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Insider Lessons from selling over 1000 companies with Michelle Seiler Tucker

Lace Gilger
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Michelle Seiler Tucker is the author of EXIT RICH: The 6 P Method to Sell Your Business for Huge Profit and the Founder and CEO of Seiler Tucker Incorporated. She has sold hundreds of businesses to date and currently owns and operates several successful businesses. She is a leading authority on buying, selling, and improving businesses, as well as increasing business revenue streams. She has appeared in Forbes, Inc., CNBC, and Fox Business (starts at 8:35 minutes). She has also been a “celebrity judge” on “Pitch Tank” alongside Steve Forbes and Whole Foods CEO John Mackey. She lives in New Orleans.

  • 8 out of 10 businesses do not sell or will not sell

  • Sold over 1000 companies

  • Why do 80% of businesses listed for sale NEVER Sell?

  • The best time to sell your business is when your business is doing well.

  • Beginning with the end game and reverse engineer it. Begin with the end in mind.

    • How much do you want to sell for?

    • Who are you selling to?

  • Most business owners have no clue what their business is worth today.

  • Know who your buyers are going to be and reverse engineer

  • 5 different types of business buyers

    • First Time Buyers: 90% of buyers are first time buyers

    • Private Equity Buyers

      • Platform

        • $3mm and up in EBITDA

      • Add-on

        • They will look at add ons with under $1mm in EBITDA

    • Strategics / Competitors

      • They buy synergies and economies of scale, things that can catapult their business to the next level

      • Strategics are willing to pay more if they can access a synergy

    • Sophisticated Serial Entrepreneurs

      • Industry agnostic

      • EBITDA focused

    • Turnaround Specialists

      • Buy distressed assets

  • 6 different synergies that a buyer is looking for - the “six Ps"

    • People - you need to have a management team in place and buyers will pay more for it.

    • Product - is your industry growing or dying? What business should I be in? And what business are we in?

    • Processes - are they efficient, are they productive, etc? Are they designed with the customer experience in mind?

    • Proprietary - intellectual property, branding, federal trademark, patents, contracts, databases, etc. (#1 Value Driver!!)

    • Patrons - have a diversified client base - this is key

    • Profit - profit is never the problem, it’s always a symptom of one of the other five Ps.

  • **PUT A TRANSFER CLAUSE IN ALL OF YOUR CONTRACTS**

  • Databases are a HUGE value driver. Facebook paid $19bn for that What’s App when they had zero revenue.

  • The reason why businesses fail is that business owners stop doing two things

    • They stop innovating

    • They stop marketing

  • You don’t build a company, you build people, and people build a company.

  • The #1 reason businesses don’t sell is because seller expectations are too high. It’s always based on what they want to do next, not what the business is worth.

  • A buyer will only pay if they see VALUE in it for themselves. Buyers have a sanity check, they won’t overpay for something if they don’t see the value there.

  • If it’s not the right time for you to sell, then you need to build and plan your exit.

  • How do you reverse engineer your business to be purchase for the maximum value?

    • Start looking at what buyers are buying in your industry

    • Pick an advisor who deals with these kinds of buyers every day

  • What are the BIGGEST MISTAKES people make when selling their businesses?

    • Not planning their exit

    • Working in their business instead of on their business. Make the business run without you.

      • Focus on your strengths and hire your weaknesses

    • Don’t be a firefighter in the weeds of the business

    • Not knowing your financials

    • 1099ing your W2s

  • Buy-side tips and tricks

    • First Time Buyer

      • Get crystal clear on your financials and how much you’re willing to put down

      • What are your strengths, what are your weaknesses?

      • Find an advisor to work with you

    • Serial Entrepreneurs

      • Work with an advisor

      • Go find businesses that are barely holding on and use the businesses assets to buy it

        • Factoring loan, SBA loan, etc

        • Finance it based on the assets

      • “Use the assets of the company to buy the company"

        • Use the company’s checking/cash balance to pay the seller and seller finance the rest of it over 3-5 years

Thank you so much for listening!

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Want To Dig In More?! - Here’s The Show Notes, Links, & Research

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Episode Transcript

[00:00:04.4] ANNOUNCER: Welcome to the Science of Success, the number one evidence-based growth podcast on the internet, bringing the world's top experts right to you. Introducing your hosts, Matt Bodnar and Austin Fabel. 


[00:00:19] MB: Welcome to the Science of Success, the number one evidence-based growth podcast on the Internet, with more than 5 million downloads and listeners in over 100 countries. In this episode, we share insightful lessons from selling over a thousand companies. What really matters when you're building a business, how to grow a company, and what mistakes to avoid if you want to exit big, with our guest Michelle Seiler Tucker. 


Are you a fan of the show and have you been enjoying the content that we put together for you? If you have, I would love it if you signed up for our email list. We have some amazing content on there, along with a really great free course that we put a ton of time into called How to Create Time for What Matters Most in Your Life. If that sounds exciting and interesting and you want a bunch of other free goodies and giveaways along with that, just go to successpodcast.com. You can sign up right on the homepage. That’s successpodcast.com. Or if you're on your phone right now, all you have to do is text the word smarter, that’s S-M-A-R-T-E-R, to the number 44222. 


