The Entrepreneurial You Podcast Episode 222 – Planning Your Exit Strategy From Day One with Michelle Seiler Tucker
Are you ready to ‘Exit Rich?’ Not sure when to plan your exit strategy? In this episode, we are joined by Michelle Seiler Tucker to discuss planning your exit strategy from day one. Always be prepared. You must determine your destination as a business owner.
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The Entrepreneurial You Podcast Episode 222 – Planning Your Exit Strategy From Day One With Michelle Seiler Tucker
“Success is not the key to happiness. Happiness is the key to success. If you love what you’re doing, you will be successful,” Albert Schweitzer. This episode is with Michelle Seiler Tucker. She is the Founder and CEO of Seiler Tucker Incorporated. As 1 of only 3 women in the US who holds the M&AMI, Mergers and Acquisitions Master Intermediary title and a 20-year veteran in the M&A industry, she has a wealth of experience regarding buying, selling, fixing and growing businesses. Her firm has sold over 1,000 businesses in almost every vertical and has a remarkable track record of success.
In addition to being featured in Inc., Forbes and US Weekly magazine, Michelle is a keynote speaker and makes regular radio and TV appearances on Fox Business News and CNBC. She has spoken alongside many prominent speakers like Eric Trump, Kathy Ireland, Mayor Rudy Giuliani, Donna Karan, Stedman Graham and a host of others. She is the bestselling author of the book, Sell Your Business for More Than It’s Worth and has a new book called Exit Rich. I’m looking forward to this conversation because we’re going to be talking about planning your exit strategy from day one. Welcome, Michelle.
Thank you. Thanks for having me on.
You’ve been to Jamaica before and we were talking about it a little in our pre-conversation chat. Tell us about your experience, where you’ve been and why were you in Jamaica.
I’ve been to Jamaica a few times but the most prominent time is when I got married in Jamaica, which is either in 2001 or 2002 in Ocho Rios. We had about 75 guests come with us. It was a bigger wedding than we thought we were going to have. I had five bridesmaids. My husband had five groomsmen but it was a beautiful time. We spent two weeks in Ocho Rios and then went to Dunn’s River. It was beautiful.
Who cares if it was 2000 or 2001? The important thing is that you got married here.
Yes. I went to a wedding in Ocho Rios and fell in love with it. That’s why I decided to get married there myself.
Let’s start from the beginning. What’s an exit strategy?
In America, most business owners never planned their exit strategy, which is the biggest issue. According to Steve Forbes, 8 out of 10 businesses will not sell. Steve Forbes endorsed our book Exit Rich. The main reason that the businesses don’t sell is that they don’t plan an exit. We work with our clients to determine their ST GPS EXIT Model, which stands for Seller Tucker. That’s about beginning with the end in mind.
When you start a business or buy a business, you want to begin with the end of mind. The first thing you want to do is determine your destination. When you want to drive somewhere that you’ve never been before, what’s the first thing you do? You pull out Google Maps and plug in the destination. You need to know your end game. Business owners need to know their sales prices. If they say, “I want to sell my business for $10 million,” great. We have a number and the beginning of a plan.
Most business owners drive around in circles, up and down in financial hills with no plan in sight, which is why most business owners end up going out of business. You want to start with your end game, your sales price. You then want to know where are you starting from. What’s your current valuation? What are you worth today? Most humans will get a physical checkup to make sure their body is in shape. We drive our car into the shop and make sure we have a checkup and tune-up on our car but most business owners never get a business evaluation.
You need a business evaluation every single year. The reason you need it every year and I call it the annual evaluation checkup, is because there are events like COVID, which is a perfect example that can increase or decrease evaluation. You want that evaluation done every year. You need to know, “I want to end at $10 million. I’m currently worth $3 million.” The next thing you need to know is the timeframe. Let’s say you want to do it in ten years. You want to sell for $10 million and you’re currently worth $3 million. The next thing you need to know is, “Whom are my buyers going to be?”
Those are some considerations and we want to take it from the foundation up and even get into the thought process of some business owners about why they wouldn’t even want to consider. Many business owners go into business because they want to provide for themselves and their families. They also want to pursue freedom because they think that once they leave the corporate world, then they’ll be able to do whatever they want, only to find that once they’re in business, that’s not the case. For a business owner who’s simply considering, “I’m in business for providing for myself and my family,” why is the consideration of an exit strategy important?
That philosophy right there is what’s wrong with most business owners. That’s a terrible philosophy. Your business is your most valuable asset. If you go into business and think, “I’m never going to sell. I’m going to keep it forever,” nothing lasts forever. What goes up must come down. In America, it used to be that 95% of startups between 1 to 5 years would go out of business.
