The Essentials Of Buying And Selling A Business With Cameron Kolb

Are you executing the right strategies to market your products and services? Are you planning to buy or sell a business? In this episode, guest Cameron Kolb, senior broker at Raincatcher, speaks with host Bob Roark on how business owners spend their money, time, and effort in growing their businesses. Cameron explains his company’s professional process so you can start analyzing yours. He helps and guides people to get the maximum value when buying or selling their businesses. He values being true and honest to the people who are asking for their help while getting the job done. Stay tuned to know more to scale your business up!

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The Essentials Of Buying And Selling A Business With Cameron Kolb

The big questions are how do business owners like us spending our own money, time and effort? How do we grow our businesses and jump the line that lets us accelerate the delivery of our products services in our community while being smart about our growth profits culture and still create a lasting value in our business? Those are the questions in this show. We’ll share some of those answers. Our guest is Cameron Kolb. He’s a Senior Broker with Raincatcher. Welcome to the show.

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Our guest is Cameron Kolb. He’s the Senior Broker at Raincatcher. Cameron, welcome to the show. Thanks for taking the time. Tell us a little bit about your background and bring us up on where you are now.

I started my professional career at Northwestern Mutual doing financial planning. We initially started with insurance and worked in the niche of business owners because we thought that was a good need there. As we expanded the team investments or more licenses they got, I started to specialize in exit planning. I worked with a lot of physicians and business owners. I did that for about six years and then, the debt in the family caused me to have to rethink things then, ultimately decided that based on what I’ve experienced with all these business owners and how difficult of a time they’ve had trying to sell their business, I thought there might be some opportunity to help essentially do business brokerage.

My path after that was that I went out on my own, learned how to do business brokering, did it on my own for about five years and then was asked to join Raincatcher back in May 2021, which has just been great. I essentially went from being a solo practitioner to doing everything that there is to do with now. Now, I get to focus on what I’m great at, which is bringing buyers and sellers to the table and getting deals done.

I think about the compare and contrast between the team approach to a business sale versus the sole practitioner approach to bring it to a sale. What it reminds me of is the difference between having a job and a business. For the sole practitioner, they might’ve been expertise that you didn’t have, it might be franchising or one type of specialist event, whereas at RainCatcher, you have a depth of field.

Continue learning. When you start working with people, you will realize that there’s a lot you don’t know yet. Click To Tweet

I thought I was smart then I started working with some smart people and realized there’s a lot that I didn’t even know I didn’t know. It’ll bring 4 or 5 months together on a deal we’re working in. It’s just made a huge difference in the execution and the progress that I’ve made as a business professional. I feel that one of the lots about what you can do to add a lot more value than I’m previously doing. There are different ways to sell businesses as a business broker. I thought I’d been doing it the best way and then sure enough, I learned that there are better ways to do it, which is humbling.

It’s interesting to maybe expand on that a little bit. You think about, “I thought I knew this way to sell a business and then I matured or adjusted.” What was it that you used to think? What do you think now?

In my mind, before joining Raincatcher, I assumed that the deal was done in the conversations between the buyers and sellers. My goal was to get people through the process, get them an NDA, get them qualified to the point where I felt comfortable sharing only information. I would keep the information relatively simple and high level with the idea of coming in or out and then get them on a conversation with the actual sellers. That’s where I felt like most value was created. I didn’t spend as much time on that initial document presentation. Ultimately, my goal was to find the best buyer at the moment. What we’ve been able to do or essentially what we look different now is we spend a lot more time on the material itself.

The confidential information memorandum, that’s a lot higher quality than the information I’m putting out there before. Also, one of the other key things is that we focus on the buyer process and keep as many buyers active in the same stage of the process at the same time. That way, when we’re ready to call the offers, we’ve got a handful of buyers who are still interested. By doing that, you’re able to drive the price up to essentially what the market will allow as opposed to what maybe 1 or 2 off buyers might’ve been on using my previous methods. It was still got deals dotted and the sellers were still happy with them but there’s potentially a little bit of money left on the table just by having a better process that would do now.

Some folks may or may not know the folks that have sold a business before, probably the ones that haven’t may not. Is that a confidential information memorandum?

Correct. Essentially, what Raincatcher has been able to do is we’ve taken the approach that a lot of the investment banks at a high level make boutique M&A firms do with selling a business. It’s more mainstream, main street, small business but the businesses are doing somewhere between $1 million to $20 million of revenue. We brought that professional process down to that size business because it felt like there was this gap that was being served by those industries.