In our previous episode, we shared some incredible lessons on scaling and building big digital content brands with our previous guest, Victoria Montgomery-Brown. Now, our interview with Michelle. 


[00:01:41] MB: Michelle Seiler Tucker is the author of Exit Rich: The 6P Method to Sell Your Business for Huge Profit and the Founder and CEO of Seiler Tucker Incorporated. She has sold hundreds of businesses today and currently owns and operates several successful companies. She is a leading authority on buying, selling, and improving businesses, as well as increasing revenue. She’s appeared in Forbes, CNBC, Fox Business, and has been a celebrity judge on Pitch Tank, alongside Steve Forbes and previous Science of Success guest, John Mackey.


Michelle, welcome to the Science of Success. 


[00:02:14] MST: Thank you, Matt. It’s a pleasure to be here. Thank you for having me. 


[00:02:16] MB: Well, we’re super excited to have you on the show today. M&A is one of my own personal kind of favorite topics, and so I’m really excited to dig into all of the lessons and strategies that you've uncovered. But I'd love to, before we really get into the meat of it, just hear a little bit about your background and how you got into the M&A world. 


[00:02:37] MST: Sure. So I’ve always been an entrepreneur at heart. I started – I think I had my first business at the age of 15. But then I kind of got stuck in the corporate America where I started working for Xerox. Within six months of Xerox, they wanted me to interview for regional manager over 85 salespeople and they tell me, “You’ll never get the job but you should do it for the experience.” So I get it. My nickname at Xerox was ‘The Closer.’


Anyway, I interviewed for it. I did get the position. So I was traveling all the time and I wasn't selling anymore. I was managing 85 salespeople. I opposed a franchise company about buying one of the franchises to operate on the side while I still worked at Xerox. They said, “We don’t want you to buy a franchise. We’ll give you a franchise if you partner with us.” So I ended up doing that. I ended up partnering with them for about six months while I still worked at Xerox and ended up making more money in six months. I made an entire year with my corporate job and ended up leaving Xerox. 


So I went into franchise development, franchise sales, and franchise consulting. From there, I ended up – They bought me out after a period of time, and then I transitioned into mergers and acquisitions and started selling businesses. I learned very quickly though and Steve Forbes says 8/10 businesses will not sell. 8/10 businesses do not sell for a multitude of reasons. Then I transitioned into fixing businesses, growing businesses, and building to sell companies, so they actually will sell and not close. 


That’s kind of how I transitioned into it. I’ve been doing it for 20 years. I sold over a thousand companies and I also buy businesses. I partner with business owners and I help save businesses from closing. 


[00:04:23] MB: Such a cool background and I love that quote. I've heard various statistics, whether it’s 80%, 90% of businesses that are listed never sell. So interesting. Tell me a little bit more about why that’s the case. 


[00:04:37] MST: I think the number one reason why that's the case is that business owners never think about selling, Matt. They never think about selling until they absolutely have to due to a catastrophic event occurring, and that could be an internal or an external catastrophic event that occurs. The problem when that happens is that the business is typically trending downward and not upward, and the business is not really doing as well. Buyers typically don’t want to buy businesses that are failing. They want to buy businesses that are doing well. I mean, the best time to sell your business is when your business is doing good and trending upwards. 


So I would tell you in all the years I've been doing this, thousands upon thousands of businesses, I’ve never met any business owner that truly plans their exit from day one, and that’s what business owners should do. 


[00:05:26] MB: That’s such a great insight. When you think about whether it's starting a company or buying a company day one, how do you start to prepare that company for exit? 


[00:05:37] MST: Yup. I talk about this in Exit Rich at great length. I call it the ST, Seiler Tucker GPS exit model. It’s really all about starting with the end game and reverse engineering it. So kind of like GPS, what do you do? You know where you’re starting from. At GPS, you plug in your destination, and then the GPS plans out the quickest path to get you there. Well, with a business owner, they need to plan out. I want to sell my business for five million dollars. What time frame do I want to sell that for? I want to sell my business for five million dollars in five years. Well, what is your business worth right now? 


You would be surprised, Matt, how many business owners have absolutely 1,000% no idea what their business is worth today. Most business owners navigate valuation on their business until they think about selling when what you really should be doing is getting business valuation every year in order to get you to that end game. So it’s really important to plan your final destination, your final sales price, know where you’re starting from, know your timeframe, and know who your buyers are going to be. There’s five different types of buyers. 


So if you are in a manufacturing business and you want to sell for $20 million, that’s your end game, and you really need to figure out, well, who buys manufacturing businesses? Who buys manufacturing businesses for $20 million? It’s not going to be a first-time buyer. It’s not going to be turnaround specialist. It’s probably going to be a private equity group. If it’s a private equity group, then your EBITDA needs to be over $3 million. So you really need to figure out who your buyer is going to be and then build your business to suit their buying criteria. Does that make sense?


[00:07:17] MB: Yeah. No, that’s a great insight, and I want to dig into a couple pieces of that. Let's start with – You touched on a few of these, but tell me more about the different buyer types. 


