How To Build An Exit Strategy For Your Business
Create a business that the owner can one day exit from with confidence.
Hosted by Kevin Dieny
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[00:00:00] Kevin Dieny: Hello, and welcome to the Close the Loop podcast. I’m your host, Kevin Dieny, and today we’re gonna be talking about How to Build an Exit Strategy for your Business. I’ve got a really special guest with us today, who I would consider to be a fantastic resource for talking about exit strategies with business.
[00:00:17] Kevin Dieny: His name is Kyle Griffith. Kyle Griffith is a trusted M and A advisor for business owners, planning their retirement in the sale of their companies. Kyle is a managing partner of the N Y B B group. For the past 18 years, the N Y B B group has assisted privately held companies in need of merger and acquisition and business advisory services.
[00:00:39] Kevin Dieny: Kyle is the chair elect of the International Business Brokers Association and is the CEO and founder of the M and A, an advisory network for business owners seeking to build, grow, and exit their company. So welcome Kyle, and I’m so grateful for having you on.
[00:00:54] Kyle Griffith: Hey, Kevin, I really appreciate the opportunity to connect with you and, and share some insights with your guests. I feel honored to be part of your program. Thank you for so much for the invite.
[00:01:03] Kevin Dieny: Yeah, and I think a great place for us to get started here, Kyle, is with the very basics. So when we talk about an exit strategy, when we talk about mergers and acquisitions, the sale of a company, what are we, what is that I guess in layman’s terms, what are we talking about?
[00:01:20] Kyle Griffith: So when, when you’re thinking about an exit strategy, one way to look at it, you know, most folks, when you think of exit to think about sale, don’t look at it that way. An exit strategy is in, in the event that you need to transition the business, success the business, have a succession plan in place for a family member or employee.
[00:01:39] Kyle Griffith: You wanna have something in place in case of that event occurs. Also, you could be looking to grow your company, right? You wanna grow your company from 5, 10 to 20 million. What’s your strategy? Are you plan to grow your company in preparation for exit to purchase another company.
[00:01:56] Kyle Griffith: Another exit strategy can be, Hey, you know what? I have a great team here. I wanna do an internal sale, my exit strategy, I’m gonna transfer ownership to some key employees or key management. A lot of people when, when they get involved in a business, they don’t think about what the exit strategy is.
[00:02:10] Kyle Griffith: And, you know, 20, 30 years later, later they’re stuck in a business that they probably could have sold or could have exited, uh, years ago. I like to use the analogy, Kevin. You know, you think of it in the real estate world. You’re not gonna just buy a piece of property without knowing what your exit strategy is gonna be.
[00:02:27] Kyle Griffith: Either you end up in the buy and hold game, you’re buying property to hold and you know, you put it in your portfolio and it stays in family trust and stays from generation to generation, or you fix it, and you’re flipping, you’re doing rehab. So the same thing when you get in a company, what’s your game plan is your plan to hold it, build it up or keep it in the family or go public.
[00:02:47] Kyle Griffith: There’s different ways to exit depending on what your, what your, what your game plan is.
[00:02:51] Kevin Dieny: No, that’s really fascinating to me because the, that there’s so many different options a business could take, you know, maybe. Maybe it’s it wants to success to the, to its family member, to an employee. It wants to sell, it wants to grow. There’s a lot of options or interesting avenues there. So that makes me think, okay, well, how early is it?
[00:03:09] Kevin Dieny: Like life insurance where it’s like well… The earlier you get it, the better off you are. Is it like that where the earlier a business is thinking about it? Cause you mentioned you don’t buy a property before knowing your exit. Is it the same, should a business owner today who maybe doesn’t have the, I don’t know the most confident exit strategy.
[00:03:26] Kevin Dieny: Should a business owner at any point in time be thinking about their exit or is it, you know, when they’re near the exit is it from day two or three of having a business? Where do you, where would you, where do you think a good time to start planning an exit strategy takes place?
[00:03:40] Kyle Griffith: From the very beginning. You, you wanna think of it. And from the end in mind, you wanna reverse engineer what your game plan is, as far as your exit strategy is, and the growth of your business. From the very beginning, a lot of people don’t think about it, cause they’re so excited, right? I have to see a business I just started or I just bought or I just inherited, and you just have so much going on.
[00:03:59] Kyle Griffith: You have to deal with the staff, vendors, customers. In that beginning, just a big rush to get things situated. You deal with contracts, attorneys, leases, and you forget about, you know, what is the eventual goal here? Is your goal, you’re gonna, this business is gonna fund your retirement?