Mainly because it makes perfect sense as a business owner, if you can make a lot more money on a bigger deal but putting in a similar amount of work, you’re usually going to take the bigger deals. Having the servant heart that was always wanting to help business owners and coming from a family of business owners myself, I’ve got this passion and this place in my heart for the backbone of America. It’s those businesses that employ way more people than the bigger businesses.

There were some stats after the market events in 2008 that said 72% of all new jobs developed in this country after 2008 came from small businesses. A lot of people know that. In smaller communities and even in the bigger communities, you look around at the business owners and the employment is not the Lockheeds and Boeings in every town necessarily. I didn’t come from a business family background.

My father was a military and I was military. He started getting involved in the business community and my admiration for those folks that are self-starters and overcame many different challenges is like you. I’m a fan and I like watching what they do. In circling back a bit to what you said at the beginning, you were working with physicians’ practices and so on in your previous life. What’s your perspective on the physician professional trying to sell their practice having been through small business and exit planning now? What are their challenges?

It’s a unique landscape for physicians. It seems like all the big entities are essentially gobbling up all these smaller practices. To sell a physician’s practice is difficult because you have to find someone who’s in that same specialty and is at the perfect place in their career where they can come in and buy your practice. They’ve got capital, credit, the financing they need but also they’ve got the knowledge to run a practice within whatever specialty it is. That’s what’s led to a lot of those physicians having to sell to the bigger conglomerates and essentially becoming a part of UnitedHealth. Ultimately, that’s what’s probably caused that.

 

Whenever I have conversations with sellers, I always try to do a preliminary search of how many practices like theirs are out there being sold. There are actually quite a few, which tells me that there’s not a lot of movement especially when you look at those businesses that have been listed. One of the big challenges is finding their successor if that’s going to be something they do. If not, figure out the exit plan that’s going to work for their long-term goals. A physician’s practice is probably one of the hardest to sell because so much is dependent on that one person, which is the physician or the group of physicians.

When you look at the small non-physician business marketplace, do you see similar problems in determining the difference between a job and a business that these folks have?

It’s more prevalent in physician practices. It’s the private physician practices. When you look at the small businesses, there’s this threshold where you go from self-employed to a business owner. It’s a mentality switch where previously I was a self-employed person. I was aware of that when I was working by myself. I knew I was a business owner in the sense that I filed all the business filings but at the end of the day, my business was me. I probably lack the drive to grow something and have that bigger business where I’m relying on a lot of people the way I’m built.

A seller’s timeline is abstract. Click To Tweet

That’s probably what happens. Sometimes, you’ve got some specialists. Let’s say you’ve got an engineer who’s good at engineering things and then they realize that they need more capacity so they hired some other folks to help with all those other things but they’re still doing a lot of engineering work. No more than that, that’s going to be more of a self-employed even though it’s more of a business.

The true businesses out there are the ones where the seller has learned how to delegate correctly. They’ve been able to take this wider range of tasks that they have to do when they start working. They mailed to snip off little pieces of their day-to-day to-do tasks and assign them to someone else. When you can do that and focus on being a business owner instead of a widget maker, an engineer or a physician, that’s the difference between something that’s going to sell on the market. It was a business or one that’s going to be difficult to sell. It’s probably not going to sell for much if it does.

When you run across a business owner that’s considering transacting and selling their business, do you think there’s a level of awareness as to whether they are ready to sell or they’ve got a job instead of a business?

It’s a wider range. It’s everything. You get a little bit of everything in our field but more often than not, a seller’s timeline is abstract. It’s, “I’d like to sell my business someday.” That someday is hopefully in the next 2 or 3 years, unless it’s more of an urban situation. Usually, those are tied to health, family or something like that. More often than not, a business owner doesn’t know what the process is to sell a business. They are not sure what the timeline’s going to look like. A lot of our job is coaching and educating about what that process looks like. In terms of those self-employed folks, a lot of times, what we have to turn into is sharing that they probably are in a place where they need to do a couple of things to make their business more sellable.

We’ll incorporate some coaches. We have exit planning coaches that are specifically trained in getting a business from where it is to a place that is sellable. We do that through a program called Value Builder. It’s John Warrillow’s program. He’s out of Toronto and he wrote a couple of books, Built to Sell is one of them. He’s essentially created a program that helps coaches have a platform by which to then-coach that seller through 12 modules and 12 key areas to focus on. It’s 12 modules in 1 month but there are eight key areas that I focused on.

