellable, scalable business that can run without you. We’re selling a $60 million electrical company. He has multiple locations. He works in the business for about 10 to 15 hours a week. He’s not needed. He’s got all his project managers, a CFO, and a COO. He is not needed, but every offer coming in still wants the reassurance that he’s going to retain some equity. We have had a couple of offers with 100% buyout, but for most businesses, mid-market to the larger type of companies are going to want to make sure that the owner stays for 2 to 3 years.
That’s where they come into golden handcuffs. If you are the head guru in your company, you probably know the half a dozen people that are essential in your business that need to stay as well. It’s important to be cognizant because otherwise, you’re going to make your own life hell. Make sure you take care of those people and you have agreements for them. Either they stay until they’re not needed and they get a severance package, they get a bonus for staying, or they have ongoing employment contracts with a new owner. You want to make sure you take care of your people so that you don’t have a rough landing when it comes down to selling the business, and they start leaving at the end of the day.
You can do this ahead of time. Making sure you have the right team in place and making sure that maybe they have some profit sharing. Maybe they have this type of incentive, that type of incentive, but you don’t want to tell them that you’re selling until it’s done. There are certain heads, CEO or CFO, who might have to be bought into the conversations. We sold a company that had 400 employees. We didn’t tell anybody but the CFO and the COO because people started jumping ship. Everybody likes comfort. People don’t like to step outside their comfort zone, so they want to stay in that comfort zone and they’re concerned, “This new owner is going to come in and fire us, we’re not going to give the same benefits, we’re not going to serve us pizza on Fridays.”
It’s all about what’s in it for me.
I had a seller do that. That might be the company you were talking about earlier, Sharon. It’s a $60 million company we sold in Texas, which is oil manufacturing. This seller did everything opposite what I told him to do. I told him, “Do not talk to by without me being present, and don’t promise anything.” What does he do? He goes, closes on some buyer, and then blames me for negotiating too much. I wasn’t even there then.
I told him, “Do not tell your employees.” What does he do? He tells all of his employees. He had three jump ships. He had 4 or 5 to demand a raise right then and there. You don’t want to tell your employees anything. Your key employees, when it gets close and due diligence is signed off on and you’re almost at the finish line. Even though you think you’re almost at the finish line, you might not be.
Believe me, how many times has the closing date been delayed because of some piece of due diligence every time? You think it’s going to close on March 1st and July 1st. You’re maybe signing the paperwork. Lots of strings. You want to reduce the amount of hair on the deal before you go into it, if at all possible, because the buyer’s attorneys are going to find more hair.
They will find it. You want to do that before you even go to market. That’s why it’s imperative to have a good M&A advisor because you want to reduce the hair before you even go to market. You want to go ahead and point out all the skeletons in the closets because they’re going to find them anyway. We have one deal that still hasn’t closed. It’s a $70 million agriculture company and due diligence went on for over a year. The lending, interest rates, and everything went up. It’s a difficult process to manage and to be able to navigate everything that can pop up. Hayden asked, “Can you describe the differences between what private equity groups and strategic buyers are looking for when buying a company?”
You’re the expert on that stuff. Private equity groups come in all shapes and sizes. I have a client that sold to an equity group, and they are looking into one particular industry. They want to buy these particular practices all over the country, roll them up, and then sell them. They have a 5-year buyout and a 10-year plan. They’re specifically looking at rolling up organizations within a specific industry. Other private equity groups are looking at individual deals on companies that are set for expansion, where the management team stays in place. They’re helping fund it for a big piece of the pie. They’re adding strategic mentorship board of director seats. There are different ways to deal with private equity firms.
A strategic buyer can be a private equity company. A strategic buyer could be a mom-and-pop business in Atlanta, Georgia, that wants to expand to Arizona so they can have a winter home here. They look to find a company here that aligns with what they do, and they buy it as a strategic effort to expand their reach and location nexus. I could go on and on, but Michelle, you live with this every single day, so why don’t you add your two cents on this?
This is why we make a good team. Private equity groups buy based on platforms and add-ons, and they usually have a minimum of anywhere from $2 million to $5 million EBITDA requirement before they even look at the business for the platform. If they’re in food manufacturing, they’re not going to look for add-ons. If they want to get into food manufacturing or look for a platform.
