Michelle Seiler Tucker is the Founder and CEO of Seiler Tucker Incorporated. As a 20-year veteran in mergers & acquisitions, Michelle and her firm has sold over a thousand companies in almost every vertical. She owns and operates several successful companies and holds the following professional designations and certifications: Merger & Acquisition Master Intermediary (M&AMI), Certified Senior Business Analyst (CSBA), Certified Mergers & Acquisitions Professional (CM&AP) Certified Business Broker (CBB), Panelist for M&A Source, Keynote Speaker. Michelle is also the Best-Selling Author of the book ”Sell Your Business for more than it’s Worth”, and her latest book “Exit Rich”is available now for purchase. For more info or to listen to the entire show, visit https://shrimptankpodcast.com/atlanta/ Check us out on Facebook: https://www.facebook.com/theshrimptank Follow us on Twitter: https://twitter.com/theshrimptank?lan… Check out Atlanta on LinkedIn: https://www.linkedin.com/showcase/shr…
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The ST 6 P Method For Selling Your Business – Michelle Seiler Tucker
We’ve been excited to interview more than a thousand entrepreneurs. Entrepreneurship is booming across the United States. If you’re reading this for the first time, always go to ShrimpTankPodcast.com. You can see the interviews with all the amazing business owners. They’ll give you tips, tricks, and techniques that you can use if you’re starting and running a business. If you’re thinking about exiting that business for a pile load of money, you’ve got to do it the right way. You can find our show on iHeartRadio. We’re prominently featured there.
You can go to Spotify, Apple Podcast, Google Play, Stitcher, SoundCloud, or anywhere around the internet. If you want to get an MBA in entrepreneurship, you think you’re going to do that in school. No way. It’s going to happen from The School of Hard Knocks when you get out there. If you run a business, who better to learn from than other businesses that are out there? I’m joined every week by my co-host, Lee Heisman. We’re excited to bring in Michelle Seiler Tucker. She is the CEO of Seiler Tucker Incorporated, a twenty-year veteran folk of helping more than a thousand businesses exit. In her background, it says, “Do you want to exit poor or do you want to exit rich?” She’s got a great book that you can get at ExitRichBook.com. It’s full of great information.
Lee, I thought there’d be no better way to start a program to say I’ve been in the financial business for many years. I can remember distinctly back in the late ‘90s when people said, “Valuations are nuts on companies.” How are these companies worth billions of dollars? I saw Lee, you may not know this because you’re married, and you shouldn’t know this, but there’s an app out there that a bunch of the kids uses Bumble. Have you heard of that Bumble?
I’ve heard of it through the grapevine.
When I run a business, I like making a profit. It puts dollars in my pocket, but you don’t need to make a profit anymore to sell your company for a lot of money. This company lost $116 million in 2021 and went public for $7 billion. What do you make of that?
Here’s what I make, Ted. It looks easy. There are unicorns out there, but they’re not a dime a dozen. It’s finding the needle in the haystack, and that’s why we have our guest on. Most entrepreneurs want to open a business, run a business or grow a business, and they want to do it either for a lifestyle business or to exit. Who better than to have on our show to learn? How do you do that as a business owner? Why the heck are these other valuations?
Is that something that’s realistic, Ted? I don’t know how that happens, but it’s like the stock market. It’s tough to talk about these days, but they always joke, “The stock market is a graph of rich people’s feelings.” These valuations almost feel like this emotional decision on how to quantify and qualify a business. I know our guest is going to talk about terms like EBITDA, Earnings Before Interest, Taxes, Depreciation, and Amortization. She’s going to explain to our readers how and why you run a business and the quantifiable results.
You’re rich. You don’t like losing money. I wanted to ask you the other question, which I think is interesting, and we’ll bring Michelle. Since Elon Musk said, “I’m going to put $1.5 billion of my corporate cash in the Bitcoin,” we saw Square by a bunch of Bitcoin. Do you see the common business owner with an operating account of $1 million taking $100,000 or $200,000 and trying to increase their balance sheet or maybe decrease their balance sheet by buying Bitcoin?
If you’re talking about $1 million and you’re saying 10% to 20%, I would recommend that is the future. Ted, you’re in the finance world. I’ll have Michelle echo in on this. We know that cryptocurrency, a universal currency, will eventually be our future. I may not say 10% or 20% of their operating expense but dabble in it so we get a little comfortable with some crypto and understand not everything is coined. Not everything is actual dollars and cents. There’s a lot of cryptos that the technology is behind it. Do your research before you invest in anything.