You were mentioning the process. Let’s say I’m a business owner and I’m considering selling my business now or upon advice, I’m thinking about it. Walk me through the steps or processes that you have when you have somebody that reaches out to you.

From start to finish?

If I’m the potential business owner getting ready to sell and I’m going, “What am I going to hear with their process?” Walk us through the steps.

First and foremost, high level, it takes usually 6 to 9 months to sell a business that is ready to be sold. By ready to be sold, I mean that they’ve got everything ready there. They’ve got some key employees that they’ve figured out the routine once the sale is done if that’s the case. They’re not super critical to the business’s success. They’re more in managing their business, oversight function as opposed to being in the day-to-day operations of a business. They got clean financials, meaning that’s typically their profit and loss statement, their taxes tell the same story, which is a lot less common than you think. If there’s cash, that’s getting paid sometimes that’s not disclosed. It’s all different things like that. Let’s say that you’ve got a business that is ready, usually 6 to 9 months from the time that they start working with us, we should look at having deal done.

That deal typically is broken into three stages. The first stage is getting the business ready to go to market then going to market and then closing the deal. In getting the business ready stage, typically we’re going to do some sell-side due diligence. What we’ve learned is a lot of deals will look great on paper until you get into due diligence on them. All of a sudden some random thing that wasn’t known will kill the deal. During that first get the business ready period, we want to find those issues now and figure out how to address them. If they can’t be fixed then we need to figure how to disclose them. Someone once told me it’s way better to disclose something upfront than for someone to find it out later because of the trust that gets lost along the way.

The true businesses out there are the ones where the seller has learned how to delegate correctly. Click To Tweet

We do a lot of sell-side due diligence to dig into the company’s financials, taxes, operations, staffing, procedures, all of those key elements, we’re going to take a good look at, our entire team will. Once we feel good about that process then we start creating a SIM, it’s a marketing booklet for lack of saying those long words again. That typically is going to take us about two weeks to do and we’ve leveraged our whole team. Typically, a copywriter is going to be a graphic artist and then broker, associate broker and then broker support. We’re all putting in our thoughts and everything to get that SIM ready. Seller reviews it, says, “That works.” We get all of the teasers and listing information that we’re going to put out to the internet. We get that all drafted and approved by the seller then we go to market.

Once we’re in the market, we typically reach out to three main areas. The first area is going to be our internal buyer pool. All of the people that we’ve met along the way from trying to sell a business that maybe didn’t buy a business because it wasn’t a good fit. Maybe the time wasn’t right. Maybe it cost too much, whatever but we’ve kept them in our database. We reach out to them because they’re active buyers. Secondly, we’re going to create a list of strategic and financial buyers. Depending on the size of the business sometimes financial buyers aren’t relevant but strategic is almost always relevant. Strategic would be, as an example, if you’ve got a restaurant, a good buyer could be a catering company or it could be another restaurant or a bar.

 

All those types of businesses that are ancillary or fits somewhere along the supply chain. If it’s a service provider that you might look at getting sold to another service provider who does something similar or it could be someone who is selling the supplies to them. They might want to buy a service delivery element and add to their business. There is some strategic thought that’s going to go into that, we’re going to talk with the business owner themselves to figure out who needs to be on that list and who shouldn’t be.

Sometimes the who shouldn’t be as more important. There might be some folks that they’ve had some run-ins, competitors or suppliers or whatever. We always want to get the no-go list as well. Our team will reach out to them in a non-disclosed fashion. It would be vague. I won’t mention the details about the business name or where it is. We’re conscious of those things.

Lastly, we list the main business listing sites. The most well-known would be BizBuySell. BizQuest is another well-known one. We’ll list on all those sites, depending on what’s going to be the best fit for the industry and the size some bigger businesses we might list on a site called Axial. From there, our goal is to generate as much interest from buyers as we can. As those buyers come in and they sign NDAs, we qualify them to make sure that they’re capable of buying a business, specifically this business and that we share some of that marketing material. The marketing book as well as some high-level financials, redacted tax is usually included in that.

We’ll take the tax and get rid of all of the confidential and crucial information that we don’t want getting share. Our job is have conversations with those buyers until they feel like they’re at a point where they’re either ready to make an offer or they’re almost ready. Usually, they’re almost ready. The last step is they want to have a conversation with the seller. It depends on the size of the business whether we do that or not. In bigger businesses, we save that for later. In smaller businesses, we find that usually, you have to have that conversation before an offer can be put in but essentially once we’ve got the buyer and they want to draft an offer, their attorney will help them draft an offer. They submit it. We negotiated back and forth and got that.

