Catalytic Conversations

Recently I was a guest on Lauren LeMunyan's Spitfire Podcast.  Lauren and I are both coaches who work with executives to become consciously profitable.  The question is, how?

Leaders who are executives and business owners have to keep up with legislation, maintain profitability to retain value within the company, and rely on people to make those things happen.  As if that isn't tricky enough, those leaders have to lead people who, in 2021, are dealing with the pandemic - working remotely and isolated, while dealing with the social reckonings of the lack of equity, inclusion and diversity.

No one wants to be part of the problem.  Everyone wants to offer a solution.  What is a leader today to do?

Picture this - you’ve worked for years to build your business.  You hope to retire in the next five or six years.  You will use the money from that sale to buy the family a relaxing cruise, invest some for retirement and finally, do what you want to do with your time.

Sounds lovely, doesn’t it?  Unfortunately, for many who hold that dream dear, it doesn’t work out that way.  It happens for a lot of reasons.  Sometimes, the market conditions aren’t right.  At other times, owners get in their own way.

Today you have the chance to get the insider view of the transaction at the point of choosing the best fit buyer.  Dan Scherotter, a broker and strategy consultant with Filament Business Advisors, has a background in the restaurant industry.

Dan is a former chef and restaurant owner.  Dan has a finger on the pulse of the restaurant industry.  As a consultant and broker for Filament, Dan is going to discuss with me the unique aspects of selling a restaurant, asymmetrical buyers and how the past year has “laid the industry bare” structurally.

First, you need to sit down and define your priorities.  What do I mean?

1. Do you know what your financial outlook is?
   
2. Can you afford to take an earn out or reinvest part of the proceeds of a sale?
   
3. What are the tax implications of the sale for you personally?
   

Many owners don’t know what they actually need to realize from the sale of their business.  Sounds crazy, doesn’t it?  But, it’s true.  I recently heard of an owner who thought (no data, just thought it) that he/she needed to walk away with $3M to be comfortable in retirement.  As it turns out, $2M was the magic number and that business sold and the owner was able to take an earn out for a larger purchase price based on forecasted earnings.

Think about your other priorities:

• You want the company to stay in your town.
  
• You want the new owner to keep all of the employees for at least a year.
  
• You want to continue acting as part of the business development team.
  
• You want a seat on the Board.
  

These requests are reasonable if they are presented in a professional manner and the owner has created a strong position as a valuable company.  The likelihood of those priorities being accepted depend on the value of the company, and the timing of the ask.  This is another incident where the right advisor is critical.

Today we look at the process of selling your business.  You may hear of this process referred to as The Deal or the Transaction.  Your deal, or transaction, is the culmination of your years of hard work, blood, sweat and tears.  The amount of money you walk away with is dependent on a number of variables.  I hope that your biggest takeaway for my shows this month is that preparation is your key to successfully selling your business.

Selling your business is a process.  Today, I want my guest to give you a peek at what happens behind the curtain of the deal.  I want you to be ready for the business colonoscopy.  I want you to be so prepared, so ready, that you don’t feel a thing!

We’re going to talk about the things owners do that get in their own way, that they do wrong, or how they subconsciously sabotage the entire deal!  This happens all too often.

KEY ISSUES: Problems You May Encounter:

In my experience, these are the obstacles that owners don’t prepare for, lead through, or navigate successfully, during the transaction.

1.   Owners don’t really know what their priorities are before they begin the transaction process.  It is too late to think about the well-being of your employees once the purchase agreement is signed.

2.   Owners don’t think about who their ideal buyer is or what their attributes should be.

3.   Owners don’t really know how much their business is worth.  Michael recommended the Goldilocks method - ideal price, acceptable price, minimally acceptable pricing.  It is very important to get the pricing right, to attract the interest that you want.

4.   Owners have built the entire business around the owner.

What You Need To Know - THE WHAT:

Folks, you need to know what other companies in your industry and in your geographic area are selling for – I encourage you to do some market research.