You can’t ignore that technology is changing the world we live in every single day, in every facet and every business. We’re excited to have Michelle Seiler Tucker, who’s the CEO of Seiler Tucker. They’ve helped over a thousand businesses sell. That’s a lot of businesses. I’ve seen a bunch in my career. That’s having an expert by your side, somebody who knows how to sell the business. Michelle, how did you decide to get into the business of helping business owners sell their businesses?
How are you all?
I do say you all because I was born in California, raised in Texas, and live in New Orleans. I didn’t wake up one day and say, “I’m going to go sell companies.” I always knew I was going to be an entrepreneur. I’ve always owned small businesses. I’ve been in graphics, print, event space, technology, medical, and all kinds of different businesses.
I did get sucked into Corporate America, where I had that job. I got recruited by a Fortune 500 Company called Xerox. Xerox did everything in its power to get me because I had a strong non-compete. They put their legal team on it and got me. They wanted to get me because I was beating them on every single deal. I went to work for Xerox, and I was there for about six months. My nickname very quickly became The Closer. It’s funny because of the reason they recruited me, and they would send in Team Xerox. They send 4 or 5, 6 men in suits with donuts, coffee, and everything, then it would just be me, and I would always win. They could never beat me. They recruited me, and they would say, “If you can’t close the deal, get Michelle. She’ll close it. She can close anything. She’s The Closer.”
Within six months, my manager came to me and said, “Michelle, you should apply for the regional vice president’s position over 95 to 100 salespeople. You porbably won’t get it, or you’re not going to get it because you’ve only been here for six months. Xerox doesn’t promote unless you’ve been here for two years. Plus, you’re up against people who’ve been here for years. The three-month is a grueling process with all the top-level executives at Xerox.” I said, “Why would I ever waste all that time and apply for something I’m never going to get? It makes no sense.” She said, “It’s because it’s a learning experience. You’ll learn so much.” I said, “Okay.”
I threw my name in the hat, and she was right. It was a very grueling process with all the high-level execs doing demonstrations, presentations, and Q&As. Against all odds, I did get the position, so I guess I really am The Closer. Be careful what you wish for because I hated it. The company should never promote its number one salesperson. Keep your number one salesperson where they are. I love management and leadership. What I don’t love is management and leadership in a Fortune 500 Company where there’s always this red tape. We would have meetings to schedule meetings to schedule follow-up meetings to have more meetings, and never get anything accomplished.Companies should never promote their number one salesperson. Keep them where they are. Click To Tweet
I like to solve problems, come up with solutions, and build relationships that last a lifetime and that weren’t happening in that position. I ended up leaving Xerox after a year and I went into franchise sales, franchise development, and franchise consulting. I partnered with a franchisor and became an equity partner in their company. I sold hundreds upon hundreds of franchises but then my buyers kept asking me, “Michelle, do you have any existing locations? We don’t want to be in the franchise model.” I kept saying no. I was like, “Why am I saying no? I need to say yes.” That’s when I started my merger and acquisitions firm and started selling businesses. I learned very quickly that what Steve Forbes says is true.
Steve Forbes endorsed my book, Exit Rich, that 8 out of 10 businesses will not sell. That’s 80% of a business is not selling. The Mergers and Acquisitions Association will say 90% doesn’t sell. It’s really between 80% to 90%. I started saying, “If I don’t fix these businesses, grow, and build them and put the owners on a build-to-sell program, they’re going to end up out of business, and I’m going to starve to death.”
Michelle, that leads me to this question because you teed it up beautifully. For your clients and our readers out there, explain to them when you own a business and plan your exit strategy from day one. That’s a big piece of it because you said, “I got to build them to sell it.” You don’t come in, listen to a successful business, and you’re going to put it on the market like a commodity. That’s not what you do. Explain exactly how, from day one, you start planning that sale.
What I tell my clients is, “You have to plan your exit from day one of buying or starting that business.” Most business owners don’t think about selling their business until an internal or external catastrophic event has occurred. Internal could be health issues, death, partner dispute, and divorce. External is you’re in it, this pandemic. You never want to sell your business when a catastrophic event has occurred because your business is typically going down.