[00:07:27] MST: Yes. So there’s five types of number. Number one is first-time buyers. 90% of buyers are first-time buyers. Then there’s private equity groups, PEGS. Private equity groups buy two ways. Private equity groups buy based upon platform and add-on. So platform means that a private equity group wants to get into manufacturing. Let’s say they want to get into food manufacturing, but they don't have that now, so they will buy a big enough company with an EBITDA of at least three million dollars and up for a platform. Now, let’s say they’re already in food manufacturing. They now look at add-ons for their platform and they’ll consider companies under a million dollars in EBITDA for add-ons but never for a platform. Does that make sense?


[00:08:19] MB: Absolutely. 


[00:08:20] MST: And then you have your strategics/competitors. Now strategics and competitors buy synergies. They are looking for those synergies. They are looking for economies of scale. They're looking for something that they currently don't have that could kind of put their business to the next level. For instance, we had an oil manufacturing business that had a couple of patents and a price at a $9.8 million range. We had 550 interested buyers. We got it down to about 12 different LOIs. We found a strategic who had a similar product and service, but they were never able to get into BP. 


This client, 60% of their revenue was tied up in BP and a very good relationship with them. This buyer wanted to buy that contract because they knew if they could buy this company, finally get their foot in the door to get their products and services in BP, they could not only LOI off of that business but catapult their business to the next level. So they paid $15 million for 70% of the company. There were two owners. One retained 30%, plus his benefits, plus his salary, and that company was able to get their products and services into BP. So strategics and competitors are always looking for that competitive edge. They’re always looking for that synergy and they’re willing to pay more. That’s where bidding work comes in. They want to pay more and not bet everybody else to buying that particular synergy, especially if it can help their existing business or if it can help them with the economy of scales. They could perhaps buy a business and cut operating costs by 50% because they have the team. They have distribution centers. They have fulfillment centers. They have everything that could cut the cost of the current company that they want to purchase. So those are competitors and strategics. 


The fourth type of buyers are sophisticateds, serial entrepreneurs. Now, these buyers are industry agnostic. They care more about EBITDA. They’re really EBITDA-focused and they don’t really care. We have serial entrepreneurs. They have hospitals, construction, casinos. It’s all over the map, and many of these serial entrepreneurs will give us LOIs on all of our new engagements because they are EBITDA-focused and not industry-focused. 


Then your last type of buyer is turnaround specialist. Those are buyers that are looking to buy distressed assets, and right now there’s a lot of distressed assets with COVID. There were a lot of distressed assets before COVID but there are a lot more now. So a turnaround specialist will buy these distressed assets. Those are the five types of buyers. 


[00:11:05] MB: Got it. That was really insightful, and I love some of the examples and stories you gave around how strategics just kind of think differently about acquisitions to maybe pay a higher price, etc. I'm curious, when you look at, for example – Maybe we’re getting into the weeds. But when you look at sophisticated serial entrepreneurs as a buyer type, when you say they’re more EBITDA-focused, does that tend to be more focused on value, i.e., they're not willing to pay over five times or seven times or whatever that multiple might be? Are they focused on certain lower middle market up to larger scale? Kind of where typically are you seeing kind of that segment focus?


[00:11:41] MST: Yeah. So for sophisticateds, typically lower middle market and up, it just depends. They’re not as willing to pay a higher multiple as a strategic is or as a competitor or maybe even a PEG who’s looking for some add-ons. The reason for that is because they’re so industry-diverse that buying that one synergy doesn't really help them in their specific businesses. Does that make sense? Because they are so industry-diverse, whereas when you get a strategic or a competitor. 


Right now, we have an online e-commerce business that we’re selling, and the company that’s looking at buying them has multiple fulfillment centers around the country. They could – Because of economy of scale, they could cut that cost in half. They could cut that cost in half and really increase their EBITDA, double the EBITDA overnight because of the fulfillment centers that they have. So strategics and competitors are much more willing to put a value on those synergies, and there are six different type of synergies we really look at. 


[00:12:46] MB: Tell me about those.


[00:12:49] MST: I was waiting for you to ask. So we talk about this in Exit Rich as well, and those are called the 6Ps. Every time we go and value a business, I always look at the six Ps. I just met with a construction company has that will probably sell in the $70 million range. Their EBITDA is over 12 million. The six Ps, number one is people. You cannot operate a business without people. You don't build a business. You build people, and people build the business. So you have to have the right people in the right seats and you have to have management team in place. Buyers don't want to buy a job. They want to buy a business with people. 


Let me tell you something. That’s a synergy that a lot of buyers are willing to pay more for. If a company has huge talent – We once merged an advertising agency that specialize in casinos with another advertising agency because they had talent that this other advertising agency really wanted to pay for. So we always look at people. Do we have the right people in right seats? Do we have a management team in place? Is the business dependent upon the owner? If the business is dependent upon the owner, that could hurt the value of the sell or the buyer might want to buy a percentage of the business and not 100% of it. We also look at how long those people have been there, are the employee handbooks in place? Did they have non-competes? What’s their packages look like?


The second P is product. So every one of your listeners right now, Matt, should be asking themselves, “Is my industry on the way up or on the way out? Is my product thriving or dying?” Before COVID, there were industries that were thriving. After COVID, those industries were now dying and vice versa. Hospitality, restaurants are doing terrible right now, but manufacturing that wasn't doing really well before COVID is huge right now and doing fantastic. Healthcare is doing great. There are a lot of industries that are thriving right now, so you always have to ask yourself, is your industry on a way up or on a way out? Are you a Blockbuster or are you an Amazon? 


