FYE 2 | Exit Your Business

 

At some point, as a business owner, you will have to figure out how to exit your business. Unfortunately, this is an eventuality that not many business owners prepare for until the very last minute, which can be a huge mistake in the long run. Michelle Seiler Tucker dives into the process of preparing to exit your business using the ST GPS EXIT Model. Whether or not you believe you have any chance of going out of business, you have to be ready. Let Michelle run you through this model that will have you prepared for any possible outcome.

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ST GPS EXIT Model

We’re going to talk about how you should plan your exit and The Seiler Tucker GPS Exit Model. Did you go into business, starting your business, buying a business think about finding your exit? From the moment you start a business or purchase a business, the thing that anyone ever thinks about is, “I should plan my exit. I should sell my business.” We all think about the business, the operations of the business and unfortunately, most business owners get involved in the trenches of the business. You find yourself working in the business instead of working on the business. When you find yourself doing that, it’s difficult to focus on the business and building the business to exit. Nobody ever thinks about that. Until they have to sell, do the catastrophic event occurring. The best time to sell a business is when the businesses doing well and turning up, not when a business is suffering and trending downward. It’s imperative and it’s my passion.

I’ve been in this industry for many years. It’s my passion to help business owners plan their exit and sell for the desired sales price so they can exit rich when they’re ready. I always say, “People don’t plan to fail, they fail to plan.” Business is all about constant planning, goal setting and adjusting yourselves along the way. When I wrote my first book in 2013, I did the research. My first book was called, Sell Your Business for More Than It’s Worth. At the time, 85% to 95% of businesses would go out of business in 1 to 5 years of starting their business. When I went back and looked at it in 2019 and wrote Exit Rich, I did the research again and I was shocked. I was mortified. I didn’t believe it so I had my team research again and again.

“Many business owners never think about how they’re going to make their exit until they have to.”

What I found in 2019 is those statistics change dramatically. It’s not 95% of businesses in the first five years go out of business anymore. That’s changed to 30%. That’s a much higher success rate for startups but here’s the flip that I need you to think about. Seventy percent of all businesses that have been in business for ten years or longer, will go out of business. That’s a huge number and that’s out of 26 million businesses. Do the math. That’s a crazy amount of businesses going under. You hear about the big-box stores all the time. You hear about Toys”R”Us closed down, JC Penney’s is filing bankruptcy. GMC closed down 900 stores.

Here’s what you’re not hearing about. You’re not hearing about all the mom-and-pops, all the smaller business owners on every street corner in every city across every state of our great nation. You’re not hearing about those businesses calling under. It’s upsetting and emotional to me that these businesses are failing like that because you’ve poured your heart, soul, energy, and effort into a company. You’ve given all that you have. You put your money. You made huge sacrifices along the way to be left of, what? To have to close your business, to have to sell your business for pennies on the dollar or even worse, have to file for bankruptcy? This is not fair. It’s not right. We must do something about it. We must stop it now because when you lose your business assets, you lose your family assets too.

There are all these corporate protections out there as far as LLCs, C corps, S corps, Series LLCs and as long as you don’t pierce that corporate veil, they can’t touch your family assets. Most business owners are always robbing Peter to pay Paul. We mortgage our homes for our business. You might have signed a personal guarantee to lease or a line of credit for equipment, vehicles, etc. Your assets are commingled and there’s no more protection. It’s not all doom and gloom because yes, there’s something we can do about it. It’s my mission and passion to save as many of these business owners as I possibly can.

I want to help you save your business. I want to help you grow your business. I want to help you exit your business when you’re ready the right way, the rich way. There are lots of different ways to exit a business, I call it The Seiler Tucker GPS Exit Model. You could exit by selling to your employees, and that is a viable solution. However, that becomes a slippery slope. You could transfer the assets to your business, family, and children. Back in the day that was a popular decision, but unfortunately now most children don’t want their parents’ business. Think about your children. Are they interested in your business? Are they interested in carrying on your legacy? If they are, it’s great to keep the family asset in the family and have the children carry on your legacy but unfortunately, most children these days want to go out and create their own masterpiece. They want to do their own thing.

“70% of all businesses that have been running ten years or longer will go out of business.”