You want to sell the business in its prime or when it’s booming. Many business owners want to hold onto that business when it’s booming and rake in all the cash. What they don’t realize is what goes up must come down. At some point, you might go out of business so sell it while it’s booming. Let’s go back to what I call the ST GPS Exit Model. I tell my clients, “Number one, you got to plan your exit strategy using this model.” When you want to drive somewhere, you can get lost very easily. You pull out your phone, put in Google Maps, and plug in your destination. The GPS already picks up your location most of the time.
If you don’t know where you’re driving, where are you going to go? In circles. That’s what happens to business owners. They don’t know where they’re driving to. They have no destination or final end game. They’re driving around in circles, and they’re driving up and down the financial hills. I tell them, “Plan your exit. Figure out your destination. What do you want to sell your business for? What’s your endgame?” They’re like, “I don’t know. I can’t come up with a number.” I’m like, “Pick a number. It doesn’t matter.” You might hit it or not, but it’s a starting place.
You can always adjust yourselves along the way but pick a number. Let’s say you want to sell it for $20 million. Now we have a number. What does the GPS Exit Model need to know? It needs to know where you’re starting from. What’s your current location? In other words, in business, GPS Exit Model is like, “What’s your current valuation?” I don’t know if you all know this, but most business owners never even get their business valuated. I met with an owner. He’s been in business for 50 years and has never had a business valuation.
How does somebody do that, Michelle? A lot of business owners are reading, and they’re going to raise their hand up and say, “How do I even know to do that? How do I know when to do it, and who do I reach out to for that?”
You need to do it every year. Do we have any CPAs tuned in?
Sharon Lechter is my co-author of Exit Rich, and she is a CPA. I don’t necessarily advise going to a CPA to valuate your business. You need to go to a Merger and Acquisitions Expert that’s done lots of deals because valuations are more of an art than a science. A lot of times, not all CPAs are created equal. I’ve had clients come in and say, “My CPA told me I could get 5 times gross and you’re at 4 times EBITDA, Michelle.” I’m like, “Let’s call your CPA and tell them to buy your business because nobody else is going to buy it in 5 times gross.” A lot of times, they might not always know how to valuate businesses. They don’t know how to identify. There are certain synergies that buyers are willing to pay more money for.
You want to go to someone like us at Seiler Tucker or an advisor who has at least 10, 15, or 20 years of experience and done hundreds, if not thousands of deals. What we do for our clients is we don’t just do a valuation. There’s so much more than that. We do valuation, plus we do five-year projections. Plus, we valuate them on what we call the 6 P’s, which we’ll cover in a few minutes. We put them on a valuation and one-year checkup. Every year, they come back to us for that one-year checkup. We also have a Mentor’s Program that we can put them in where we can help them strengthen those 6 P’s, build on their synergies, and continue valuating their business to get them closer to that $20 million price.
What is a business owner going to learn when they read the Exit Rich book? What kind of key principles do you teach them about? No owner expects to exit poor, but, as you were saying, 80% to 90% even think about exiting together at the right time. What are the key principles they’re going to learn in the book?
One of the things we’re talking about right now is the GPS Exit Model, which I need to finish. They’re going to learn that in the book. They’re going to learn about the 6 P’s and why 70% of businesses are going out of business after being in business for ten years. That’s out of 27.6 million businesses. They’re going to learn the seller sanity check, how to go through that process, and when to determine the best time to sell. They’re going to learn negotiations, how to create bidding wars, valuations, packaging their business for sale, synergies, five different types of buyers, what their negotiation strengths are and how to negotiate with each, due diligence, closing, etc. Everything from A to Z. This is a 325-page book.
I have an interesting one for our readers. What I’m curious about is when you grow a business, you have to have profits, and not everybody goes around profits. That’s a good point. For those non-unicorns, like the app you were speaking of before, most companies have to have profits. We talk about EBITDA, which is Earnings Before Interest, Taxes, Depreciation, and Amortization. I’m very sure that you have some profit mistakes.
You teed this up a little earlier, and this may or may not be one of them, but something you said that resonated with me was when you were the top sales rep, they promoted you. Your recommendation is if you have a top sales rep, keep them right where they are. I’m not saying that is one of your top biggest profit mistakes. Can you give us your top three biggest profit mistakes companies make?
Do you want me to finish your GPS Exit Model or no?
I’m going to keep you guys on track.
We have so much knowledge, and we want to try to extract as much as we can.