If your product is on their way out, then ask yourself. What business am I in right now and what business should I be in? Let me illustrate that point for you. Steve Jobs, not founder of Apple. Steve Wozniak. Steve Jobs founded Apple. But Steve Jobs, when he came back to Apple, he asked one brilliant question. He asked everybody, “What business are we in,” and they all said, “The computer business.” He said, “No. What business are we in,” and they said, “The computer business.” He’s like, “What business should we be in? We should be in the communications business.” Everyone around the world should have one of these. Everyone around the world should be able to communicate with each other from their pocket. That's how the iPhone was created. That's how that iPod, the iPad, the i everything was created because of that one question alone. 


Business owners need to learn how to pivot. I don’t know if you know this. But when I wrote my first book, Sell Your Business for More Than It’s Worth, in 2013, I did the research and learned that 85 to 95% of all startups would fail, all Startups within one to five years. When I wrote Exit Rich in 2019, I did the same research and I was flabbergasted that the business landscape has changed so dramatically. It’s not that anymore. Now, it's only 30% of startups are at risk, only 30%. But out of 26.9 million companies – Now, put that in perspective. There are 30.2 million businesses in the United States, employing over half the US workforce. If small businesses fail, the economy fails. Out of 27.6 million businesses, those businesses that have in business 10 years or longer, 70% of those companies will go out of business, 70%. 


You hear about the big box stores all the time; JCPenney's, Toys’R’Us, DineMart. GNC just closed down 900 locations, Kmart. What you're not hearing about are the private companies. On every street corner and every town and every state across our great nation, these businesses are dropping like flies and they’re having to sell for pennies on the dollar, close their business, or be forced into filing for bankruptcy. When you lose your business assets, you typically lose your family assets too because most business owners comingle their assets. 


So it does not have to be this way. It doesn’t have to be all gloom and doom. The reason why businesses are failing, and I’ll get back to the six Ps is because business owners stop doing two things. I call it. They stop aiming. They stop innovating and marketing. They become complacent. They have a product. They have a service. They don't do anything to pivot. They stop asking their customers what do you want, what do you need, what will make it easy for you to do business with us. Whoever makes it easiest for the consumer to do business with them are the ones who are going to win. Amazon is winning because they make it so easy to buy anything at any time and get it delivered in two days. Business owners have stopped asking those questions, so product was the second P. So you have to ask yourself what business are you in, what business should you be in. You have to pivot and you have to innovate a market. 


Then the third P that we evaluate businesses on are processes. Are their process as efficient? Are they productive? Processes can break a company. They can bankrupt a company. They can cause huge customer dissatisfaction and completely bankrupt the company. You got to ask yourself? Are your processes efficient? Are they productive? Are they on PPP manuals? Are they in SOP checklist? Are the employees trained on them? Now, here’s the most important thing about processes. Are they designed with the customer experience in mind?


Did you ever watch the movie The Founder? 


[00:18:47] MB: Yeah, a great movie. 


[00:18:48] MST: Great movie. The McDonald brothers, right? Not Ray Crockett, the McDonald brothers went to an empty tennis court field and practiced for hours upon hours upon hours their processes; who’s going to take the order, who’s going to toast the buns, who’s going to cook the burger, who’s going to put the mustard on there, who’s going to put the two pickles, and who’s going to back it up and give it to the client with the customer experience in mind. What were they trying to create back in those days? Remember, that was back in the ‘50s. They were trying to create quality food speed, right? Very quickly because they had to drive up restaurants back then, and it was very, very slow. Their USP, their unique selling proposition was speed. Good food that tastes good fast, right? You got to make sure that you design your processes with the customer experience in mind. 


Then the fourth P, which really, Matt, is probably the highest value driver, and we talk about this in Exit Rich, is proprietary, proprietary, intellectual property. There are six pillars of proprietary. I’m not going to get into all of them, but number one is branding. How well-branded are you? It’s very important for business owners to brand themselves and brand their company. Steve Jobs did a great job of branding himself and branding Apple. You got to ask yourself how well-branded you are because the Coca-Cola brand alone was up for $89 billion. That's without assets, inventory, cash flow, real estate. McDonald's alone, their brand is worth I think over 100 billion. 


The biggest brand – You know what the biggest brand is? 


[00:20:25] MB: I would’ve guessed either Coke or McDonald’s, so you’ve got me. 


[00:20:28] MST: Apple, 360 billion. 


[00:20:31] MB: Makes sense. 


[00:20:32] MST: 360 billion, yup. So it's really important to build the brand. It’s very important to trademark your company name, federal trademark, federal trademark. So any of your listeners that have a company, make sure you get a federal trademark. Local trademark is not good enough. You could find yourself in court, spending hundreds of thousands of dollars trying to protect your name, trying to protect your slogan, trying to protect your intellectual property. So make sure you get federal trademarks. 


Also, if you have something unique in place, get patents. Patents are huge value drivers. We once sold a company. They had 18 patents. The price was in the $10 million range. We got $18 million for it. I say we got a million dollars of patent. That, by the way, is for 80% of the company. Those are really important; branding, federal trademarks, patents. Now, here’s a big one for your listeners, contracts, contracts, client contracts. So we’re selling a manufacturing company right now and they’re manufacturing in Canada and they have no contract in place and they have no backup plan. 