When I wrote Exit Rich in 2020, I learned that it flip-flopped. Only 30% of startups will go out of business. Out of 27.6 million companies that have been in business for 10 years or longer, 70% of those companies will go out of business. Business doesn’t last forever. Plus, there are things that happen. Catastrophic events happen. Health issues, divorce, partner disputes and COVID happen.
Business owners don’t think about selling until they’re exhausted or there is a catastrophic event. They’re like, “I want to sell my business.” By then, it’s too late. You don’t have a sellable asset. That’s why most business owners end up going out of business or selling for pennies on the dollar and even worse fall into bankruptcy. If you don’t build a sellable asset, you’re not going to have your business forever. Plus, you’re going to leave your loved ones with a lot of debt.
I had a sweet little old lady call me. Her husband dropped dead of a heart attack. She asked me if I could sell the business. The business wasn’t sellable because he never built a sellable business. He had no employees. He had independent contractors and subcontractors. He had nothing to sell. You should always build your business to sell. Even if you don’t sell, at least you have a profitable, sustainable and scalable business.
Michelle, you began to share with us how we can build our businesses to sell because you were talking about the evaluation that we do for our bodies. We go to the doctor and do our checkups. We do that for business. Guide us through the process. For somebody who has never even considered this as an alternative option or something that they need to be thinking of, what are the steps that we need to be considering factoring in when we are creating our businesses?
That’s what I was beginning to tell when I started telling about the GPS EXIT model. You want to build your business with the end of mind and desired sales price. You need to know what your business is worth every single year. You need to know your timeframe. Let’s say you say, “I want to sell my business in 50 years.” That’s fine. Have a plan.
You need to determine, “Whom are my buyers going to be?” There are five different types of buyers. “If I want to sell for $10 million, what are my financials need to look like? Where do my gross revenues need to be? Where does my EBITDA, Earnings Before Interest, Taxes, Depreciation and Amortization need to end up?” If you want to sell for $10 million, you need to have an EBITDA of at least $2 million.
What are the characteristics that buyers look for? You need to figure out, “What’s my why? Why do I want to sell the business for $10 million, $15 million or $20 million,” whatever the number is? The why has to be powerful enough to keep you in the game. The steps that build the business are what we call the 6 P’s. Most business owners don’t build a business. They build a glorified job. They build a job for which they go to work. It’s the truth. If people don’t want to hear the truth, then they shouldn’t listen.Most business owners don't build a business. They build a glorified job. Click To Tweet
Most business owners have built a job in which they go to work every day, rather than a business that works for them. I have a dental practice that called me. They’ve been in business for many years. He has 1 dentist and 3 dental hygienists. He wants to sell. His business is not sellable because once I pull him out of the business, there is no business. The number one reason businesses don’t sell is that the owner is tied to the business and the business will not be successful with that owner.
The objective of this show is to get mindset shifted so we can change those mindsets. We do want them to listen but transformation would only come when they follow a show like this and they’re able to shift their old way of getting into the right way of thinking that will help their growth. You’ve given us some pointers. I also know that you have Exit Rich, which is a book dealing with planning your exit strategy from day one. What are some of the fundamentals that you’ve covered in that book? Why did you see a need to write that book, Michelle?
Small businesses are the backbone of our economy with over half of the US workforce. Over 70% of businesses are going out of business. That is a huge need. If we lose small businesses, we lose jobs. If you lose jobs, you lose spending power, then you lose more businesses. That is the biggest need. Plus, 8 out of 10 businesses don’t sell.
In Exit Rich, we cover everything from the GPS EXIT model to the mindset. We talk about how to step into the seller’s mindset and buyer’s mindset, go through the seller’s sanity and check and determine when is the best time for you to sell your business. We also cover what we call the 6 P’s, which is a complete infrastructure of how you build a sustainable, scalable business.
Most businesses are not sellable because the owners have not built a sellable business. Therefore, most businesses are not that profitable. We cover how to become profitable, build the infrastructure, track the right type of buyers because there are five types of buyers, and evaluate your business. We also talk about how to negotiate non-negotiables for the different types of buyers and how to create a bidding war. We go into how to create a package on your business, market your business, get offers and go through the due diligence process and the closing. Everything from soup to nuts is in there.
How does one know though when is the right time to sell their company?
They don’t and that’s why they sell when a catastrophic event occurs. What we’re trying to do is change the mindset of business people because that’s the worst time to sell. The best time to sell is when your business is healthy, in its prime and doing great. What goes up must go down. In business and life, we’re either thriving or dying. You want to sell your business when you’re thriving, not dying.
If I want to sell my business now, where do I find a market for my business?