Back to the GPS Exit Model. You need to get that annual business valuation checkup. Let’s say you were $5 million now and want to sell for $20 million. What’s the next thing you need to know? Timeframe. Let’s say you want to do this in ten years. Now you got to start with a plan. You want $20 million, you’re worth $5 million, and you want to do it in 10 years. You got to reverse engineer your plan and determine who’s your buyers going to be. Not buyer, but buyers.
Why buyers? Sellers come to me all the time and say, “Michelle, I got a buyer. I need you to help me negotiate with this one buyer.” I’m like, “I will, but I can promise you this deal is probably not going through because most of them don’t. We need backup buyers.” We always have backup buyers. How can I create competition? How can I get you the highest price tag on the sale of your business if you got one buyer? How can I create a bidding war with one buyer? There are five types of buyers. This is very important for your readers because most people don’t know this.
You need to determine what buyers are going to be right to buy your business. Number one, 90% of buyers are first-time buyers. First-time buyers buy small businesses, not $20 million companies. You can rule them out. Turnaround specialists buy distressed assets, not $20 million companies, so rule them out. PEGs, Private Equity Groups, buy based on platforms and add-ons. They buy EBITDA, typically $3 million in up for a platform and under $1 million for add-ons. We have our strategics and our competitors.
Now strategics and competitors are the best types of buyers because they’re paying for synergies. They’re looking for that talent, contracts, databases, and celebrity endorsements, something that’s going to catapult their business to the next level. They usually pay a much higher multiple if we can identify those synergies and bring them to their attention, then show them what overhead they can cut, which will increase EBITDA from day one and closing and how they can take advantage of the economy and scales. Sophisticated serial entrepreneurs is the fifth type of buyer. They’re industry agnostic and don’t care about the industry.
They care about the cash and chase EBITDA. That’s your five types of buyers. You then have to figure out if I want to sell my business for $20 million, where does the top line need to be? You need to know your numbers. Where’s the gross profit margin need to be? Most importantly, the EBITDA, Earnings Before Interest, Taxes, Depreciation, and Amortization, has to be between $3 million to $5 million to get a $20 million check, depending upon what synergies you have. One of the next steps is, what kind of synergies do these buyers look for, and how are they willing to pay more?
Where should my focus be? What proprietary asset should I be building? The last step in the Exit Model is your why. Nothing ever gets done without a big why. We all know that. If it was easy to sell a $20 million company, everybody would be doing it. You have to have a strong enough why to keep you motivated and in the game. Entrepreneurship is not always easy. It keeps you weathering the financial storms. That’s the GPS Exit Model. What we do with our clients is we take them in what we call the 6 P’s, which is the infrastructure on how to build the business. What I can do, Lee, is I can answer your questions about the mistakes that business owners make and incorporate the 6 P’s. In killing two birds with one stone.The last step in the business exit is your why. You need it to keep you motivated throughout the deal. Click To Tweet
I was dying to hear about the 6 P’s because you’ve mentioned it a number of times as well.
First and foremost, there’s one piece of history I want to give you, gentlemen, because I think it’s important. When I wrote my first book in 2013, Sell Your Business For More Than It’s Worth, I did the research and learned about 95% of businesses go out of business. I was not shocking you with this. However, when I wrote Exit Rich in 2019 and 2020, I shocked myself and Sharon Lechter because the landscape flip-flopped.
Now it’s only 30% of those startups are going out of business in those 1 to 5 years. Out of 27.6 million companies, those businesses that have been in business for ten years or longer, 70% of those companies are going out of business. You hear about public companies all the time. Toys ‘R Us was in business for 75 years, and it goes out of business. JCPenny, Stein Mart, Pier One, Godiva closed down 1,500 locations, and GNC closed down 900 locations.
You’re not hearing about all the private companies on every street corner in every town. These business owners are exiting poor. They’re selling for pennies on a dollar, closing your business, or even worse, filing bankruptcy. Why is that? Let me tell you why that is, and then we’ll jump into the 6 P’s and the top mistakes business owners make. The biggest mistake that owners are making is they stop doing what I call AIM, Always Innovate and Market. They stop innovating and marketing. You guys are innovative. You came up with Shrimp Tank. You’re either growing or dying. There is no in-between. I got news for you or maybe you know that. These businesses have been in business for ten years or longer.
These owners are married to their business concept. They want to do things the way they’ve always done, and you can’t do that. You got to innovate. One of the biggest mistakes business owners make, Lee, is business owners work in the business, not on the business. The business is 1,000% dependent upon them. I had a dentist who’s been in business for 45 years and wants to sell. He has 1 dentist and 3 dental hygienists. He says, “Michelle, I can’t stay past 60 days.” I’m like, “You can’t sell a business when your clients leave.”