If you belong to an association, ask for the names of other owners who have successfully sold their company. Get in touch with them and find out what their experience was like and what they would do differently if they could have a redo.  I also recommend that you listen as closely to what isn’t said as to what is said in those conversations.

Next, make sure you build relationships with advisors who have had experience as part of a deal team.  That experience will be a huge source of strength during the transaction process.

Almost every deal has moments where the door opens to renegotiate the purchase price, or an accounting practice is questioned, etc.  you want your advisors to be calm, professional, and to add value to your position, not detract from the value of your company.

Here are the steps that Michael outlined for your transaction:

1. Get your business appraised.
   
2. Talk to your accountant.
   
3. Determine the kind of sale you will execute.
   
4. The book of information is written.
   
5. Advertising.
   
6. Attracting and educating the buyers about your company.  NOTE: This is the time to get those prospective buyers to submit their personal finance documents and to sign an NDA.
   
7. Letters of Intent are submitted and the top prospects are chosen.
   
8. Due diligence begins.
   
9. Purchase and sale agreements with terms and conditions are signed.  Transaction closes.

A lot of you plan to sell your business one day.  However, the odds of successfully selling your business are against you.

Did you know that there are ways to stack the odds of selling successfully in your favor?  Today Mike Metzger of Murphy Business Sales and I discuss the steps that you can take to prepare your business to go on the market.

We look at the things that you can do to build value in your business.  We discuss the most common mistakes that business owners make when putting their business on the market.  Mike and I want you to know what you don’t know.  What you don’t know can definitely hurt your business.  Finally, Mike and I share our recommendations for steps that you can take to prepare your business to sell, and then integrate successfully once it’s sold.

I think you’re going to want to take notes!

SHOW OBJECTIVES: THE WHY

• 4 out of 5 businesses that go up for sale, don’t successfully sell.
  
• Of the businesses that close the deal, 80% fail to integrate successfully.
  
• 73% of business owners are unhappy with the results of the sale of their businesses 1 year out from the close.
  
• Over 60% of business owners are planning to use the proceeds from the sale of their business to fund their retirements.
  

KEY ISSUES: Problems You May Encounter:

1. Owners don’t really know how much their business is worth.
   
2. Owners have built the entire business around the owner.
   
3. Owners have failed to build value within their business - value to a prospective buyer, that is.
   
4. Owners fail to run the business successfully once the transaction occurs.
   
5. Owners don’t get the timing right.
   
6. Owners don’t have the right advisors.
   
7. Owners don’t have a communication plan for their team and word leaks.

What You Need To Do - THE HOW

1. Get a valuation by an independent source.
   
2. Consult your financial planner to determine the amount you need to live comfortably in retirement.  Could you manage an earn out, or reinvest as minority owner?  If so, for how much?
   
3. Develop relationships with a broker, attorney and accountant who have this kind of expertise.
   
4. Take a 2 week vacation and don’t contact the shop.  Use this as a stress test. Anything that “broke” while you were gone was a weak point that needs shoring up.
   
5. Find out what the steps are and what the process looks like for your business.
   
6. Conduct an inventory, a cash flow analysis, account receivables over 90 days are considered a lost cause.  Collect on those ahead of time.
   
7. Consider the “curb appeal”.  Clean and spruce up ahead of time.
   
8. Prepare your team, and your customers, for transition.  It will cost you if your key performers/customers up and leave once the deal is closed.
   

Resources:

COVID19, racial reckoning, economic uncertainty, the upcoming election….

Each is a complex, impactful occurrence.  Together - the challenges keep every business owner ready to take up the fight, flight or freeze reaction in our reptilian brains.

Any business owner will tell you that owning your own business is a lot of work.  If you listen to stories of the how and why of different businesses, it will amaze you to hear the twists and turns that a lot of people have gone through to get to that place.