You could also take on a partner, that’s another way or you could sell it to a buyer and that’s where I come in. It’s where I can help you in any way that you need help. The way that I work with my clients on exiting their business is it’s all about planning and I call it The Seiler Tucker GPS Exit Model. When you want to go somewhere and you’ve never been there before, what do you pull out? Your GPS. What do you plug-in? Your destination. Where you want to go and what does the GPS already know? It knows your current location, where you’re starting from and it knows your destination. It’s the same thing with The Seiler Tucker GPS Exit Model. You need to determine your end game, determine your destination. Where do you want to go?

Do you want to sell your business for $20 million? Let’s have a $20 million game plan but where are you starting from? Ask yourself, “What is my business worth now?” I would not be surprised if you tell me, “I don’t know.” Most business owners have no idea whatsoever what their business is worth. That’s not surprising. It’s not good that you don’t know, but you need to find out. You need to know where you’re starting from and where do you want to end? What do you want your final destination to be? If you want to sell for $20 million and you have a valuation done in your business and your business is worth $10 million, then you’re halfway there.

What else do you need to know? You need to know who the buyers are, “Who will buy my business? If it’s not my kids, if it’s not my employees, if I’m not bringing on a partner, who could buy my business?” There are five different types of buyers and I’ll go over that real quick. You’ve got the first-time buyer. Ninety to ninety-five percent of buyers are first-time buyers leaving Corporate America wanting to buy a business. Most first-time buyers are slow to pull the trigger. Most first-time buyers need a lot of assurances to make them comfortable to move forward to buy the business. If you’re trying to sell a business for $20 million, you’re not going to sell it to first-time buyers.

You have your sophisticated buyers. These are serial entrepreneurs that are industry agnostic and they’re more interested in cashflow than anything. If you have a $20 million business throwing off good cashflow and good EBITDA, which is Earnings Before Interest, Taxes, Depreciation and Amortization, then they might be interested. Sophisticated are good because they’re educated, they know how to buy businesses and they’re pretty quick to pull the trigger. You have your competitors or strategics. It’s also about the industry you’re in. If you’re in the manufacturing industry, then most likely it will be another manufacturing business that buys you or strategic that buys you. Maybe a distribution company that has lots of distribution centers that are looking for manufacturing or manufacturing business that will buy you. What will they be looking for? They’re going to be looking for synergies. Strategics and competitors buy synergies and people.

“Ask yourself why you’re selling the business for the figure you’re selling it at.”

Now, we’re going to get into the 6 Ps but they buy people, products and industries that are on the way up, not on the way out. They want to buy congruent revenue streams. When I say they buy people, they buy teams and they buy employees. They also buy efficient productive processes. They buy IP, Intellectual Property. If you have a well-branded company, they buy that. If you’re in a certain location that they’re not and they want to expand, they’ll look at buying you. If you have contracts in place, a huge database, it can be retargeted and repurpose, they might buy you. You have to look at the buyer that would be right for you and what their buying criteria are.

You have Private Equity Groups known as PEGs. They buy based on the platform and they buy based on the add-on. If they’re going to start a food manufacturing business, then you have to have an EBITDA of at least $3 million and up. If they already have a food manufacturer business and you have a food processing company, they could consider you for under $1 million in EBITDA. You then have the turnaround specialist. If you have a failing business and it’s not doing well and you want to get out, turnaround specialists are the perfect platform for you. It’s about knowing, what do I want to sell my business for? What am I worth? Who’s a perfect buyer for me? What type of buyer out of the five buyers? If I want to sell my business for $20 million, what does that $20 million company need to look like? If it’s going to be strategic, what does the gross revenue need to look like, or our private equity group? What does COGS, Cost of Goods, need to look like? What about the profit margin? What does EBITDA have to be?

You are going to build your business to suit your buyer’s criteria. That’s it and then timeframe. If you say, “I want to sell my business for $20 million in ten years and I’m at $10 million now.” We know where we are, we know where we want to go, we know who our buyers will be and we know the timeframe and we are building to suit those specific buyers’ needs. The last step in The Seiler Tucker GPS Exit Model is, why? Why do you want to sell your business for $20 million, $5 million or whatever your number is? Ask yourself, “Why?” Business is not an easy game. Business can be tough. You’re dealing with people and you’re dealing with different things in business. You have to have a strong why to keep you motivated. It’s not easy to go from a $10 million company to a $20 million company or a company that is grossing $1 million to $10 million.