How limiting is that if they’re trying to sell? If they’re in the business, they’re not going to be able to leave. No one will want to buy them if their business is completely wrapped around them. It’s not scalable.
Yes, because that’s a job. That dentist has a job. He doesn’t have a business. He goes in, he goes to work, and he gets paid for what he does. If he’s not there, then maybe he gets paid for what the dental hygienist does. Other than that, he doesn’t have a business that works for him that generates revenue. He has to work to get paid. When you pull him out, the clients leave. This is very important. I’m not going to tell you I can’t sell the business if the business is tied to you. However, we will never maximize value and the sales price will be contingent upon how long you stay.
If they sell, they’re not looking to stay very long. They would rather keep their job.
That depends, Lee. I was on a service podcast like chiropractors, dentists, MDs, real estate agents, etc., and in the service businesses, that is true. Do you know why? It’s because they’re burned out, tired, have been working long hours for a very long time, and they’ve been married to their job. You’re right. They don’t want to stay. The larger companies will stay because they love what they do. They have a company, employees in place, and a management team. They also know they’re not going to be able to sell unless they stay for 2 to 3 years.
That’s $20 million, $30 million, and $50 million. We’re selling a company between $60 million to $70 million and the owner is going to stay. He’s going to retain probably 20% of equity. He wants to stay because he said, “I grew this company as far as I can based upon my business acumen. I want a much larger partner with much bigger working capital to grow my legacy and get this to a $500 million company versus a $72 million company.” Number one is People. You don’t build a business. You build people and people build a business. Owners have to focus on their strengths higher than their weaknesses.
You have to put the right people in the right seat. Ted, you need to ask the who question. Who opens the door? Who handles customer service, marketing, legal, accounting, manufacturing, logistics, or environmental? The clue here is you should never be next to the who. All of your readers need to write down all the who’s in their business and all the tasks, and then put a name next to each one. Your name should be at the top and be the visionary. Entrepreneur’s core competency is visionary. They’re not an integrator. They need to have an integrator, management team and those people in place.
You will never build a sustainable business that you can scale if you are next to all of these different tasks and doing all of these tasks. Number two is Product. Product is your service and industry. You have to ask yourself, is your product industry thriving or dying? Do you have an Amazon or a Blockbuster? Unfortunately, because of COVID, there are many industries that were once thriving and now dying.
They have a Blockbuster in their hands versus other industries that were dying and are now thriving. I always tell my clients to ask these three transformational questions. This is very important for your readers. Amazon did this back in the ‘90s. Amazon asked themselves, “What business are we in?” They said, “We’re in a book-selling business. We sell books.” “What do we do well?” “We do fulfillment well.” “What business should we be in?” We should be in a fulfillment business.
Those three questions alone transformed Amazon from a small bookseller to the worldwide, multi-billion-dollar conglomerate that they are now. These are very important questions. The problem with most entrepreneurs is they go so stuck in day-to-day transactions that they stop being transformational. You don’t grow through transactional. You grow through transformational.Most entrepreneurs get stuck in day-to-day transactions. You don't grow through transactions but through transformation. Click To Tweet
Processes are the third P. Processes are like extra strategy. Business owners don’t want to think about them until something bad occurs. We have a manufacturing company we’re selling and an employee got hurt. It was a catastrophic event to happen. It was really bad on the manufacturing floor. All kinds of lawsuits coming down could put them out of business. The owner said to me, “We need a policy and procedure for health and safety in this department.”
I was like, “You needed it before this. You’re a little late.” You need to think about processes from day one of starting or buying a business. Of course, you tweak and improve them along the way, but you need to design them from the beginning. Here’s where most business people go wrong. They design the processes based on their agenda, not based on the customer experience, and then they wonder why they have unhappy customers. You need to base your process around the customer experience. Did you ever watch the movie The Founder?
It’s the best movie ever. Back in 1940 or 1950, The McDonald brothers started McDonald’s because back then, they had sonic-type drive up and the food was always cold. The order always took so long and it was always wrong. The McDonald brothers said, “We’re going to develop a fast-food restaurant around our customer experience. We want a customer to experience great-tasting food that is hot and fast.”