[00:04:16] Kyle Griffith: You’re building a business that’s gonna make X amount that can fund your retirement. Are you building up a legacy for your kids and your family? So ideally you wanna start from the beginning. And reverse engineer. It’s funny, um, I just got out of a Goldman Sachs program. See my cup here. 10,000 small business, a wonderful program.
[00:04:35] Kyle Griffith: The very first day in the class. Now their program runs for four months the very first day. Guess what they taught on the first day?
[00:04:45] Kevin Dieny: Have an exit, have a, have the end in mind? Or?
[00:04:48] Kyle Griffith: Yeah, what’s your exit strategy? Right?
[00:04:51] Kyle Griffith: So you’ve been through a whole course of four months, you know, figuring how to build your business, how to, how to grow your business, how to build a sustainable viable company.
[00:05:00] Kyle Griffith: Right, has your exit plan changed? If it hasn’t changed, whether it’s changed or not, what are you gonna do? What are some things you’re gonna track? What some metrics you’re gonna track to make sure that you’re building a company that’s sellable, a company has value, and you have people in place who run a company if you’re not around.
[00:05:17] Kyle Griffith: So you can step away, you can go on vacation, you can do some cool things. So it’s, it is very important because, I speak with many clients that are, you know, they can’t take a vacation. They’re locked in. They don’t have anyone to run the company and, it’s things you have to think about in the very early stages of your company.
[00:05:34] Kevin Dieny: Wow, yeah, so you mentioned there’s a lot of things in that, even in what you just said, I’d like to unpack even more. The first thing I’d wanna go into would be, okay, so let’s say a business owner, someone who’s launched the business at any point in time, wants to have a very solid exit strategy.
[00:05:52] Kevin Dieny: What would you say is one of the first steps on that journey on that path to, to having an exit strategy where they’re gonna feel confident about it, know what maybe what it is. Maybe have some backup options to it. What, what would be the first step in that path to getting an exit strategy?
[00:06:09] Kyle Griffith: Well, it, it depends on where they are at with their business. I ideally, you, you want to have that conversation with your financial planner, your financial advisor, your wealth advisor, you know? So if your goal is you need a million dollars to retire and your company’s valued at $500,000, then there’s a gap of five hundred grand, right?
[00:06:29] Kyle Griffith: So one of the first steps you wanna do is get an evaluation, right? You need to assess where you are. Right, I like to use, I like analogies. Kevin just, just put things in perspective. So every year, what do you do? You get a checkup, right? You get a physical, right? So if your goal is to be chiseled like Christiano Ronaldo, and you go to the doctor and you’re a little bit lumpy.
[00:06:50] Kyle Griffith: Right, the docs gonna say, you need to work out, lose weight, and you put a plan together. You get a gym membership, you start eating right. And you get to be Christiano Ronaldo. Now, if your goal is not to be Christiano, you want to be, you know, just in shape that you put a, a plan in place. The same thing with your, with your company.
[00:07:07] Kyle Griffith: You, you want to, the first step you wanna get evaluation of your company, determine what it’s worth. And then part of that plan is let’s say your exit plan is to sell your company in five years. Your companies worth 1 million today. And as part of that assessments, we do different assessments. We do what’s called a value gap assessment.
[00:07:27] Kyle Griffith: So with that value gap assessment, we will assess what your businesses were today. And we will discuss various key value drivers. So if you take action, if, if you take these action steps, your business can go from, let’s say it’s 5 million today to possibly 10 million. Right? So here’s the key, the key question.
[00:07:46] Kyle Griffith: Do you wanna put in the work to get it to 10 now? Or does it make sense for you to exit now? Because it, in some cases there are business owners that have other opportunities. They have other motivations that could be investing in real estate, other businesses, relocation. So there’s a, an opportunity loss.
[00:08:05] Kyle Griffith: So if you stay growing your company, you can lose out other opportunities. So it depends on that individual. For some, it makes sense to exit right away or, and others maybe wanna stick around. Build a company to a high evaluation and, and exit. But one of the first people you wanna speak with is your financial advisor.
[00:08:24] Kyle Griffith: There’s also some tax considerations as well when you start a company. So having those conversations with your, with your, an accountant would be definitely my, my recommendation.
[00:08:34] Kevin Dieny: Yeah, that’s that’s fantastic. And, uh, man, so a, a question that comes off that right away in my head is, you know, I, I know that it’s complex. I know that it’s a lot of subjectivity around the business and when it would win and, it’s the owner up to the owner to decide, okay, is this what I want?