You have to have a powerful ‘why’ to keep you in the game, motivated, hungry and hanging in there, otherwise, you’ll lose interest. You’ll get distracted. Events that occur beyond our control will throw you off course like hurricanes, tornadoes, floods, and the Coronavirus. There are all types of catastrophic events that occur that can knock us off our tracks, but if your why is powerful enough, you’ll get back on track. You’ll stay in the game and that’s what it’s about. I once had a gentleman whose business I was selling and he wanted to sell it for $10 million. He was valued at $5 million and I asked him, “What’s your why?” He said to me, “My wife is dying from a debilitating disease. There’s no cure for it. I want to sell the business for enough to take care of our family and start a nonprofit and find a cure.”

“Surround yourself with people smarter than you in areas that are not your core competency.”

That ‘why’ is powerful that keeps him in the game. It keeps him motivated. Think about it, what is your why? After you plan a Seiler Tucker GPS Exit Model and you know all the steps, I also tell my clients, “Goal setting is important.” I know it you always hear a goal setting but it is important and it’s important to adjust your goals. I look at my goals weekly, monthly, quarterly, and there are rules of goal setting, I call it. There are your type A, type B, and type C goals. Type A goals are those easy goals. Those are goals where you say, “I’m driving a BMW X5. I want to buy another BMW X5 white. What am I driving now? BMW X5 white and I want another one.” That’s an A-type goal. That’s a goal that you already know how to do because you’ve done it. You’ve been there. It’s not going to stretch you beyond your capacity, capabilities, or core competencies.

Those B-type goals are a little bit of a stretch. Let’s say you live in a nice house, but you want to move into a gated community on a golf course and the house values are maybe $500,000 more than a house that you’re in now. That’s going to stretch your core competencies or abilities to afford that house. That’s going to stretch you a little bit past your comfort zone maybe. Let’s look at the C goals. The C goals all those type goals, that big visionary where you go, “I want to rule the world. I want to do this and that.” These are these huge goals that you don’t know how you’re going to accomplish. You have no idea whatsoever how to get there, but you know you’re going to get there. You know you’re going to make it happen. Saying I’m going to sell my company for $20 million is C-goal. It’s a goal you have. You know your why and it’s going to stretch you beyond your comfort level but you’re a visionary and you know you can get there.

To wrap up what we’ve been talking about on this show as far as the GPS Exit Model, selling your business and finding your exit. Here’s the deal. It might not be tomorrow and that’s okay, but have a plan. It’s like when you raise your children. I have a daughter and I’ve already planned everything out for her as far as what her career’s going to be. She’s probably going to say, “Mommy, I’m not doing that. This is my life, not yours,” but we do that with our children. We plan where and what school they’re going to go to, starting from preschool. We put our kids in private school, what preschool are they going to go to? What kindergarten they’re going to go to? What high schools are they’re going to go to? What sports are they going to play? What committees are they going to be on? What college are they going to go to? What are they going to get their degree in? What field are they going to work in?

We plan our children’s lives from the minute they’re born. We continue to plan their life even after they left home. It’s always startled and shocked me, why many business owners plan for their children, plan their lives all the way through, but never plan for their business exit. One of the main reasons for that is because most business owners are busy working on their business rather than in their business. Even myself sometimes along with you, sometimes we’re not entrepreneurs. Sometimes we’re firefighters and we get stuck. We get caught putting out fires every day.

You’ve got to take a step back. Surround yourself with people smarter than you in areas that are not your core competency, and walk on the business so you can plan your exit. The best time to sell your business is when your business is doing well. When your numbers are trending up and not down. When your product is thriving and not dying, that’s the best time to sell your business. You don’t want to get stuck in a catastrophic event where you have to sell your business because of an external event or an internal event that has occurred. You want to be in control. You want to be the creator of your destiny, and when you’re ready, you want to exit on your terms, your timeframe and you want to exit rich. Thank you very much. I enjoy being here. I can’t wait to see you in the next episode.

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