[00:21:40] MB: That’s crazy. 


[00:21:40] MST: If something happens in Canada, exactly. These are the type of stories you hear all the time. You’d be surprised. I mean, we can just have a show on the mistakes that business owners make, and it would take hours upon hours to take all the mistakes. But you have to have contracts. You have to have distributor contracts, manufacturing contracts, vendor contracts. Most importantly, the biggest value driver is client contracts. But the biggest mistake the business owners make, I will tell you 99% of business owners get this wrong, they do not put a simple transfer clause in their contracts. 


[00:22:15] MB: Very smart. 


[00:22:16] MST: And 99.9% of all sales or asset sales, not stock sales. Those contracts are not transferable and the buyer won’t do a stock sell. Most buyers don't want to do stock sells for a multitude of reasons. Then you’re in trouble. We sold a medical transportation company in Kansas City, and they had about, I don’t know, 300, 400, 500 contracts. And I told them from the beginning, go back and enter that clause. They never did, but they told me they did, so they lied to me. Then I had a buyer. We’re going through due diligence. I’m like, “Where is the transferability clause?” They go, “Oh. Well, we meant to get to that.” So my client’s like, “It’s dead. It’s a dead deal.” I ended up getting my client, the buyer, to agree to do a stock sell. But you got to make sure that those contracts are transferable. 


The other thing that’s a really, really big value driver and nobody thinks about this is data basis. 


[00:23:12] MB: Huge. 


[00:23:13] MST: Facebook paid $19 billion for WhatsApp, 19 billion. And WhatsApp was making how much money?


[00:23:21] MB: I have no idea. 


[00:23:22] MST: Zero. They were hemorrhaging. They were losing money like crazy. But they had a billion users, and Facebook knew that’s a synergy that could catapult Facebook to the next level if we buy WhatsApp. If you’re $19, you get a billion users. So databases are huge. Another thing that’s really big and let’s say there are some e-commerce clients that you have there listening and let’s say they have one of the number one spots in Wayfair or they’re selling products on Amazon and they have that competitive edge because they’re the only one selling this gadget or they’re number two on Wayfair or they have Glenn Beck selling their product, product endorsements. That is all what we call business real estate that’s extremely valuable, and buyers will pay a premium for that. IP is the number one value driver. 


The fourth P is patrons. That’s very imperative to have a diversified clientele base because if 70 or 80% of your revenue is tied up into one, two, or three clients, you're in big trouble. That advertising company I told you about that specialize in casinos, we value them at about 10 million. The problem is they have five clients, five casinos. They lost two in the process, and the revenue’s dropped almost by 50%. But they still had to keep the overhead and keep the talent for the other casinos that they had. 


Then the last P that we evaluate businesses on is profit. Everybody wants to make a profit. I always say, Matt, that profit is never the problem, always the symptom of not running on one of the other five Ps. If you don’t have the right people in the right seats, if you don’t have the right management team in place, then you’re going to have a problem with profits. You’re going to lose money. If your product is dying and not thriving, you’re going to lose money, right? If your processes are not efficient and productive, you’re going to lose money. If your IP is not protected, you can spend lots of money trying to protect your IP, which again will cost you money. I mean, I’ve seen businesses be put out of business because they do not protect their IP. So those are the six Ps that we evaluate businesses on. 


[00:25:30] MB: Yeah. That's a great insight and the notion of profit being a symptom of your processes, your people, etc. Really, really insightful way of thinking about it, and that’s a great takeaway. 


[00:25:43] MST: Thank you. 


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[00:27:38] MB: I want to jump around a little bit. One of the things you touched on earlier that I think is really interesting and I feel like you see this a lot in the M&A world, how do you think about the disconnect a lot of times between sellers’ expectations around the business value and what the market value is the business at?


[00:27:59] MST: That’s a great question because it is a mess. When we talked earlier about Steve Forbes saying 8/10 businesses don’t sell, I would say the number one reason they don’t sell is because of expectations. Sellers come to me and say, “Michelle, I want $50 million for my business.” I’m like, “Okay, let's look at the financials.” I’d say, “How do you come up with that?” Matt, this is what they all say, something like this, “Well, you know, that’s what I need to live on,” or, “That’s what I need to retire on,” or “That’s what I need to send my kids to college,” or, “That’s what I need to divorce my spouse,” or, “That’s what I need to buy my next masterpiece or start my next masterpiece.” It’s all about what they need to do next, not about what their business is worth today. Their value is based upon what the next phase of their life looks like versus what the value of your business really is. 


The way that we work with clients is we educate them. We do very extensive valuations, probably the most extensive in the industry. We base it on the six Ps that I just took you through and we base it upon – We do methods, the method approach, which is asset approach on discounted cash flow, income, market approach. Then we also look at the buyer sanity check because the buyer is not – A buyer will only pay if they see value in it for them like that contract, the BP contract. They were willing to pay more. The other buyer was willing to pay more for those 18 patents. But other than that, buyers are not going to overpay. Buyers have what I call the buyer sanity check, just like sellers have a seller sanity check. 