[00:08:49] Kevin Dieny: These being my goals is this what I want in my life? Opportunity costs, you mentioned, there’s other avenues to explore, but I guess in terms of like the basics again, what are some of the things that a, a company would say. Well, this is how I value. I’m going to value a business. What are some of the factors or levers or, or just general things that go into how a company is valued?
[00:09:12] Kyle Griffith: Kevin, that’s the money question, man. That’s the money question. That’s the number one question, what’s my business worth? And it’s like a picture it’s like the value is in the eye of the beholder, right? It’s the valuation is just like that. It’s a picture. It’s art, it’s more of an art in a science.
[00:09:29] Kyle Griffith: There are, I can go very deep on this if you want. I can keep it high level as well. There are multiple factors that goes into the valuation. Majority of buyers, the first thing you wanna look at is the financials, right? Buyers are looking for some, looking at the EBITDA, which is earnings before interest taxes, depreciation, and amortization, and essentially wanna see how profitable the business is.
[00:09:52] Kyle Griffith: So you can get away from the financials. You have to have clean financials, even projections at times, right? I would say maybe 70%, 80% of the valuation is based upon the financials. The other aspects is more stuff that you can’t see, more Goodwill intangible. So let me, let me give you one that you understand. Multiples are, is assess is basically a risk that multiple, right?
[00:10:20] Kyle Griffith: When you value the business part of it, you do a multiple of the EBITDA. That multiple is a risk factor. The higher, the multiple, the lower, the risk. The lower than multiple the higher the risk. Right? So if you’re working in a H V A C company, 10 million, you have recurring revenue, a lot of good will.
[00:10:43] Kyle Griffith: You have good, good reviews. You have good key people, that’s a, a low risk. Lower risk opportunity. So a buyer will be willing to pay a little bit more because they can feel rest assured they have a high confidence that the business is not gonna fall apart once I take the business over. Right, now on the flip, in the flip end, if you don’t have contracts, you don’t have your current revenue.
[00:11:08] Kyle Griffith: You have some contractors that doing some work on the side. There’s a lot of things happening. A buyer will look at that, you know, there’s some risk that’s involved. So I’m not willing to put my money out. So I’m going to pay you a lower multiple. So the, the valuation has a lot to do with that.
[00:11:24] Kyle Griffith: Another thing that factors into the valuation, Kevin is the growth opportunity, right? So the buyer is going to essentially value the business based upon the historical performances of the company. Anything after that is their profit. And the re that’s that’s their return. They’re gonna bring, they’re gonna infuse capital in the company.
[00:11:49] Kyle Griffith: They’re gonna bring teams. They’re gonna bring the advisory team. They’re gonna bring their wits, their knowledge, depending on who the buyer is. And their goal is, wow, you have made you have a $10 million company. That’s wonderful. I love what you did here. I love your business, but I want to, I wanna 10 X this company, I wanna go 20, 30, 40 million, but guess what?
[00:12:09] Kyle Griffith: I’m putting, I’m investing my capital. I wanna get a return in my investment, right? That additional revenue and performance, and profitability of that company, that’s a buyer’s benefit. So that’s what they look at too. So they may be willing to pay a little bit more because there is a growth factor’s a growth strategy.
[00:12:31] Kyle Griffith: So if you were to you, not a buyers ask the owner. If you were to stick around 5, 10 years… what will you do to grow the business? And if you have that already laid out that the buyer can just come in, plug and play. The chance of you get a much higher, multiple increases. One other thing, Kevin, I’ll give you one of the bonus.
[00:12:50] Kyle Griffith: There’s not a lot of great companies. There are few unicorns. I’ll give you one example of a unicorn. It just happened recently. Twitter. Twitter got an insane valuation, right? Now not every company is a Twitter or a WhatsApp, right?
[00:13:07] Kyle Griffith: However, one key reasons that that can inflate a price is demand. If you have two buyers that are essentially bidding for that one particular business or multiple buyers bid, if one particular business, let’s say it’s two competitors, you have three H V A C companies in this one area, one is being sold and you have two other competitors that, that are buying a business.
[00:13:33] Kyle Griffith: Those two buyers, the one that doesn’t win that bid knows that now they’re gonna have a bigger competitor. That competitor’s gonna get probably the best employees. They’re probably gonna get materials at a lower cost. You’re gonna get a lot of value between both companies and it’s gonna be a, a, a challenge for the third HVAC in that marketplace to survive and gain traction.