Business owners are as varied as the different types of businesses.  They have different reasons for getting into business - some are moving away from a career they didn’t like, or are moving toward the start of a great idea.  They have different experiences with work, consuming products and financial resources. They also have different levels of tolerance for risk.

But, how can you mitigate your exposure to risk?  Many believe that franchises are the way to go.

Today we look at franchises with one the most successful franchise experts in the country, Gus Iurillo of The Entrepreneur's Source.  Gus will give us tips for choosing a franchise, and what to watch out for.

Failure is possible.  Franchisees do fail.  You have the opportunity to determine what those possible failure patterns are and take steps to guard against them.  Here are just a few:

• Inept franchisees.
  
• Franchisee reluctance to follow the formula.
  
• Misalignment between the franchisee and franchisor.
  
• Lack of funds.
  
• Poor people skills.
  

Gus has developed a process for his clients to follow.  He guides them through the decision making process.  Gus and his clients look for fit, adequate resources, support offered from corporate, etc.

What You Need To Do - THE HOW

1. Do your research.
   
2. Know your numbers.  Determine the amount you are comfortable with risking.
   
3. Look at the market, industry, and franchise ups and downs.
   
4. Learn the lingo.
   
5. Research the different franchises.  Determine which are the recession proof.
   
6. Begin the application process.
   
7. Set up your discovery day meeting.  Bring your questions along with your growth mindset.
   
8. Apply for financing.
   
9. Hire a reputable business attorney (I recommend Scott Simmons.) to review the contracts.
   
10. Get the training and support you need to succeed.
    

Have you forgotten what it felt like to start your business?  I’ve lost count of the number of business owners who have said, “If I had had any idea how hard it would be to get this business where it is today, I’m not sure I would’ve done it.”

Business owners usually nod their heads at this.  Yes, it was hard.  But, you learned a lot.  Many of the lessons learned at that point in the business get lost or forgotten as the company grows.

We’ve talked about innovation and disruption as well as pivots this year.  The pandemic emphasized the importance of scenario planning and contingency plans.  A number of businesses have gotten really creative and changed the way they do business.

How do mature businesses reconnect with that entrepreneurial spirit to reinvent the product, product delivery or the business model to compete in this marketplace?

My guest today is Mavis Tang of Soundé.  Mavis and her co-founders have brought a new product to an old market. I believe in their mission, vision and value proposition.  I invite you to listen to the path Soundé took, and let the possibilities for the future wash over you as you reimagine the business you lead.

This episode is from my weekly radio show on IBGR.Network.  I hope you enjoy it!

• The key Need To Know for an Innovator.
  
• The things that surprised Mavis.
  
• The steps Mavis took to prepare for ownership.
  

• The people Mavis and her co-founders go to when they have questions.
  
• Mavis’s strategy for dealing with conflicting priorities.  It’s all about communication.
  
• The strategies Mavis and her co-founders have for dealing with conflicting opinions.  They respect and honor the vision first and foremost - agreement flows from there.
  
• The advice Mavis offers to others out there who have an idea for a business.
  

Many family businesses come to a place and time where the decision is made to sell the family business.  While many families would prefer to pass the business on for generations to come, sometimes that isn’t possible for unforeseen reasons.

I recommend to all business owners that they actively plan for the sale of their business - regardless of their ideal exit.  Why?  Because it is always great and empowering to have options when you are ready to exit.

This is interview was a part of my weekly radio show at IBGR.Network.  Catch Catalytic Conversations every Friday at 2 pm EST.

Building Culture and Teams

Culture in any organization can be difficult to define, as well as communicate.  The issue of defining and explaining culture in a family business is even more complex.  At the same time, leaders in a family business have a responsibility to not only define and explain culture, but to also equip themselves and the next generation to lead through culture changes.  It’s complicated for the family and for those in the organization outside of the family, isn’t it?