It’s like the engagement ring of a deal. It doesn’t mean that the deal is closed but there are some commitments there. Usually, there are a little bit of resources they get put into it. During that next period is the due diligence, like the engagement period where you’re engaged but you’re not married but you’re planning to get married. You try to find everything about that business as you can as a buyer. That’s where a lot of our initial due diligence is hopefully going to counteract any issues that they might find. Let’s say it takes 30 days for them to go through due diligence on the business, usually documents get drafted after that. You’ve done an official purchase agreement. You’ve got settlement statements and non-competes. There are all documents that need to go into that.

The attorneys draft that. Usually, it goes back and forth but if we can get that done in two weeks and that’s a win, it means we’ve got some efficient attorneys, which is not as common as you think. It is like being inefficient sometimes. Once you’ve got those documents drafted, we set a close date, everything gets signed and then at closing, everything gets signed and transferred over. Usually, there’s a training period after the business is sold and that’s going to be negotiated during the process. Let’s say it’s 1 to 2 months. I’ve seen up to two years where they’re going to stick around and work for the company if they’re just a key employee or they’re very important to the operations but that’s all outlined in the initial terms then closing they’re paid and usually, our fee comes out of the end sales price.

What strikes me about that is when you’re thinking about working by yourself, the depth of field of potential buyers that you might have versus the depth of field with Raincatcher compare and contrast those two.

My buyer pool was about 1,200. That was what I’d been able to collect on my own. Raincatchers is about 8,500. The funny thing is there’s probably a lot of overlap too. Probably half of mine are people that have contacted Raincatcher as well. Having that extra 7,000 buyers makes a big difference for sure. It doesn’t feel as bad when you re-email that list of people who didn’t open the initial email you sent. All of a sudden, you get ten more people to open it and you have a little bit more interest. It feels a lot better on our end as we send those emails where otherwise I get sent to people’s spam because it’s not as powerful.

For many of us, once you’ve done it a bunch of times, you begin to go, “Doesn’t everybody know this?” The answer is no because you sold a lot of businesses for business owners. For the business owner, it may be the first and only time that they sell their business. I saw a statistic that said 80% of the business owner’s net worth is tied up in his business. For you, when you’re going through the process and the due diligence is going on, characterize some of the behaviors that you’ve made.

I chuckle, imagine two high-strung people who have set in their ways. You’ve got a business buyer and seller. Both have some grandiose vision of how things are going to go and then there’s the reality, which is usually nothing like either of them expected. In every deal, I always say, if something hasn’t tried to kill the deal when it’s in due diligence yet then I’m concerned.

You’ve missed something.

Something’s missing and something’s going to come out of the closet or out of some dark corner of this business and bite us hard. There’s always some big issue or conflict that we have to get over or get through that somehow we miss. It was something that the buyer and a seller thought. They aren’t aligned. We have to get over that to get the deal closed.

This perception could be.

Selling a business is going to be a challenge. It’s not a walk in a park. Click To Tweet

People’s feelings get hurt. The business is usually the business owner’s baby. Often, a big chunk of their net worth is tied up in that business, it’s been illiquid. They haven’t been able to get that money out of it and now there’s this exit sign down the road and they can see it. All of a sudden, things might start to change. The dollar amount might decrease because X, Y, Z and the financials didn’t check out or this expense was required for the operations of the business and not discretionary as we call it. Part of my job and probably the reason why I liked this job so much is I get to play-shrink a little bit. I talk to somebody and listen to them. They’ll let them take all their anger and frustrations out on me.

I take what they’ve said, “Repackage it into a nice little container. Give it to the other party and say, ‘Here’s what matters,’” to get all of the emotion that came from that initial call coming with some good logic some good, “Here’s what we got. Here’s what we need to get over.” Take their anger and frustration, try to boil down to a couple of key points and then go back to the other party. It’s the wildest thing. I feel like a marriage counselor sometimes.

It would be atypical if this didn’t happen in a business sale. Pre going to market, how do you frame that with the business seller? An expectation says, “This deal is going to die many times before it gets done,” or they’re going to call you’re pretty baby ugly at some point.