The market is everywhere. There are more buyers for good businesses and there are good businesses to buy. We have over 28,000 buyers in our database. When we get businesses that have EBITDA of over $1 million, then we have hundreds and hundreds of buyers for that one particular business. You got to determine who’s the right buyer.
If you own a small restaurant, then a first-time buyer might be the right fit for you but if you own a large manufacturing company, first-time buyers are not going to be able to afford you. It’s probably going to be a strategic, a competitor or a private equity group. You’ve got to know what type of business you own. Do you function on all 6 P’s? What type of buyers would be most attractive to your company? I always work with my clients to build their businesses to meet buyer-specific criteria.
For every buyer, the criteria would be different but there are some standards. What are some of the ways that you’ve worked with your clients to ensure that those basics are in place for your approach to the market?
We specialize in buying, selling, fixing and growing businesses. I partner with business owners. I invest money. I invested $250,000 in one business. I invest money, time, expertise and resources but we work with our partners and companies to build their businesses on the foundation of the 6 P’s. I’ll go through those 6 P’s quickly if you’d like me to.
I’d love that.
The first P is People. You don’t build a business. You build people and people build the business. The issue with most businesses is the owner is doing everything. Entrepreneur needs to focus on their strengths and hire their weaknesses. They need to have people in the right seat and ask the who questions. “Who deals with client service? Who deals with the county? Who deals with logistics, transportation, legal issues and environmental?”You don't build a business. You build people and people build the business. The issue with most businesses is the owner is doing everything. Click To Tweet
The clue here is you should never be next to the who because you want a better business that runs without you. Most buyers will not buy a business if it’s solely dependent upon the owner. You need to have a management team in place as well. The second P is Product. You got to ask yourself, “With my product and industry, is it thriving or dying?” Do you have an Amazon or a Blockbuster?
Many companies are in that Blockbuster phase because of COVID but that doesn’t mean that you close up shop. That means that you need to align yourself with an expert and help you maybe see things a little bit more clearly. When you’re in a fog, it’s foggy. I always work with my clients to ask three transformational questions. Amazon did this back in the ‘90s. They asked themselves, “What business are we in?” They said, “We’re in book selling business.” They then asked themselves, “What do we do well better than anyone else?” “We do fulfillment well.”
The third question was, “What business should we be in?” They said, “We should be in a fulfillment business.” Those three transformational questions is what transformed Amazon from a small bookseller to a multibillion-dollar worldwide conglomerate that they are now. If you’re in the dining industry, you got to pivot quickly. The third P is Processes. Processes must be designed with the customer experience in mind. It must be efficient, productive and well-documented. Employees need to be trained on all. Do you understand when I say the customer experience in mind?
It’s like McDonald’s. Did you ever watch the movie, The Founder?
No, I haven’t.
It’s a great movie. I recommend all of your readers to watch the movie, The Founder. It’s based on the McDonald Brothers and Ray Kroc, who grew McDonald’s. Back in the ‘40s, they had fast food drive-ups. The food was always cold. The order took too long and it was usually always wrong. McDonald Brothers said, “This is a customer experience we want to develop. We want our customers to experience great tasting food that’s hot and delivered fast, two minutes or less.”
They went out to these empty tennis courts, took all their employees and drew out the processes. They did this all day until they figured out who was going to take the order, toast the buns, put the burgers on the buns, the pickles and give it to the client in two minutes or less. Those processes that were designed back in the ‘40s, even though they’ve been tweaked along the way, are why you can eat at McDonald’s in Jamaica, Singapore and USA. They were designed with the customer experience in mind.
I’m sure you’ve dealt with companies where the process is terrible. Like Facebook for instance. We got hacked and we still can’t get into some of our accounts. There’s no human we can talk to. You always want to make sure that your processes are designed with the customer experience in mind to create a wow experience, not an un-wow experience.
The fourth P is Proprietary. It’s the number one value driver. Most businesses in the USA are under $1 million in EBITDA. The multiple is typically anywhere from 1.5 to 3.5 times EBITDA, but when you get over $1 million in EBITDA, then the multiple goes over 5. Proprietary can get your multiple up to 6, 7, 8, 9 or even 10 sometimes. These are proprietary assets.
Number one is branding. The more well-branded you are, the more we can sell your business. The biggest brand in the world is Apple, which is worth $289 billion and that’s without any assets, inventory, cashflow or anything. Also, trademarks are very big. You have trademarks on your podcasts, books, slogans and company name. Make sure you get a federal trademark, not just a state trademark. Patents. Do you watch Shark Tank in Jamaica?
Yes. It’s my favorite show.
What do all the investors always ask? “Do you have a patent on that? Do you have a patent pending?” We sold a company for $18 million. It wasn’t making any money but they had eighteen patents. We sold it for $1 million of a patent. Contracts are very valuable, manufacturing contracts, distributor contracts, exclusive contracts and franchisors. If you got a franchisor and franchisee, it’s very valuable.