They’ll look at add-ons that are under $1 million in EBITDA to add on. The problem is when they’re looking at a platform and they don’t have anything. It’s not strategic. They don’t have any synergistic companies in there unless, like we’re dealing with one right now that has an electrical company. They’re doing all solar panels, so they’re looking at an electric electrical company that’s contract labor.
They have labor to put in those solar panels. Otherwise, most private equity groups looking at platforms don’t have that strategic edge where they’re willing to pay more for those synergies. Therefore, it becomes a financial decision over a synergistic decision. Unlike strategics, we can point out the opportunities and how it’s going to explode their business and take it to the next level.
Whether that’s contracts, another company you might have been referring to, Sharon, is an oil manufacturing company. We’ve done a lot in the energy sector, but an oil manufacturing company we sold in Louisiana had a huge contract. The thing about the company was difficult to sell because that customer concentration versus customer diversification and 60% of the revenues were tied up in BP, British Petroleum.
Buyers were nervous about that, and they’re going to mitigate their risk. They’re going to ask for earnouts, seller financing, and all this other stuff. Whereas I had an 80-year-old seller and a 50-year-old seller were partners, and the 80-year-old was like, “I’m not doing any of that.” He was very difficult to work with. I’m like, “Let me go find another buyer. I bought you seventeen offers, but they all mitigate their risk.” Finally, I found a strategic.
The strategic was manufacturing similar products and delivering similar services, but it wasn’t competitive. This manufacturing company had been trying to get into British Petroleum for years, for decades, and could never get its foot in the door. For a company like that, this company was worth a lot of money. They were willing to outbid everybody else so that they could get the VP contract. That’s things that M&A advisors will look for, point out, and make sure that they find the right buyers.
That’s a perfect example of a strategic buyer.
Yes. I prefer strategics versus private equities. If private equity is reading, I still love you all, but it becomes more about financials than it does about the strategy and how that business can catapult them to the next level.
A strategic buyer could be looking at both expansion and culture. Private equity is going to be looking at the numbers and the growth pattern.
If it’s an add-on, they’ll look at how it fits strategically. I agree it typically comes down to financial buy. Do the numbers make sense? As strategics looking at geographical, “I want to be in Texas. I want to be in Arizona. I want to be in Louisiana. If I bought that manufacturing facility, I can add to my manufacturing. I don’t have to have their distribution plan.” That already gives me a $5 million to $10 million increase in EBITDA. They look at things very differently. A financial buyer versus a strategic buyer, usually, a strategic buyer is always going to pay more.
They see not what they’re buying but the impact is going to have on what they already own. Their business may be able to expand its distribution but these products, in addition to buying sales for the company and the products that they offer, are an exponential benefit.
Keep your questions coming. Comments are coming. It is the two-year anniversary of Exit Rich this 2023. I will send out a copy signed by me and forged Sharon’s signature to anybody who has the best comments and best questions.
You have my permission to sign my name on the book for these few people here.
Remember, you do teach financial literacy, not to get ripped off.
My husband would probably kill me. That’s all right. He’s the IP attorney.
What type of feedback have you been getting from Exit Rich? I know that you’ve been speaking at large events. You hit me with some of these big orders.
Everybody that is reading, this book has gone to so many different places. I did a special program with Cardone Ventures on Exit Rich so that it would add value to their clients. I was speaking at the Presidents’ Summit over in Europe, CEOs and presidents all over the world were there. I’ve been speaking to women presidents’ organization groups as well on Exit Rich. It is such an incredible gift. I’ve been to five different cities with the EO, Entrepreneurs Organization and I know you have too, Michelle. The beauty of this book is it’s the combination of my almost 45 years of experience, and Michelle’s quite a bit younger, so let’s say 25 or 30 years of experience from Michelle.
The combination of our experiences is very diverse. It was an absolute pleasure to work alongside Michelle to create this. There are a few things we didn’t agree on. We talk about that in the book, but most of it we were singing the same tune, and rhyming with each other. It’s such an incredible tool because it’s based on experience. Experiential learning is the best. It’s not dictating educational principles but truly what to look for, and how to build your business from the ground up.