We leave that so we’ve got an offer. Otherwise, they’ve never started the process with us. We said, “This is going to be painful and it’s going to be hard.” We don’t tell them about that yet. We hope that people come in knowing that selling a business is going to be a challenge. Once we get a letter of intent, we’ve got some formal processes and messages we want to communicate to that seller to say, “Here’s what you should expect and what they offered. You should be happy if you get this at the end of the day. Something might come in and it might drive that price down. Maybe if you get 90% of that initial letter of intent, you should be happy.”

That’s the number we’re shooting for. If more than that, great. They’re going to come in, pick and pry this business apart and find all the reasons they shouldn’t buy it. They’re going to try to convince you that they’re not going to buy it because of X, Y, Z but they just want to feel more comfortable. They’re putting a big chunk of their personal investment and their credit on the line to buy this business. You’ve got to make sure that everything checks out. It’s about communicating upfront and letting them know what’s coming.

As it’s coming, I say, “I told you this would happen. This isn’t a surprise. We knew this would happen. Here’s how we’re going to address it. Here’s how you get over it,” then taking it bit by bit. It’s that saying, “How do you eat an elephant one bite at a time? How do you sell a business?” One small conversation at a time is how you do it.

You mentioned John Warrillow’s diagnostic tools. How do you guys deploy that tool for the business owner that’s thinking about selling? The second part of that question is once they complete that, how do you reflect that back to the business owner where they get data or intel from that report?

 

Essentially, there are eight key areas that that assessment focuses on. We’ll send the assessment out and it takes about 10 to 15 minutes for a business order to go through it. They’ve got you a custom computation method behind it. When you put extra answers in, it will tell you how you score each of those key areas. Personally, I use it to identify some potential problems that I might not have known or so anything else. Also, they’re one thing and their score comes back another provides an opportunity for me to ask questions and learn more. Being surprised at something, I don’t like it to happen in my line of work.

Sometimes it happens but I don’t like it. They never asked a question you don’t know the answer. It’s a good model for attorneys and for me. Within that eight pieces, we can say, “Here’s what’s going to make this business difficult to sell. Here are some areas that we could fix. They’re going to make this easier to sell. Here are the things we want to focus on because there are such strengths.” That’s how we use that assessment.

It’s helpful because Warlow’s whole business is based on big data. They’ve got something like 62,000 business owners who’ve completed this assessment, which is a lot. Business owners are staying now for fifteen minutes and answering pretty detailed and important questions. Potentially, they’ve never talked to anybody about some of these things that are in there. They’ve got that data to then build their model that says, “ Do X, Y and Z if you want to grow the fiber business.” Because of that, I don’t have to say, “This is Cameron’s opinion. This is Raincatcher’s opinion.” I can say, “This is data-driven based off of 62,000 business owners input who all were trying to sell their business.”

I had John Warrillow on the show.

I met him in Canada.

I think the reason you asked the questions is that their value driver is in the business. What are your thoughts? Let’s say I’m a business owner and I completed the survey and I fall in the 40% to 50%. You go, “I don’t want to be in the middle of the pack. I want to be at the upper end of the pack.” What do you think happens to the business valuation if you move from 40% or 50% of the pack to the upper quadrant of the pack? What happens to those guys?

Being in the 50% is not a bad thing. It just means you have an average business. That average business can be sold but it’s not going to be selling at a premium. By doing all the things you need to do to make your business more sellable, two things will happen. One, you’ll enjoy running your business more and you might not want to sell it anymore. That’s the funny thing that happens sometimes. If you can build a business that is highly sellable, usually it means that you’re not involved day-to-day in the business.

You’ve got lots of processes and systems in place. If you like golfing, you’re probably golfing a lot if you have a business that’s like that. The other thing that’s going to happen is you might get approached by buyers. They’ll see your business, come in and put an offer in. The businesses at score over 80 on that assessment, most of those business owners say that they’ve been approached and given a written offer out of the blue, like an unsolicited offer. This isn’t the data but usually what they’ll say is that, “If you can score above 80%, you will sell for 70% more than you would have you scored in the 50%.” I want to check that data because it’s been some time. Does that sound right?

It’s substantially more.

It might be 50% or 70%. It’s somewhere in that range where it’s significant. Instead of 1 million, it’s 1,000,005 or 1,000,007.