So we educate our sellers and we tell them what they can get. If this is not the right time for them to sell, then they need to build to sell and they need to plan their exit. If you want $20 million in, plan a $20 million company. It’s not hard to figure out how to do that, Matt. It’s not hard to figure out, “Okay, if I have a manufacturing company and I want to sell for $20 million, what’s the buyer’s criteria? What are buyers looking for from a post-revenue standpoint, from a cog standpoint, from a profit margin standpoint? What’s the EBITDA needed to look like? What’s my management team need to look like?” Then, again, you just take it through the six Ps and built it on the six Ps. It’s not that difficult, but nobody does it. 


[00:30:25] MB: So this might be kind of a deep rabbit hole. But when you think about reverse engineering buyer criteria, and I’m sure it varies by buyer type. It varies by company, industry, etc. But are there some high-level strategies or best practices that you think about for anybody to look at their business today and say, “How do I start to reverse engineer what I need to be doing?”? 


[00:30:48] MST: Yeah. I always tell them, you don’t know what you don’t know. So align yourself with an expert. Talk to an M&A advisor. Pick their brain. Ask them. What are PEGs buying? If PEGs are buying manufacturing, now I’m in the manufacturing industry and I want to sell my company for $20 million, what do I need to do? What do my numbers need to be? What do I need to build out? Talk to an advisor because advisors more than others – You kind of find a good advisor because mergers and acquisitions is like anything else. It’s like attorneys. There’s good attorneys, bad attorneys. There’s good doctors, bad doctors. There’s good M&A advisors, bad M&A advisors. 


I don’t’ charge my client. I don’t charge buyers for that. If the buyer calls – I mean, if a seller calls me and wants to know, “Look, Michelle. This is what I want to do. What’s your recommendation,” my recommendation is start looking at what buyers are buying in your industry. What are they looking for? What are they wanting to purchase? Does that make sense?


[00:31:52] MB: Yeah, that's great. No, that’s good advice. 


[00:31:54] MST: But I think the best way to do that is probably to pick the brain of an advisor who deals  with these buyers on a daily basis. I mean, we get hundreds upon hundreds of emails from PEGs every day looking for specific businesses, and they tell us exactly, Matt, what their criteria is from an industry standpoint, from the EBITDA standpoint, close revenues. We know their criteria down to the bottom line. 


[00:32:19] MB: So this may come back to the six Ps in some ways, but I’m curious when you look at sellers or people selling their businesses, what are typically some of the biggest mistakes that you see people are making? 


[00:32:33] MST: That’s a good question. Number one is they’re not planning their exit. That’s the biggest mistake by far. Another big mistake is they’re so busy looking in their business and not on their business. Most entrepreneurs are visionaries, right? Every visionary needs a good integrator. Every visionary needs a good integrator because most entrepreneurs are visionaries and not integrators. So they get so busy, start working in their business, instead of working on their business, that they’re wearing all these different hats and they’re filing all this different piece. They’re doing processes. They’re doing hiring. They’re doing interviewing. They’re doing client service. They’re doing financials. They can never really grow their business because they’re in the business. 


One of the most important things to do is to make the business run without you, and that’s what most owners don’t do. The other thing is that because I see business owners or entrepreneurs are kind of control freaks. They’re like, “Well, you know, if I want it done right, I have to do it myself.” Well, that’s not true because, yes, you might do that one thing right, but look at all the other things that just failed because you were doing this. They’re so stuck in their control mode. If they want it done right, they need to do it themselves. No. What they need to do is focus on their strengths and hire their weaknesses. Most entrepreneurs just try to be all and do all. 


I’ve partnered with a graphics company. I’ll give you a quick story. A graphics company called me up to sell, and it was husband and wife. I asked them right away. I said, “Why do you want to sell,” and they specialize in graphics for first responders, so all the police cars on the road, ambulances, fire trucks you see. That’s their company. He said, “Listen, Michelle. I just found the business acumen to grow this company to the next level.” He says, “It’s myself, my wife, and we’re doing everything. We’re working 14 hours a day and we’re about to kill each other and we want a divorce.” Then they had one employee who they told that one employee, “We’re going sell or close our doors.” Of course, that one employee gets another job, right? 


But then he says to me – This is a 10-minute conversation. He says, “Michelle, we’re known for our quality. We’re the best in the industry. We’re turning down 6,000 clients a year.” When I heard him say we’re turning down 6,000 clients a year, a light bulb went off my head. I go, “Whoa.” I go, “Wait, wait, wait, wait, wait. You’re not selling the business. You can’t sell the business.” He goes, “Why not?” I said, “Because you are the business. We take you out of the business, there is no business.” If we take the husband and wife out of the business, there is no business. I said, “If you’re turning down 6,000 clients a year, all you have right now is a glorified job. What we’re going to do is build a business.” 


So I put up money, resources, experience, and partnered with them, took them to under a million dollar company to a multimillion dollar company, operating out of 6,000 square feet with 25, 30 employees, and we’re expanding throughout the US. I very quickly valued them on the Six Ps. But I said that story to illustrate to you what happens as entrepreneurs just get in the weeds. They’re so in the weeds, and I call them fire fighters. So always putting out fires all day long, instead of really growing the business, and that’s a huge mistake. 