The most valuable of all is what I call client contracts where you could have a subscription and reoccurring revenue. These client contracts are extremely valuable because buyers want to buy businesses with revenue streams. There’s a caveat to this in the United States. I’m not sure about Jamaica. In the United States, 99.9% of all business sales are asset sales, not stock. Most business owners don’t have a transferability clause in their contracts. You got to make sure you add that clause.
The other thing is IP real estate. Let’s say you have a skincare line and you have a celebrity endorsement by Oprah Winfrey. You’re of her favorite things and Oprah has endorsed your product. That is huge. Other competitors or strategics would pay more money for your business than anyone else. Outbid everyone else because they want to get their other products in front of Oprah. It’s the same thing if you manufacture pillows and you’re number one on Wayfair or Etsy. That’s what we call prime real estate.
The fifth P is Patrons, which is your customer database. In the US, most businesses follow the 80/20 rule where 80% of the revenue comes from 20% of their clients. The issue with that is if you have customer concentration and you lose a few clients, it could put you out of business. You want to make sure you have customer diversification, not customer concentration.
The sixth and last P is Profits. Profits is the most important to entrepreneurs. Profits are never the problem. They’re always a symptom of not having the right people in a place or not having the right processes. They’re never the problem. It’s always a symptom. If you’re not making money, you need to go look at the other four P’s.
It’s a lovely explanation of all of those. Whether or not you want to sell your business, which as you are arguing, Michelle, that should be one of our objectives as business owners, these need to be in place. For repetition, because that is effective, I’m going to ask you to go over what those 6 P’s are.
Number one is People. Number two is Product. Number three is Processes. Number four is Proprietary. Number five is Patrons. Number six is Profits.
At this point, we pretty much have come to the end of our conversation. I’m going to ask you to give me a final thought in a sentence, and share how might my community get in touch with you, a community of business owners and myself. I am an entrepreneur for years. We’ve had many long-time entrepreneurs as well as those that are starting. It’s a fitting conversation that we’re having.
My final thought is entrepreneurship is not easy. However, to me, it’s the best. I’ve owned multiple companies in multiple different industries. If you’re struggling, there’s always support. You can always reach out and call me. I love nothing better than to help business owners that are struggling. I love to help and be able to survive, thrive and build a sellable business. Even though you might not have any desire whatsoever to sell, there will be a time in your life that you will need to sell for a multitude of reasons. You want to sell when you’re in your prime.
All your readers can go buy Exit Rich in the middle of presales at ExitRichBook.com for $24.79. We will email them the digital download so they don’t have to wait for the hardcover. We’ll ship the hardcover to their doorstep outside the USA, and then we’ll email them the Kindle version. We will also give them a lifetime membership into Exit Rich Book Club where we have video training of me talking about strategies and techniques of how to build a scalable, sellable business.
We have documents. A lot of business owners are like, “Michelle, I’ve never seen an organizational chart, an employee handbook or a policy procedure manual.” We have them. A lot of times sellers will say, “I’ve never seen a sample letter of intent or purchase agreement.” We have all of those. We have sample due diligence, closing docs and all these documents, not just for your review but for your download too. These documents will cost you over $25,000 if you try to get your attorney to draft them. Also, we’re giving 30 days of a free membership into Club CEOs, which is an entrepreneur mastermind where we do Q&As and hot seats and help entrepreneurs succeed.
You’re on social media as well?
Yes. I’m everywhere. They can text Michelle at (888) 526-5750. When they do that, my website and all my social media will pop up.
Thank you so much, Michelle Seiler Tucker. It’s been my pleasure to host you on the show. I look forward to the feedback that you’ll get and the connection that will come from this. Be blessed.
Thank you so much. It was a pleasure. Thank you for having me.
Thank you, my peak performer, for reading this episode with Michelle Seiler Tucker. I look forward to connecting with you next time but in the meantime, please stay in touch. I want to hear from you about all things podcasting, whether it’s getting my latest book, Podcast Power, coaching, workshop, mastermind or podcast production. Send me a message via HenekaWatkisPorter.com. There’s a WhatsApp icon right on my homepage. All you have to do is send me a message and it will come directly to my phone and I’ll respond to you. Here’s my point of hope for this episode. “For I know the plans I have for you,” declares the Lord, “Plans for welfare and not for evil. To give you a future and hope.” Jeremiah 29:11.
- Seiler Tucker Incorporated
- Sell Your Business for More Than It’s Worth
- Exit Rich
- ST GPS EXIT Model
- 6 P’s
- Kindle version – Exit Rich
- Podcast Power
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