Honesty is something that's gone missing in a lot of sales, so we need to bring it back. Click To Tweet

I’m back to being me and I’m somewhere in the middle or below the middle. 2, 7 and 4 are the areas that I need to focus on to move my score. If I knew how to move my score out, I’ll move it. If I was even aware that I needed to move that far, I would have. I need to move it. I’m willing to take and put in the effort. Is that where the training and Susan Frew’s crowd at Raincatcher come in?

For those who don’t know Susan Frew, she’s a well-known speaker in the business sector. She speaks in a lot of conferences. You might’ve heard or seen her at some point but she leads our coaching program at Raincatcher. She also is a business owner. She’s got an HVAC, a plumbing heating business here in Denver.

She’s been there, done that.

She’s my accountability partner. Every week we talk. I know Susan pretty well like what our goals are and whether she’s hitting them or not. It’s fun to know someone on that deep of a level.

She was doing CrossFit. Is she still getting after on CrossFit?

We don’t talk about CrossFit but she looks like it. She does some CrossFit. I wouldn’t want to arm wrestle, she might beat me. That’s essentially where our coaches do come in. To take a business from where it is to make it sellable, it’s going to take time, maybe 1 or 2 years. If you’ve got that growth mentality and you can realize that what got you to where you are isn’t going to be what’s going to get you to that next level, you recognize that you need help and you’re willing to pay someone who’s knowledgeable for that help then it’s possible. It’s something that can be done. As a broker, I always use to tell people my second favorite answer is no. My favorite answer is yes.

Since I’ve started working at Raincatcher, no’s become my third favorite. My second favorite is, “No but I’m going to go coach and get my business better and come back to you.” More often than not, if we can help that business owner make their business more sellable, they’re going to come back to us. Everybody’s going to win in the long run. We who are success-based and paid on the total sales price of a business are going to succeed and be more successful. Also, that seller is going to walk with more money at the end of the day from the sale.

For me, it’s this virtual circle type of thing. I’ve got some gaps. I can solve the gaps by taking the training. I’ve invested money in the training. It goes, “Let’s say the business because I did the training and improved it’s worth half as much as it might’ve been or some larger number.” That number only has to exceed the cost of training.

That’s the funny part. I’m going to throw some random numbers out here but let’s say you’ve got a business that’s doing $5 million of revenue and you’re doing $500,000 of adjusted profit. It’s about 10% margins. Normally, your business sales price is going to be based on a multiple of your business profits. Let’s say I meet you and the multiple on your business is at two, if you can implement a couple of things and get your multiple up to a two and a half, that’s half of one year’s profit more than you’re going to get the sales price. Let’s say that the coaching is $1,000.

The return on your investment is insane. It’d be putting in $12,000 in a year and gaining $250,000 in value in your business in that short period of time. That’s assuming you only can get a half multiplier. If you get a full multiple, using just round numbers, it’d be like $12,000 in and then you get $500,000 more when you sell your business. It’s a no brainer but you have to have somebody who’s willing to put in the work. That’s the key thing.

I look at the leverage and you think as a business owner, “What would I do to move my business? Would I have to go buy another piece of equipment, buy another company or whatever it is you do? What if I just make this one more attractive and efficient?”

The crazy thing about my previous example is more often than not, that $500,000 is going to grow. Not only are you getting larger multiple, you’re getting a larger multiple of a bigger number. That’s how you can get a 70% bigger sales price through implementing the different things like John Warrillow and the people at Value Builder do preach. I don’t work for Value Builder. I did some of their training and I believe in the program. It sounds like I might be something valuable. I’m not.

You guys offer on your website for free.

We do the Value Builder assessment and walk you through the results for free.

Where do people find you on social media? How do they find you?

Personally, I’m on LinkedIn. If you just search Cameron Kolb Raincatcher, you’ll find me.

Part of the leverage in the business and I was involved in the exit planning space myself, they talk about having an exit ready business is just good business. People want to buy good businesses. If you have a good business then you get paid more for it. It’s that virtual loop again. Thinking about having a thought and it’ll come back. For the business owner that’s on the fence out there, they go, “I don’t know that if I want to sell it or not. What if I reach out to Cameron? What should I expect at the end of the first conversation?”

Transparency is one thing I’m brutally honest with people, almost to a fault. I believe that honesty is something that’s gone missing in a lot of sales. If you say what’s my business worth, I’m not going to blow smoke. I’m going to say, “Here’s probably what it’s worth.” I’m probably going to be on the conservative side because I don’t ever want to set expectations that are incorrect because the expectations that are set incorrectly kill deals all the time. I see it almost every week where we’ve got some sellers who might not have gotten the correct expectations somewhere along the way. They want this but in reality, we should have told them that this was where things are but we might’ve told them this to get them to sign with us.