[00:13:55] Kyle Griffith: So the other company can essentially try to outbid the other competitor, just not to lose out. So they want to pay a little bit more cause they don’t wanna lose out on the deal. So there’s a couple things that factor valuation. There’s multiple others, but you know, I’ll stop right there.
[00:14:10] Kevin Dieny: No, I think those are really interesting because, if any one of those stand out, if I’m listening to this and one of those stands out and I’m like, oh, that would be that’s an interesting factor I should consider. Right. Then, then maybe I’ll do something about, I, I read when I was looking this up this topic.
[00:14:23] Kevin Dieny: I was just researching this topic. I found a lot of times. It was recommended that a business, get evaluation even when they’re not in the market to sell just yet, because a business analysis, an, an evaluation per se value analysis would tell them, well, if I did have to sell today, this is what, you know, my weaknesses, my strengths, my multiplier might be, these are areas where someone may say, well, you know, this is just you.
[00:14:49] Kevin Dieny: If I was a buyer, this would just. Be a little sketchy to me or a little risky to me. And so the, the owner then could be like, Hmm, okay, how can I shore this up? If the plan is, far off, but maybe today that analysis could be useful. And so I was like, well, that that’d be kind of cool.
[00:15:05] Kevin Dieny: So how, how often, how costly, how often are these valuation checkups? Would it be something a business could afford to do often or is it something they may do, sparingly because it can get costly. I wasn’t sure.
[00:15:17] Kyle Griffith: Here’s the thing, here’s the thing. Kevin, I’ll give you another analogy. I’m assuming you have a car and there’s a, a schedule for oil change for check-in, we have oil change, you have the maintenance and all that. You have a schedule, right?
[00:15:31] Kyle Griffith: You just go into the, to your mechanic or your dealership for an oil change and what happens they find something. Oh, by the way, Kevin, your alternator is bad, or you didn’t know you have a nail in your tire? Now, had you not gone to get that service? What would happen? You could have been on a trip with your family, the tire blows out what happened, right?
[00:15:49] Kyle Griffith: So it’s the same thing with your business, right? As far as valuation goes, there are different types of valuations, the different levels to evaluation. You wanna get some sort of assessment once a year. So we do something that’s called a price valuation analysis. That’s something you can get done once a year.
[00:16:07] Kyle Griffith: A full blown, complete appraisal and valuation. You may wanna do that every five years, it can get a little bit costly. But I would say, five years for a full valuation, but every year you wanna do a, a SWOT analysis. You wanna do some sort of assessment that’s to make sure you’re on track. Right? It’s like, you have a plane that’s going from Denver to LA.
[00:16:31] Kyle Griffith: Every time, every few seconds there are course corrections, right. To make sure the plane’s on the right track. So the same thing for a company, you wanna make sure that you’re assessing your company regular. So you can make these course corrections. If your goals are exit and, and create a legacy for your family, you wanna have these, these cost corrections.
[00:16:46] Kyle Griffith: So you can make sure you get your goals accomplished.
[00:16:49] Kevin Dieny: Okay. Let’s say you do want to have an exit strategy and it does involve handing off a sale. You know, something, it could be anything, I think really how do you make that exit smoother? You know what I mean? Like there’s the, the sale and making sure it’s valued right.
[00:17:06] Kevin Dieny: Which is getting the most for it and making sure that it looks great. But I think there’s also that aspect of okay, the company, if it’s still gonna persist after the exit, how do you make that transition from maybe you as the owner to someone else or, you know, how do you make that process more smooth?
[00:17:23] Kevin Dieny: I would imagine that that’s part of it is like the transitional point.
[00:17:28] Kyle Griffith: Yeah, so it’s, it’s a lot, it’s a lot to it. So it’s probably easier if I give an example. So right now I’m representing a metal distribution company. And when the client first came to me, the owner was very much involved in the business and his client wanted to exit and sell the company. So he had a VP and slowly but surely he started relinquishing some of his responsibility to the VP. That VP’s a couple years from retirement.
[00:17:54] Kyle Griffith: So anyone that’s buying a company, the VP’s gonna, can potentially stay with the company and he does majority of the work where the CEO does general oversight. So one of the key things to answer your question, Kevin is to make sure that you’re replaceable and it doesn’t sound great. We all wanna think we are replaceable.
[00:18:11] Kyle Griffith: Right, one thing that, you know, there’s no one else can do a great job as me, but sometimes, you have to maybe fire yourself or give yourself a longer vacation, right? Because sometimes you can be holding the company back.