Do you remember when they went to the tennis courts, mapped out the process, and erased it? They went back and did that all day long until they figured out who takes the order, who toasts the buns, cooks the burgers, puts some pickles on a bun and gives it to the client. Now those processes, even though they have developed so long ago and been tweaked along the way, you can eat at McDonald’s anywhere in the world and get the same experience.
We speak about that with Chick-fil-A out of here in Atlanta, Georgia. Chick-fil-A is impeccable with customer service.
I love Chick-fil-A. I think their customer service is far superior than McDonald’s.
The McDonald’s experience is the way that Ted lives his life, hot and fast. You’re exactly right, Michelle. It’s true.
Do you have satisfied customers?
His wife hasn’t left him yet. I think that says enough.
Many companies get this wrong. How many times have you been on the phone with a company and you have to go through twelve different prompts on the phone to get a live person or have to talk to a bunch of different people and tell your same story over again to try to get some resolve? It happens all the time.
That’s where you lose your clientele. Let me ask a question on your third point, which is something with integration. I’ve seen a lot of manufacturing and businesses that you speak of with the process, but how much do you promote technology in that phase of your three Ps? A lot of places are using a whiteboard or an Excel spreadsheet, and it seems that’s a very painful process to make process-driven using technology. It seems that it’s almost integral to go to the next level. Do you use technology for your clients to recommend that?
We do. I was on the phone with a company that specializes in that all around the world. They have the technology for gap accounting and processes to automate everything. We incorporate technology. You cannot be efficient and productive, and decrease overhead if you don’t use technology. I have a company right now that’s about to automate and go from 150 employees down to 30. This is going to happen more if they raise the minimum wage to $15 an hour.
Michelle, let me ask a question. The automation process and incorporating technology sound good on paper. Would you tell me that 98% or 99% of your clients kick and scream during that process? How inefficient does a business get during this implementation of new technology? How many steps backward, like the old country song, do they take before they can go forward? Do you have experience with that in any thoughts?
My clients kick and scream at every process. I take them through it. Wait until we get to the last P. When we talk about financials, my customers are always kicking and screaming. A lot of times, I have to bring in other technology and automation companies. As I said, we have one company that’s selling right now that can automate and go from 150 employees to 30 employees practically overnight. You’re going to see more of this because the number one most important thing in any business is people. The biggest problem in any business is people.
You were talking about this 6 P’s process here. I know we’re halfway through it about companies having to have EBITDA, but it seems so much. I know the guys that are taking wheels up the public here bias-backed, and there are so many companies that seem to be able to get 10 to 15 times revenue, not EBITDA, off of technology. Are that people overpaying for the business?
Those are SaaS companies. SaaS companies is what you’re referring to. We’re going to talk about that valuation in the next P when we get to it.
We’re number four. Go ahead, Michelle.
Process always needs to be designed with the customer experience in mind and efficient productive. You got to have your policy and procedure manuals, SOP checklist, employee handbook, employee contracts, and your non-compete. When I bring buyers to buy that $20 million company that we’re planning to sell, that’s the first thing they’re going to look at. I sold the company for $18 million.
I caught the CPA embezzling money during due diligence. She took all the company files and everything off the server. I’m running around like a chicken on my head cut off trying to get the employees to resign their contracts and all the non-compete. It was crazy. That’s one of the first things they’re going to look for.
The fourth P is the highest value driver and what you’re talking about. Most industries, trade, and a lot of what you’re talking about, Ted, are unicorns. Let’s talk about what 98%, 99%, and 99.9% of businesses trade for. Anything under $1 million in EBITDA, and remember we’re talking about EBITDA, we need to talk about Adjusted EBITDA because we normalize after personal expenses.
Not always the owner’s compensation because if we need that owner to stay there, we’re not adding back to compensate. We’re going to add back all their personals and not reoccur. I’m selling a business and we get about $5 million and can prove every penny of it. Anything under $1 million in EBITDA is typically under 5 or 4 multiples.
It depends upon the industry and what we’re about to talk about next. Anything over $1 million in EBITDA, the higher the EBITDA, the higher the multiple, you’re going to be five and up. The fourth P is Proprietary. This is what can take you from a 5, 6, 8, 10, or maybe even a 12. This is the highest value driver of all the P’s. There are 6 Pillars to proprietary. I need another P from you and some patience.
Number one is Branding. How well-branded are you? The more well-branded you are, the more I can sell your company for as long as your brand is relevant in the mind of the consumers. Does anybody want to pay any money for Blockbuster? Branding is huge. Do you know who the biggest and most valuable brand in the world is?The more well-branded you are, the easier it is to sell your company as long as you are relevant in the minds of the consumers. Click To Tweet
There are so many like Apple.