Another big mistake that business owners make is they don’t know their numbers. They don’t know their financials. They have no idea what the business is making. They have no idea. They think they’re making money and they’re like a week away from closing, going out of business. I can’t even begin to tell you how many entrepreneurs have people embezzling money from them, and they don’t even know. I’ve caught it in due diligence. I caught – The company I told you that we sold for $18 million, I was there in due diligence. They had an in-house CPA, this in-house CPA doing due diligence. I kept seeing her like shove things underneath in the desk drawers and shove them under her desk and everything. When she left, I started looking, scrolling through her desk all these invoices. She was stealing money from the company. 


Entrepreneurs take their eye off the ball, and they don’t hire their strengths, they try to do it all, and then they don’t really have the balances and the checks in place and their KPI. They’re not looking at their KPIs to make sure that they’re operating and not losing money or there’s somebody stealing money from them. The other mistakes – Do you want to me keep going?


[00:37:08 MB: Give me one or two, yeah. But then I have other questions.


[00:37:11] MST: Here’s another big one that you never want to do. We have a manufacturing company that has all 1099s and no employees. If ever a catastrophic event happens to 1099, which means they have no workers comp, by the way. What do you think is going to happen to that company?


[00:37:27] MB: They’re going to have to either hire everybody or their costs are going to skyrocket or they’re going to have some –


[00:37:32] MST: If they have a catastrophic event, they’re going out of business. If somebody loses a limb working in that manufacturing plant and they’re 1099. 


[00:37:37] MB: Oh yeah, you mean a worker compensation plan – I thought you’re saying if 1099 went away because it’s going away in a lot of states.


[00:37:45] MST: We have a company. It’s got about 150 people in 1099s. That’s a lawsuit waiting to happen. A catastrophic event occurs, you’re all out of business. All it takes is one person to get mad at the owner and say, “Well, we really should be employees, not 1099s.” Guess what? They can all form and go report it to the labor board, and you got a huge problem on your hand. Not only that. But when we go to sell it, guess what we have to do? We have to convert. We have to run the numbers and convert them from a 1099 to an employee and then that’s going to be a huge cost difference that would decrease the EBITDA when we go to sell the business. That’s a big mistake that business owners make is making people 1099s when they really should be employees. 


[00:38:27] MB: Great insight. I want to get a couple other pointers from the other side of the coin. When you think about buying businesses or investing in companies, what are some strategies that you’ve seen that are really effective or that can kind of help you on the buy side/


[00:38:45] MST: I would tell you, from the buy side, number one – Now, are these first-time buyers, Matt? Or are these serial entrepreneur buyers?


[00:38:52] MB: I’d say let's talk about maybe first-time buyers and serial entrepreneurs. I think those are two good segments. I don't think we have a lot of private equity folks listening to the podcast, so that would be – I think those two would be really relevant. 


[00:39:04] MST: First-time buyers have to get crystal clear on what their financials are because I can't tell you how many first-time buyers come to us, and they have no idea what they’re making. I mean, what they can spend on a business. They have no idea how much they’re willing to put down or how much they have to put down. You’re really going to get crystal clear in your financials. Then you got to get crystal clear on how much you’re willing to put down because you can’t buy a business, Matt, by using your retirement fund and taking that money out without paying any interest or penalties whatsoever to purchase a business. It’s called redirect from your retirement fund. 


But you got to be comfortable enough to pull the trigger. So if a first-time buyer has a half a million dollars, how much are they comfortable spending? They need to get crystal clear with that. If they say, “I’m only interested in spending 300,000,” then guess what? Just spend that $300,000 and look for businesses in that realm. Then also look for what are your strengths, what are your weaknesses, what are you good at, what’s your passion. Everybody thinks, “Oh, my gosh. I’m a first-time buyer. I’m going to go buy a restaurant.” That’s the worst thing for you to buy. That’s the last thing you should be buying because restaurants are nightmares, and you really need to be cut out to be a restaurant operator. 


We had a lady that came to us who had been in banking for 30 something years. She was about to retire. She called us and wanted to buy a restaurant, and I started asking her questions, and she has zero restaurant experience, never worked in a restaurant. I told her, I said, “What are you trying to accomplish?” She goes, “Well, look. I have $300,000 and 50,000 for working capital, and I just want to make more than what I’m making right now. Right now, I’m making $130,000 a year.” I put her into a business with real estate that’s making 400,000 a year to sell her a financing. So she put 300,000 down. She kept her $50,000 working capital. Even after debt service, she was making over 300,000 a year. Then she started growing the business. Now, she’s making over half million a year.


[00:40:56] MB: Good deal.


[00:40:57] MST: Yes. So the other advice I have for buyers is to find an advisor to work with because we will have those type of businesses. Typically, most business owners will want to work with a business broker or a mergers and acquisitions advisor. Now, we do larger deals. But they want to work with a mergers and acquisitions advisor because of the confidentiality. They don’t want everyone knowing that they're selling their business. They want to keep that secret. They don’t want their employees, customers, vendors, anybody finding out, so they will come to us for confidentiality. Plus they don’t know what they’re doing. They don’t know how to sell a company. 