At the same time, the WHY Institute believes that knowing the WHY of the company, it’s leaders and those who make up the organization is an important part of sustaining a family business for future generations.  The WHY Institute founder, Gary Sanchez, was inspired to reach  out to Simon Sinek after his famous TED Talk to ask how a person goes about discovering the WHY.  Simon didn’t know, but supported Gary in his efforts to devise a scientifically sound way of discovering your WHY.

Today I have a conversation with Dan Dominguez of the WHY Institute.  Dan shares his experiences in working with family businesses, and the individuals within those organizations, on discovering their WHY, their how and their what.  Each leads to greater clarity and ability to communicate the mission and vision to employees as well as ideal clients/customers.

Strong Culture is linked to:

1. Happier Employees
2. Greater Productivity
3. Higher Employee Engagement
4. Higher Profits
   

Knowing the Why, the How, and the What of the company AND the people in an organization helps build a strong company culture.

According to the PwC, 2019 Family Business Survey, over 50% of family businesses did NOT plan to pass the business on to the next generation.  One of the reasons was a lack of interest on the parts of the younger generation.  Dan and I wonder if a lack of clarity around Why - for the company and for the next generation, contributes to that statistic.

This show gives you, the Owner/Founder Executive the chance to see how somebody else did it - innovate within an established market.  Jay Carpenter and his co-founder, Alexis Carpenter, had a need, which led to an idea that took them to starting Handley Watches.

Jay shares the journey.  He gives us his “WHY”.  He told us what he didn’t know and had to find out.  Jay will let us in on how they did it - from day one.

Handley Watches gives us a blend of the old and the new, so that we can move, work and play without the weight of connection dragging us down and back.

Seven Hills Electric has seen a few economic meltdowns. This is a family owned business with master networkers. In this episode, Greg and Kyle Harvey connect the dots for us – we can see how networking in the right way led to their most recent successes.

Debra Willis of PPG Solutions, and Karen Larsen of HR TABS, and I have the chance to see this crazy world through the eyes of a third generation family business that survives every jolt the economy delivers.

Takeaways:

1. Seven Hills knows how to pivot. After ’08 downturn:

a. Went from a commercial firm to residential and light industrial.

b. Refocused on new territory from Charlottesville to Richmond area in Virginia.

2. This family business makes decisions as a group and goes with consensus.

3. The Harveys put high value on relationships:

a. They work at building strategic partnerships.

b. Every customer request is handled by the owners, then on the day of service, the owners start deliver instructions to the service teams onsite.

This episode of Catalytic Conversations gives you a chance to weigh the value of a strategic response versus a knee jerk reaction.

No judgment here.  This group of people have a wealth of experience, with the curated wisdom to make those words go down easier.

Jeff Miller and Randy Asbell are sales gurus.  They are business owners who help build out sales teams (Jeff) and processes (Randy).  The two also model collaborative relationships at their best!

Here’s what Debra, Karen and I took away from this conversation:

Norman Company Inc is an amazing commercial construction company in central Virginia…. the model for family business at its best!

This family-owned commercial construction company provides clients in Greater Richmond and surrounding areas with general contracting: project management, pre-construction planning, estimating and scheduling; and negotiated Design/Build services.  The Normans built their business on shared values, delivery of quality products, and integrity.

In the interview, Rob (VP of Business Development) and Will (VP of Construction) Norman discuss the protocols put in place to protect employees, clients, and subcontractors from COVID19 infection.  What we didn’t expect was the level of commitment this family business brings to the job.  Listen in for a glimpse at family biz best practices at work - on the jobsite and in real time.

Two things that didn’t come out during the interview:

1. The Normans had a policy to take everyone’s temperature when they arrived at the jobsite - and, yes, that included the President!
   
2. Rob modeled one of the 3-D masks after we stopped recording.  You have got to see this!
   

Seven Hills Electric is a third generation electrical services company.  Seven Hills has evolved from a 4 partner business started in the 70’s, to a family owned company with three generations currently at the helm.  The Harvey Family had to pivot due to the recession of ‘08.  Kyle discusses the ups and downs of their decisions.  He is open about his choices - going to college, joining the business, and the preparations for the next recession.  Join us for a frank discussion of what has worked for Seven Hills Electric and the Harvey Family.