Apple is $249 billion. That’s just for the brand. That’s not inventory, real estate, assets, EBITDA, or anything else. Build your brand, build your exit to exit rich. Trademarks are huge. Trademark your company name, podcast, and book. Your USP, Unique Selling Proposition, should be trademarked. Here’s the caveat to trademarks. Most business owners go to their state. You’re in Georgia, so they go to Georgia, they get a Georgia trademark on their company name, slogan, logo, and everything else, but they never get the federal trademark. Why is it important to have a federal trademark?
That’s not just state-wise. That would be the whole country. Is that accurate?
I have had many business owners receive a cease-and-desist letter in the mail that says they cannot use that name any longer because this person owns the federal trademark. You can hire an attorney and throw a lot of money at it, but you’re going to lose, in all likelihood, and have to start all over again. It’s very difficult to brand. You’re going to have to start the branding process all over again. Spend $1,500 to $2,000 and go get that federal trademark. What about your podcast? Do you have a federal trademark on your podcast?
We do have it on our logo on the show.
I’m always on a podcast and talking about federal trademarks. I hear the host say, “Why do I need to go get a federal trademark?” Get a federal trademark and protect that. We are selling a business that has probably 12 to 15 different exclusive federal trademarks on its products. They sell to grocery store retail chains. Each retail chain has a different product that’s exclusive to them. It’s extremely valuable. Patents, do you watch Shark Tank? What’s the number one thing that all investors ask all inventors? Do you have a patent on this? Here you go, Ted. Here’s one of the answers to your questions. We had a company that wasn’t making any money, but they had 18 patents, so we sold them for $18 million. If they had money, we sold them for a lot more than that.
You mentioned Apple. Didn’t Apple purchase a ton of Motorola patents at one point for hundreds of millions, if not billions, of dollars? I think it was simply the purchase of the patents that Apple had purchased from Motorola.
Who uses Motorola?
If you’re in China, you can copy it.
It’s a valid point. I want to be clear. Time flies when you’re having fun. Michelle, most importantly, I want you to wrap up your P’s, but I also want to talk about your book Exit Rich. Ted, everybody knows the book Rich Dad Poor Dad and the co-author of that book joined forces with Michelle. I want to get into that as well before we end. I don’t mean to rush you, Michelle.
Contracts are valuable, like manufacturing contracts, distribution contracts, vendor contracts, and exclusive contracts. Client contracts are most valuable of all, especially if they have recurring revenue or subscription model. I can get you much higher multiple in subscription models than reoccurring revenue. Here’s the caveat to contracts. 99.9% of all sales or asset sales, not stock sales, and 100% of all business owners I’ve ever dealt with have never had a two-sentence transferability clause. If the buyer is not willing to transfer to a stock sale or the clients, and I’ve had this happen to us a few times that the clients are not willing to sign the consent to transfer, your whole deal can fall apart. Stop what you’re doing, look at your contracts, put the two-sentence transferability clause, and protect yourself.
Databases are huge. WhatsApp was hemorrhaging and Facebook paid $19 billion for WhatsApp. There’s your unicorn. WhatsApp had a synergy that Facebook was willing to pay $19 billion, and that was 1 billion users. They knew they could NOI and get their money back on that investment. Here are some other big value drivers, which are celebrity endorsements. We have a client whose products and services are endorsed by Oprah. It’s a big competitor, strategics, and wants to get its products in front of Oprah. Radio personalities only endorse one type of vertical at a time, like one diet company or one skincare.
It’s very important for other buyers. Strategic and competitors will pay a lot of money for that. In my eCommerce companies, whenever you can get the top 3 or top 5 positions on Wayfair, Etsy, or Amazon, in your specific niche, it’s a tremendous value. That’s how we get bigger numbers. It’s always a percentage of EBITDA unless it’s a SaaS company. We have some SaaS companies we’re selling, and they are all over the map. Anywhere from 8 all the way up to 23 times gross revenues.
My fifth P is Patrons. Patrons are your customer base. The golden rule is 80% of your revenues come from 20% of your clients. If you lose a few clients, you could be out of business, so you need customer diversification, not customer concentration. We’re selling an advertising media company. We’re selling them in the $10 million range. They have 5 clients because they have the 5 top casinos but they lost 2 during the process. It dropped their revenue in half, and they were not sellable anymore.