So I always tell first-time buyers, get crystal clear on your strengths, weaknesses, passions, and get crystal clear on what you can afford to put down, and then find an advisor to work with. As far as serial 

Entrepreneurs, same thing. Work with an advisor because we have good deals. But I will tell you right now, not my businesses because my business owners are not going to do this, and I won’t allow them to do this. But right now, for a serial entrepreneur, let me give you some secret sauce here. Let me give you some inside secrets. If you really want to go out right now, this is COVID, you can get so many great deals and so many great businesses that are barely holding on or they’re holding on but they want to sell because the owner’s tired. He’s like 70 something years old. He doesn’t want to keep doing it but it is making money. You can use the assets of the business to buy the business. You can use the cash in the business. You can ball against the equipment. Maybe even a factoring loan against the receivables. You can literally use the assets. 


Now, I won’t allow that for my sellers to do that. I’ve had three offers on one manufacturing company in the last two weeks. We’re going to try to use the assets to buy the company. I’m like, “No, go find somebody else because you’re not doing that with my clients.” But you can go out and you can find those businesses and do that. If that's not important to you and you need an advisor to help you find some of the best deals out there, then align yourself with an advisor. If not, do it on your own and try to use the assets of the company to buy the business. There are over 30.2 million. At any given time 40% of companies will be up for sale. 


[00:43:11] MB: That's a great insight and I want to – Tell me a little bit more so when you say use the assets of the company to buy the business. Are you talking about something as simple as just doing a leveraged buyout using an SBA loan or something like that? Or are you saying more nuanced, like using asset-backed lending, that kind of stuff? Tell me more about that story. 


[00:43:28] MST: Yeah. No, I’m not talking about SBA or asset-based lending. Nope. I’m talking about giving an LOI to an owner where you say, “Okay, I’m going to pay you a million dollars for your business and I will give you 400,000 cash when we close and I will pay the difference over the next four years at this interest rate, and that 400,000 cash is coming from the cash in the company.”


[00:43:57] MB: That's insane. 


[00:43:58] MST: Yup. 


[00:43:59] MB: People will –


[00:43:59] MST: It happens. It happens. That’s what I told you. I’m giving you insights. 


[00:44:05] MB: That’s pretty nuts. So they’re not selling on a cash-free, debt-free basis. They’re just using the company's checking account to pay the down payment. 


[00:44:12] MST: Yup. I have a really good manufacturing business that we’re selling that specializes in a specific industry, a niche industry. I’m not going to tell you because they’re the only ones that do what they do. I’ve had three offers like that where I say, “Okay. Well, I’ll give you $1.5 million cash at closing. Pat the balance in next four years.” Then we go back-and-forth, back-and-forth, back-and-forth, and I'm negotiating on my client's behalf. Then I get the LOI. Then they’re saying in the LOI, “Pay cash to the business.” I’m like, “No, no, no, no.” We’ll leave enough working capital, which is a combination of accounts receivables and inventory, but you’re not getting my client’s cash to buy the business. He’s not going to use his cash to buy his own business with. But, yeah, there are business owners that are desperate. There are business owners that will do it, and ir happens. Yeah. 


[00:45:03] MB: That blows my mind. It’s crazy. 


[00:45:06] MST: Well, there’s actually different companies out there to teach how to buy businesses with no money down or like buy your own real estate with no money down. 


[00:45:12] MB: Yup. I’m familiar with some of the Roland Frasiers of the world, and it’s the folks that kind of teach those methodologies. 


[00:45:17] MST: Well, yeah. I know Roland very well, and Roland is what I’m talking about. 


[00:45:21] MB: Yeah. He’s a wizard at that. There's no doubt about that. 


[00:45:23] MST: Well, Roland and I spoke at an event together. I spoke right after him. I said, “First of all, Roland, you will never ever want to buy any of my business. I will never let you or your students, number one. But number two, come to me when you’re ready to sell them.” 


[00:45:40] MB: That’s right. 


[00:45:40] MST: It’s funny because I’m one of Roland’s students, and he’s trying to sell a business to me. On a sell side, it’s very different. Why? On a sell side, if a seller doesn’t want to do that, but this same student wants to buy companies like that. I said, “Well, then let the buyer buy it.” He’s like, “No, I’m not going to do that.” But, yeah, Roland’s one of them. I buy companies as well. I flip them. I also partner with business owners putting up cash. 


[00:46:10] MB: It’s really funny. Well, Roland’s a previous guest on the show, and so we’ll throw that interview in the show notes as well. But this has been super insightful, Michelle. For 0listeners who want to find you and your work online, what is the best place for them to go and do that?


[00:46:26] MST: I think all of your listeners should go buy Exit Rich because right now, Matt, we are offering Exit Rich at $24.79 which includes shipping. They will get the immediate download, the digital download immediately. Plus they’ll get access into our free book membership where they’ll get video training from me. But they’ll also get due diligence checklist, LOI samples, purchase agreement samples, even closing document samples. Plus they’ll get a 30-day membership in the CLUB CEOs. Then when the book comes out, we will ship it to their doorstep. They can get that at exitrichbook.com, exitrichbook.com. Then they can find me at seilertucker.com. 


[00:47:06] MB: Well, Michelle, this has been a fantastic conversation. I really appreciate you coming in and sharing some inside baseball from the world of mergers and acquisitions. Thank you. 


[00:47:15] MST: Thank you for having me. It’s been a pleasure. 


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