If you’re a brand-new business owner, it’s a great roadmap. If you are an existing business owner, it’s a great tool to firm up and solidify your systems and your business to position yourself for growth as well as to position yourself for sale. Also, what I’ve seen is a lot of venture capital people are using this book to help them in the buying process. It’s not the selling process, but in the buying process, what should I be looking for when I’m buying a business?
I have another client of mine that’s looking at franchising our operation. I said, “Read Exit Rich first and see what you can do to continue putting yourself and position yourself in the place of greatest and highest potential.” Steve Forbes is a friend of mine and he said, “Many business owners end up leaving equity on the table. This book will be a gold mine for those entrepreneurs.” It is a true statement.
There are tons and tons of reviews on Amazon and we have lots of reviews on the book, but a lot of feedback I’ve been getting is, “I wish I’d known this many years ago,” in their company. Just because you’ve been running a business for 10, 15, or 20 years doesn’t mean you’re doing it right. In fact, the landscape has changed dramatically.
I know you know this because you’ve heard me say it time and time again. It used to be, 95 to 98% of all startups would fail in the first five years. Startups always get it wrong, right? Startups were so difficult. That landscape has changed dramatically. Only 30% of startups are going out of business now. Out of the 30.2 million businesses, 70% of business owners that have been in business ten years or longer, they’re dropping like flies. They’re going out of business.
The number one reason for that is lack of aim. The aim is always to innovate and market. People get complacent, and they don’t realize technology, AI, all these new things are coming to the platform, to the forefront. If you don’t innovate, if you don’t market, you’re going to be out of business. The landscape has changed. Everybody has said, “I wish I knew this. I wish I knew that. I wish I would’ve done this.” I always say, “It’s never too late to start.”
We don’t know what we don’t know, Michelle. A business owner is an expert in what they do and how they do it. They may not be an expert in accounting. They may not be an expert in legal. In fact, they probably are not. It’s important to make sure you bring people who do know what they’re doing and they can align with you.Bring people who know what they're doing and can align with you. Click To Tweet
Believe me, a lot of people say, “I can’t afford an attorney.” You can’t afford to have an attorney because it gets a lot more expenses later than it does at the beginning. I’ve seen it more often than not. The biggest legal issues are with companies that are highly successful when multiple owners get together, and they don’t identify things like how to plan the divorce before the marriage or how things are going to go if one of them should be incapacitated or die.
Those things become dynamite. They can destroy the business. It’s better to talk about those things at the beginning and set up. We love each other, the brightness of the future, plan it when you’re all very excited about the future and say, “One of us is older than the other. Maybe, in 3 years, somebody wants to leave. How are we going to process that? Are we going to get two different valuations? Are we going to look at how we can do that? Is it going to be a 1-year payout or a 5-year payout?”
Do the work upfront while you still are excited about the future. When a horrible event happens, it becomes very stressful, has high emotion, a lot of drama, a lot of anger, a lot of hurt, and a lot of sorrow. I see it time and time again. Best friends end up mortal enemies because they did not address that stuff upfront.
Everybody goes in happily ever after and it doesn’t always end that way. I’m going through that. Sharon, and I talked a little bit about this before the show. Unfortunately, I unexpectedly lost my husband months ago, and I’m going through this within state sale. My husband was a brilliant business mind. He is a doctor, but he is a brilliant business mind as well.
They didn’t write their buy-sell agreement correctly, even though they had a life insurance policy. They did not write their buy-sell agreement properly. They didn’t cross the T’s and dot the I’s. They did update it when they added locations. It is now a hot mess for me and I’m in the industry. If I could go back in hindsight and say, “Let me see that buy-sell agreement.”
Our husbands are usually the last ones to listen to us so.
It’s so important. Hayden asked, “How is the sales process different if the business has multiple owners? Are there any particular things to look out for when selling your company?
That’s what we answered because it’s so important. I see it happen.
It was a nightmare. I’ll expound a little bit on that, Sharon. I had a business we were selling that had nine family members, and they didn’t get along. They wouldn’t agree to anything. I won’t take a company on like that anymore unless I can agree upfront and unless I can all be on the same page. I put so much work into it and never ended up selling it because they would never agree on anything. It does become very difficult. You want to make sure that partners are in line. They both want to sell.