I ended up merging them with another company. The last P, the most important P to all of your readers, is Profits. The reason I put profits last is that profits are never the problem. Lack of profits has never been the problem. It’s a symptom of not operating on 1 of the other 5 P’s. I have clients that come to me and say, “Michelle, I have a profit problem.” I’m like, “You have a people problem then you have a process problem.” I’m done with the 6 P’s.
That was very impressive, by the way. The 6 P’s are not the only thing, Michelle, that you speak of in the book. I don’t want people to think, “I listen to Michelle. I got the 6 P’s. I don’t need to know her book and understand it.” Talk a little about that as we wrap up.
Let me talk about the 6 P’s and the GPS Exit Model are 6 chapters out of a 22-chapter book. We cover everything from A to Z. I want you to know this book is not just about selling a business. This book is about building a sustainable, scalable asset that is sellable when you’re ready. Most businesses are not ready to sell. Sharon Lechter is my co-author, who you mentioned earlier. She’s the co-author of Rich Dad Poor Dad Robert Kiyosaki, a New York Times Bestselling Author five times, and has written several books for the Napoleon Hill Foundation. She’s a CPA, Financial Literacy Expert, and advisor to many different presidents. She writes the Mentor’s Corner after every chapter in my book from her perspective.
Her husband is an intellectual property attorney. He’s got some stuff in there too. Our book was endorsed by Steve Forbes, Kevin Harrington, the original shark on Shark Tank, which I’m going to get Kevin Harrington on Shrimp Tank, and also endorsed by Les Brown, Jack Canfield, Mark Victor Hansen, and more. Where in the middle of pre-sales. You can buy it on Amazon. However, I encourage you to go to ExitRichBook.com because that’s where all the goodies are. It’s $24.79. We will email you the digital download immediately, so you don’t have to wait until the book comes out. When it comes out, we will ship the hardcover to your doorstep, and give you a lifetime membership in the Exit Rich Book Club.
The Exit Rich Book Club has video content. If you like what you’re reading here, there’s a lot more of this there. Also, we have documents to run your business and sell your business. We have employee handbooks, non-compete, org charts, a sample letter of intent, sample purchase agreements, a sample due diligence checklist, and sample closing docs. All of these are there for your review and your download.
This is worth between $25,000 to $30,000. There are so many documents to run and sell your business that if you went to an attorney to create all this, it would cost you $25,000 to $30,000. It’s all there for your download and we gave you a 30-day free membership in the Club CEOs, and that’s where we have mastermind of entrepreneurs where we ask those transformational questions to help business owners build a scalable business at sellable.
I wanted to thank you for doing this. I can’t believe how fast 50 minutes have gone by here. It’s unbelievable. If you didn’t learn anything for entrepreneurs out there, go to ExitRichBook.com, and get all the information. We talked about this here. You may not have a profit problem. You have the other 5 P’s that is a problem here that’s causing you to have a profit problem. It will change your life if you read the book.
It will. Steve Forbes says, “It’s a goldmine for entrepreneurs because many entrepreneurs leave so much money on the table.” It also talks about how to create a bidding war, which is something we can get into. How do you create bidding wars? How do you sell businesses for more? That’s all in there as well.
Lee, we’re going to have to do a second round of this.
If Michelle gave every piece of information and every nugget, you wouldn’t go out and get her book, or you wouldn’t reach out to her and use her as a resource. This is a small taste of Michelle’s expertise. Michelle, I’ll be honest with you, I learned a lot. Thank you so much.
Thank you, Lee. Are you going to stop working in your business and start working on it?
That is exactly correct. I would agree with you. That’s what a lot of entrepreneurs have issues with. I concur 1,000%.
Thanks so much.
Thank you, gentlemen.
Thank you for dispensing this advice. This advice is great because there’s a reason that Michelle has sold a thousand businesses. If you think you have a better answer, you don’t. She’s seen it 1,000 times and made it happen. When you’re ready to sell your business, you have two choices, exit poor or exit rich. If you take some advice from Michelle, you can walk away with a lot more money at the end of the game.
Michelle, thank you so much.
It’s a pleasure being with you all.
We’ll look forward to seeing everybody next episode.
- Exit Rich
- ST GPS Exit Model
- 6 P’s
- Sell Your Business For More Than It’s Worth
- Rich Dad Poor Dad
- Club CEOs