 

It came back to me in practical terms. I’m the business owner and you go, “I sold that for X. I get some percentage less X after taxes. I can live on that net proceeds after the tax sale, maybe or not.” From my perspective, a lot of business owners don’t spend a lot of time pre-sale thinking about, “What do I need to support my lifestyle and live like I want to?” You saw that in your earlier life.

You’ve mentioned having a business ready to sell ready, exit ready and build a business with the end in mind. One of the things that are important as you’re a business owner is to make sure that all your what-ifs are taken care of. Exits can be what we’re talking about, which is, “I sell to an outside party. They buy the business, I get a big check.” It could be key employees leave. You’ve got too much dependency on one employee. They decide, “I won’t do this on my own.” All of a sudden, 80% or 90% of your revenue walks out the door. Have correct compensation plans in place to keep those employees around.

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Those are little things that you don’t quite think about because so many people are working in the business that they don’t necessarily work on the business. Another dark thing that you should always make sure of is you’ve got life insurance worth any amount that you would hope that your business would be worth and have that evaluated. Life insurance is boring. It’s one of the toughest things to sell. Whenever I met at business on-site and let’s say I’m dressed too nice and the seller’s like, “What do I say if someone asks who you are?” I always say, “Tell them I’m a life insurance salesman. They’ll stay away from me.” Having insurance in place is important and making sure that having life insurance in some of those key employees.

God forbid something happens to somebody, you don’t want that business value to just fall off a cliff because of that. Make sure you’ve got disability insurance. You can do a disability buyout. If you’ve got two partners in a business, the likelihood goes up. Make sure that you’ve got insurance on each of those people because more often than not if they don’t have insurance, what happens is business owner A passes away, business owner A’s spouse comes in. Business owner B is like, “I don’t want to be business partners with the spouse. They don’t have the skillset that is needed to make this thing successful.” You just get insurance in the amount that you need. Essentially the spouse is paid out the value of the business and then the whole business is the other partners. It’s weird little things that are important to do in life. Life insurance is so cheap. It seems like such a silly thing to do.

From the buyer’s perspective, they’re going through and they go, “That was smart.” Pretty soon, you build this whole chain of, “That was smart.” They go, “My due diligence process and de-risking my potential purchase gets easier as they look.”

Imagine that you’re a buyer coming in and you’re looking at a business. Let’s say there are three key management people or maybe it’s a director of operations, a chief financial person some key manager who’s hard to replace. Your initial thought is, “This business is dependent on those three people. What happens if I buy this business and one of them leaves?” All of a sudden, the seller says, “I’ve got this deferred comp plan because their bonus is built into their compensation. If they stay three years, they get X. If they leave, that goes away. I don’t get any of it. We’ve got some things built in to help make sure that the buy this business stays what it is now or grows once you take it over. Here’s how we’ve done it.”

That’s a whole different conversation than someone who’s like, “They could leave. I haven’t thought about that.” It’s weird things that have come across in my career of like, “I never would’ve thought that mattered.” All of a sudden, once you know that it’s an option, you’re like, “How can you ever not have that in place?”

For some sophisticated buyers, they can imagine all the good stuff. It’s easy to handle. They go, “What could go wrong with this deal and what puts me at risk? Can you start dissecting what you talked about?” You go, “If that one guy leaves, I’m done. I can’t bolt this business onto mine.” I can see it. I sold one business one time and it was the first time I did. The person that bought it had done hundreds. In retrospect, there are a lot of things that I did not provide correctly because I did not know. If it’s not in writing, it didn’t work in writing.

That’s where a lot of advisors should be helping those business owners out. They should have a good accountant and attorney that they’re meeting with regularly. They should have a good wealth planner and insurance person. These are all things that every business owner needs to be. He’s having their back pocket but sometimes life just gets busy. You’re working 60 hours on your business, how do you find five hours a year or a quarter?

In the past years, I haven’t exactly been smooth. The business owners have been through the roller coaster and some of the life events that have happened go through. For a lot of the business owners, they spent so much time keeping the money in their business. They have not contemplated going from driving to riding. I drove my business. I don’t see it as a big risk. I know some of my business and go like, “How do I create the revenue stream and not scare myself to death?”