You become a counselor as opposed to a broker.
Selling a company, work psychiatrist, counselor, mom and dad, CPA, and attorney. It is important to have those resources. When somebody hires Seiler Tucker, they don’t get Seiler Tucker. They get the M&A firms that we’ve been dealing with for over 23 years. They get the accounting firms that we’ve been dealing with for over 23 years. They get the DST, the first sales trust resources, etc., because you have to have a team to sell your company. Pike says, “What is your favorite piece of advice from Exit Rich and why?” Read it. What would you say on that one, Sharon? There’s so much advice.
It’s like asking me, who’s my favorite child? There are so many elements and some people say, “I can tell you who my favorite kid is,” but no. There’s so much content in the book. My favorite piece of advice is the fact that we wrote it. My mentoring clients pay me $50,000 to $100,000 a year to work with them and apply the principles of Exit Rich. My husband and I have an online course called Essential Components of a Successful Business that’s thousands of dollars. This book is $27 or whatever the price is, and it has thousands if not millions of dollars of advice in it. The fact that it exists is my favorite issue because I’m glad that we were able to get together and create it. That would be my answer.
I’m glad too. I’m grateful because I remember when David Corbin, our very good friend, said, “Sharon would be a great co-author.” I’m like, “She’s a New York Times bestselling author of five books. What if she doesn’t like it? Why if she doesn’t like my writing style? What if she doesn’t like my content?” He’s like, “Shut up already, Michelle.” She came back and said,” She likes it.” I was grateful for that. Thank you, Sharon.
it’s reading it. We have a coaching program called The Road to Exit Rich that works for business owners from 1 year to 2 years to 3 years before they’re getting ready to sell their business. A lot of business owners think, “I got a great business. I got a wonderful business. It’s awesome. There’s nothing wrong with it. Let’s put it on the market and get it sold.” That’s not reality. There are so many missing things and companies. Many things have to be tweaked, fixed, and overhauled.
As I said, that company has 60 independent contractors. That’s a nightmare. There are so many little things that you have to figure out now because you might decide you want to keep the business. A lot of times, the reason you want to sell it is because it’s so bad. It’s going through the Exit Rich coaching or insurance coaching or any of our programs to figure out, what are the issues and why do you not have a business that can run without you versus a job that needs you. Matt says, “How do you approach investing and what advice do you have for people who are starting?
Thanks for the question, Matt. Exit Rich is a great tool to use in evaluating companies that you want to invest in because you can analyze, have they checked all 6 Ps? Do they focus on that? When you’re talking about investing, I talk about diversification across all asset classes. Paper assets, stocks, bonds, mutual funds, real estate, and intellectual property businesses are all assets. You want to diversify across all asset categories.Exit Rich is a great tool for evaluating companies you want to invest in because you can analyze if they checked all six Ps. Click To Tweet
I’m happy for you to reach out to SharonLechter.com. There’s information there about other programs that can give you more specific advice on investing. I have a real estate investing course online as well as the essential components of a successful business, as well as, Three Feet from Gold with Greg Reid and Think and Grow Rich for Women, all of which address investing. Thank you for the question.
Make sure you go to her site. That’s why I said this one’s for you. Remember, she did write Rich Dad Poor Dad.
Also, Rich Dad’s Guide to Investing, which covers that stuff too.
Tim says, “Looking ahead, what trends of development do you foresee in the business landscape that entrepreneurs should be aware of?” You already touched on social media a little bit, but is there anything else that you see?
That’s a great question, Tim. I’ll address that one with a hot topic. I’m going to go against the grain here. AI is here to stay. AI is very important, but be very careful. There are lots of litigation going on right now. If you use your free AI tool and you say, “I’m going to write a book on exiting rich,” it is going to generate something for you and you slap your name on it, is it truly yours? No. Do you know where the AI sourced all that stuff?
I tell people right now from the standpoint of me, “Use AI as a research tool, but then put it in your own words or change it up a little bit.” Make sure that if there’s a mention of a resource, that is true. There’s been a lot of misinformation starting to spread through AI. That’s one of the biggest trends in businesses. The jury’s still out. There are so many cases right now related to intellectual property. Mike and I are the intellectual property king and queen. We’ve got big caution signs up. Use it, but make sure you identify it as yours.