After our conversation, I suggested that Seven Hills design a special disaster package for their service customers.   SHE could take a look at the damage done in the past from hurricanes, flooding, snow/ice events, as well as wind damage.  That information could provide the outlines of the most valuable features and benefits that would give their service customers an advantage in getting back up and running after a climate event.  Kyle was open to the idea.  My question to you listeners, what can you do to turn a climate event into an opportunity to generate revenue?

If you thought family business was all unicorns and rainbows, think again.  The family business is a source of income, professional growth, AND a major source of identity.  This is part two of an in depth interview about a family business that weathered Hurricane Katrina with mixed results.

Michele Wink, CEO of UP Professional Solutions, is one of five children.  Her father founded an engineering firm.  In this interview, recorded on the anniversary of Hurricane Katrina, Michele tells us about the lessons her family learned about succession, contingencies, and how to build a family identity that can withstand any trial.

Here are Michele’s key takeaways:

1. Have a succession plan from Day 1. Outline terms and conditions.  Document and communicate the plan.
   
2. Hire outside advisors for the hard, and the soft, sides of the business.
   
3. Require each member of the next generation to work outside of the family business to experience success that belongs to each as individuals - independent of the family enterprise.
   
4. The decisions made in the business has had a lasting impact on the entire family- all 3 generations.

If you thought family business was all unicorns and rainbows, think again.  The family business is a source of income, professional growth, AND a major source of identity.

Michele Wink, CEO of UP Professional Solutions, is one of five children.  Her father founded an engineering firm.  In this interview, recorded on the anniversary of Hurricane Katrina, Michele tells us about the lessons her family learned about succession, contingencies, and how to build a family identity that can withstand any trial.  This is part one.  You won't want to miss part two!

Surprise Best Practice: Michele’s parents staged a summer camp at their home for the entire 3rd generation, and started a 3rd Gen Club.  Every grandchild was eligible for the club once he/she could read.  Then, the company was open to those children to learn about the business.  Each member of that generation is close to one another as a result of those practices.  Definitely a win for the Winks!

You’ve been told to take the emotion out of your business decisions.  It makes sense.  If only it actually worked.  We know that making a decision in the midst of extreme emotion is a really bad idea.  But, what happens if the President of the family business feels really strongly about a person (his son, for ex.), or a plan, and can’t separate the emotion from reason?

My guest today is Jay Cowan, a “recovering insurance guy” (his words- not mine).  Jay shares a family business story that is heartbreakingly tragic.  This story is the WHY of Jay’s business, Business Owner Exit Strategies.

In this story, Jay’s stepfather, Glenn, chooses his successor based on his love for his son.  It went terribly wrong.  Glenn needed a coach.  He needed someone to talk through his options, develop a plan to prepare his son for leadership and offer support as he navigated the relationship with his son.

The first time I heard this story, I couldn’t believe it.  If you work in a family business, take the relationship aspect of the business seriously.  It matters.

Listen to Dennis Wagner, SBA Lender for Atlantic Capital Bank, to discover financial tools for family businesses.

We know that many family businesses run short on cash.  We don’t know how much more it costs family businesses when they don’t include the SBA as an option.  There are reasons to take a look at the SBA.  They have 3 tools to offer that may prove to be handy for your family:

1. Loan to acquire a business that has a lack of collateral ( a service firm, etc.)
   
2. If there is a real estate transaction on the table- buying another building, building a new building, then explore the Rent Replacement Program.
   
3. Total partner buyout assistance - this can be a huge help to family businesses in which the next generation needs to buy out family members, but don’t have the capital to do so.
   

Something that may surprise you, Dennis isn’t limited to doing business in Virginia.  He can become part of your team of outside advisors. This is especially valuable if you include him prior to signing a letter of intent (LOI) to purchase a business.