That’s the funny thing that I always found. When we did financial planning, we would tell a business owner what their business needs to be worth in order for them to be able to retire. The funny thing would be like the business wasn’t worth that so how do to connect those dots? Sometimes we’ll work with a client who is selling a business. We make sure that they’re talking to wealth planners and all of a sudden, the next time we talk to them, they’re like, “I need this amount from the business sale.”

We’re like, “We had the talk. This is what the value was. What happened? What changed?” Usually, they talk to a wealth planner and it told them what they need to get that X percent. That’s a super powerful and important job but sometimes it’s tough when those two conversations didn’t happen between the M&A or the business broker and the wealth planner.

There’s always that discussion 60% or 40% is what you can expect, that kind of gig. You go, “What if you have income-producing portions? What if you own the real estate, sell the business, lease back the deal?” It ends up just being a math dance for these folks. For the folks out there that are getting ready to sell their business, I always tell, “When you enter something, you need to know when you’re going to exit.” That’s how you enter, indoor and outdoor. You got to have both. Thinking about the Value Builder process that you guys have where you’re talking about, “We’ve got to have good financials. What does that mean? What does a good financial look like?” It’s like, “I should be taller.”

It’s hard to describe good financials but you know them when you see them whether they’re clean, they make sense, it doesn’t take any explanation for you to understand what’s going on with them and you’re not like, “What the heck is this expense here and why is it so big?” That’s how I describe good financials. They’re easy to understand and interpret. You don’t have to do a lot of extra math to figure it out.

Do you mean checking the balance of your checking account at the end of the month without doing financials?

Some people are. If you want to sell your business, you’d probably save a couple of extra steps.

Cameron, I appreciate that you’re out there making a difference with the business owners. For the business owners that says, “Maybe I’m not ready yet,” having a conversation is important earlier. You start making sure if somebody says, “You got to have good financials. Tell me what they look like. I need to know the value drivers or value levers. Which ones am I pulling? Which ones am I missing?” Make sure that you’re very direct about what you’re doing if you have an opportunity for a big contract with a low margin versus a broadly diversified margin, higher-margin products or you’ve got a supplier concentration. All those things you can address over the next couple of years. Having a conversation with Cameron could be a good thing to do. He’s a normal guy.

The whole idea is to spend as much time thinking about exit because you’re going to exit your business one way or another. It’s like when I have a client come in and says, “If I die,” and I said, “If you don’t, you’ll be the first one. Good luck with that.” I’m obviously a fan of business owners so I wouldn’t have the show and trying to record but they do in their wisdom. Cameron, in closing, anything you want to leave the readers with?

You gave a list of all the things that you want to address. Every single one of those has gotten in the way of getting a deal done. We’ve had to overcome it whether it be the supplier concentration, customer concentration and all those things. Sometimes the things you don’t know are the things that are going to kill the deal and you don’t even think it was an issue. Myself and a lot of the other brokers at the Raincatcher, we love investing in a future relationship.

Spending time to create that relationship then following that relationship through to help you achieve what you want. Even if you’re curious, what does that process look like? What things might I be missing about my business that might be important to know even if it’s 2 or 3 years away from when I’m thinking about selling to have a conversation? We’re always open to conversations. We’re happy to help. Why I got into this business is to help.

For the reader out there, it’s not like they’re going to put you on the clock and bill you on an hourly basis.

We’re at a deal table. We are the only person who isn’t billed by the hour.

You bill by success.

We’re paid when we get things done, not by how much time it takes for us to draft the document or have a conversation.

Cameron, I appreciate you taking the time. You take care and we will talk soon.

Thanks. Bye.

Important Links:

• Raincatcher
• Value Builder
• John Warrillow
• LinkedIn – Cameron Kolb
• Built to Sell
• BizBuySell
• BizQuest

About Cameron Kolb

Cameron joined Raincatcher after serving as the managing partner of Exit Brokers – a Colorado business brokerage firm serving small to midsize businesses. Cameron has worked in business planning and sales for 10 years. He started his career working as a financial advisor where he worked predominantly with small business owners. Cameron left financial advising in favor of business brokering after seeing many of his clients struggling to sell their small businesses. He prides himself on his methodical and disciplined approach to identify exit goals and prepare a business for sale. Cameron and his wife, Jamie, live in Littleton with their daughter and two dogs and can be found on the ski slopes whenever possible.

Cameron Kolb of Raincatcher is a registered representative offering securities and investment banking services through Britehorn Securities, a registered broker-dealer (member FINRA/SIPC).