They say AI lies.
You don’t know where it’s sourcing that information. Somebody posts something out on the internet that’s totally garbage. The AI doesn’t know that it’s garbage. It’s picking it up along with everything else. It’s important.
They can have stuff from our book too.
I tell people, “The first step is to generate something through AI and then find a platform that is plagiarism software. Run it through that to make sure that whatever AI’s given you doesn’t belong to somebody else.”
There were attorneys that fired their paralegals because everything’s, “I can save on labor cost.” That’s going to happen in the future, but I don’t think it’s there yet. Attorneys were doing their own briefs and stuff. They were going to court and it was all wrong. The judge is like, “You cannot use AI in court.” You haven’t read it. You haven’t done this and that. They’re getting kicked out or having similar issues too. AI lies. It’s going to get better and better, but it’s caution right now about using AI. Jacob asked, “What was it like working together with Michelle on Exit Rich? Do you find it easier to collaborate on writing or is it easier to collaborate on a sell?”
That’s an interesting question. Michelle and I have not collaborated on a sale, only writing, and it was an absolute pleasure. My new book is coming out. it’s called How Money Works for Women. It’s available on my website. It’s something that is a collaborative effort with, Kim Scouller, who’s the top female producer in WealthWave. It’s been an absolute pleasure as well. It gives you the opportunity.
She’s an attorney. The two of us, again, have very different backgrounds and philosophies, and we came together. We’ve taken women from every decade of life from 19 to 84 about the various things that women face along the way from college to having a special needs child, to having an illness, to having a sudden divorce, to becoming a widow. All of these things happen at various stages and how to deal with that and the things they need to consider. It was a fun project.
I identify with three of those and what’s your website?
I’ve been in this industry for many years. Sometimes real estate brokers want to co-broker and they have the experience of selling real estate, which is very different than selling a company. That’s difficult. I’ve written a few books, not like Sharon, but I like collaborating with Sharon because it’s a different mind. Her perspective is completely different.
Even though we come from different backgrounds, we do have similar opinions, values, and things that we think should be in Exit Rich. There was no pushing. We might have disagreed on a couple of things and we worked it out, but I love her content. I love her contribution and it was very complimentary to me and my experience. I’m going to try to get through this last question.
I’ll ask the question for you Michelle, because it’s long and it’s for you. “The book covers various types of buyers and exit strategies. Could you provide an overview of these different options and discuss how business owners can determine which one is best for their specific situation? “
I always say there are five types of buyers. We talked about two of them. We talked about private equity groups and strategics. Private equity groups are going to buy based on platform or add-ons. Strategics are going to buy very congruent, similar companies that will help their business. That’s by adding proprietary patents and contracts, adding talent to their team, adding additional revenue streams, adding geographical areas that they’ve been trying to get into, etc. You then have first-time buyers that typically buy smaller businesses, usually under $5 million. They’re very nervous.
There’s a whole section in Exit Rich that talks about the different types of buyers. Towards the end where you’re talking about negotiations and valuations, there are different negotiating points for each buyer. First-time buyers are going to negotiate and what’s important to them are very different things than what’s important to a private equity group. What’s important to a turnout specialist is very different than what’s important to a strategic. There are first-time buyers, turnaround specialists, private equity groups, and strategic. You got the financial buyer. I encourage you to go read the entire book. For negotiating points, certainly go to the end where it talks about negotiations and those five different types of buyers.
Understand that they’re all looking for different things. When we sold the talking book company, because it was an electronic, it had electronics back in the late 80s. Toy companies were coming to us. They wanted to buy these talking books from a toy perspective. I went through due diligence with the five top toy companies. This little silent company came in that was a huge publisher of books including children’s books. The publisher came in and said this is a way for them to establish and use their resources in publishing, but add this new facet of a digital and electronic component.
The toy companies were looking at this as an add-on to their ongoing business. The publishing saw this as an opportunity for them to step into a whole new industry. They, by far, were the best company that we ended up with. We’d already been down the road with all these toy companies and then this little turtle comes up and says, “Don’t say yes yet. Listen to our deals. We want to make sure you make yourself available to the potential buyers that will work for you in the best way.”Make yourself available to the potential buyers that will work for you in the best way. Click To Tweet
Answering that second part, “How can business owners determine which one is best for them?” that’s very hard for a business owner sometimes because Sharon thought it was all toy companies. Sometimes it’s very hard for an owner to like, “This is my buyer.” I have owners call me all the time and say, “Michelle, will you charge me half your commission or charge me a lot less because I have the buyer?”
I’m like, “You say you have the buyer but the likelihood of that buyer closing is slim to none. Besides, you don’t want to put all your eggs in one basket. How can you create a bidding war? In all likelihood that this buyer closes on your business is slim to none, you want multiple buyers coming because you want to create that bidding war. Plus, even though you say you have the buyers, we’re going to go out there and find strategic buyers as we did in the case of that oil company. By the way, that oil company paid 160% more than what the business was evaluated for. You need an expert to help you determine who the buyers are going to be.”
That comes from that goodwill component. They wanted that strategic relationship with BP so they were willing to pay a huge amount of intangible value. To them, that wasn’t necessarily a value to someone else.
What we do is create value. Not all M&A advisors are alike. You want to find one that creates value in the SIM, the marketing material that they send out. We strategically look for the right buyer fit before we start sending out that marketing material. You want to make sure that someone’s creating value for you because you’re not going to always know the value in your company.
What you think as the value is not always what the value is. You want somebody that’s going to showcase that, highlight that, and find the buyers. I found a buyer that said they got distribution centers nationwide. This is perfect because it will increase their EBITDA. You got to find out one thing like Sharon said that they’re willing to pay top dollar for and for that buyer, it was BP that they were willing to pay top dollar for. Any last-minute words of wisdom, which I know you always have in our book. We call them golden nuggets.
I love it. You and I haven’t spoken in a while. It’s always good to reconnect, be together, and celebrate what we created. It’s a very special book. Inc. Magazine thought so because they sponsored it and they asked us to do it together. It’s an incredible resource tool for so many people. I’ve heard nothing but positive things from people who’ve read it and I’ve been asked, “When’s the sequel?” I said, “When you sell your business, the sequel might be enjoying life. You want to create a life you don’t need a vacation from.”
I got a great sequel. I’m going to come back to you and offer a sequel with me. I already have something in mind, Sharon.
Bring it on. All of you please, if you’ve read it and you found value, please share it with your network. You’re giving them the gift of a lifetime, financial education. Many people have wonderful businesses that aren’t worth nearly what they think they are because they haven’t followed the tenets that we describe in Exit Rich. If you have people you care about, buy them a book. It’s inexpensive. It’s a great gift, and it can change their direction and their life, and help them create generational wealth.
It’s also available in the audio version for even less. Unfortunately, you can’t hear Sharon and me but it is a great audio version. You can go out and get that too. Get them as a gift. Share it with your network. Any last-minute business thoughts or how people can reach out to you again, Sharon? We’ll make sure we can share.
Please, my email is Info@SharonLechter.com and you can go to my website, SharonLechter.com. There’s contact information on the website as well. Know that both Michelle and I are coming to the table with tons of experience. Don’t hesitate to reach out. Certainly, Michelle is 100% dedicated to helping you add value and sell your business. I’m here to help you add that value and create the greatest opportunity for generational wealth. Thank you.
Thank you, Sharon. It was a great reunion.
You and I need to create and host our own event together.
We should have an Exit Rich event. I’m ready.
We’ll talk about that. We’ll plan that. We’ll have our next book. Everybody, stay tuned for the next Exit Rich version. Thank you, Sharon, for being a great guest as always. It’s great to see your beautiful face.
Thank you to all the readers. I know you’re going to love this show. Many nuggets are shared. Go back and share it with your network. Share it with your spheres of influence. Make sure you comment, like, and subscribe to the show. Until next episode.
- Sharon Lechter
- Exit Rich
- Rich Dad Poor Dad
- Think and Grow Rich
- Pay Your Family First
- Essential Components of a Successful Business
- Three Feet from Gold
- Think and Grow Rich for Women
- Rich Dad’s Guide to Investing
- How Money Works for Women
Love the show? Subscribe, rate, review, and share! https://www.seilertucker.com/podcast