[00:18:24] Kyle Griffith: I’ve had a couple clients where they have grown their business and they come to me and want to exit, they’ve grown their business at 2 million or 5 million or whatever. And the sales just plateaued. Like they can’t get the business to the next level. And it’s all about the mindset. Mindset has a lot to do with it. You have to figure out, okay, so what do I need?
[00:18:42] Kyle Griffith: What tools do I need? What resources do I need? Who do I need in my team to get my business on the next level? And sometimes it may start with the CEO. It may need a CEO change. Get some fresh blood in, in the company and, and get things going and, and, and move in the right direction.
[00:18:56] Kyle Griffith: So sometimes you see folks founding the companies, they start as a founder, as a CEO and then slowly they, they bring in someone else. Cause they are great at building companies.
[00:19:05] Kyle Griffith: So they build a company and move on to the next one and they have a next one. And then they have a portfolio of 10 companies and that’s the smartest way to do it. You just get yourself out of the picture. Cause when you’re in that bubble, working in your business, you don’t see from the outside.
[00:19:18] Kyle Griffith: So you wanna always be working on your business or not in your business. So one of the key things is getting someone else. I would say out of every question I get from buyers, they wanna know about the key personnel and management. Who’s staying with the company. Give us a background. What’s a turn, what’s a turnover.
[00:19:35] Kyle Griffith: How often, you know, how long have they been with the company? What’s the, the ages. Cause if their key personnel are retirement ages, the chance that I may buy the company and then they move on. So the personnel aspect, the human cap aspect is one of the most, most instrumental parts in getting the deal done.
[00:19:53] Kyle Griffith: So you talk about a smooth transition, get a team in place. And Kevin, this works for startups as well. So I do work with a lot of lenders and bankers. And some of these, some of these bankers invest in early stage companies. They know that you just started and you may not have a lot of profits cause you guys going, but they wanna know who is on your team.
[00:20:15] Kyle Griffith: Who’s gonna help you. What’s your infrastructure. What’s your build out. What’s your game plan. What’s your business plan, what’s your growth plan? What’s your exit plan, right? They wanna know who’s in your team can help you execute. So you want a smooth transition. Make sure you have some good people working inside the house and outside of the house. Outside team, you wanna have some great advisors, attorneys, you know, business advisors, consultants, and, and so on.
[00:20:40] Kyle Griffith: So, um, I know it’s a loaded answer, but essentially I think people don’t put the importance of that, even though it’s two companies, another transaction, those two companies are run by people. People is the most important factor. It starts at the top and it works all the way down. Everyone has to be on the same page, have great values, good vision, and a great culture.
[00:21:03] Kyle Griffith: And if you have a great culture, a company has a great culture. It’s where the CEO can step away, right. Go to Punta Cana for, for two weeks, come back, and everyone is working. If you go to Punta Cana, Kevin you come back, everyone’s partying and celebrating and you know that it’s not gonna be a smooth transition. There’s gonna be some problem.
[00:21:21] Kyle Griffith: So getting some good people in your, working on your team is way which what you wanna do.
[00:21:26] Kevin Dieny: Wow, that, I think that’s such a powerful statement of focusing on, the people, the teamwork, the people that are in there. Okay, so this isn’t necessarily like a, an argument against what you said. I think it’s exactly what you’re saying, but it does make me think, man, if you spend the time to really create a really good team, I think there’s that feeling of like attachment to them.
[00:21:48] Kevin Dieny: So I think there’s an emotional attachment to the business. I like describe it as like blood, sweat and tears went into this sometimes. And then you forge these relationships, you create these teams, you help them become the managers and the leaders in the business.
[00:22:01] Kevin Dieny: And then that point comes where it’s like, okay, now it’s time for you to step back. And it’s like that emotional anchor has been created there. So how, how emotionally are owners managing that ability to detach a little bit. And either sell the business or make that succession.
[00:22:17] Kevin Dieny: Cause I think that’s, that’s an aspect of it that would be really hard besides just, you know, executing the plan. There’s like an emotional feel there.
[00:22:25] Kyle Griffith: That’s a fabulous question, Kevin. So I sold a fulfillment center and my client who sold the company, he had a key employee and she’s a go getter, man. She’s like, let me do this, let me do that. But my client’s very conservative. He has been running a very clean business, no debt. He’s been through the recessions and he is been doing very well.
[00:22:47] Kyle Griffith: So it’s like, we have a good thing going, you don’t wanna change it too much. You know what I mean? It’s like, get a good thing going if it ain’t broke, don’t fix it, right. However, it’s good because I mean, you have consistent revenue. You can kind of predict where the company’s gonna go because you have a long historical sales, but looking back at it, maybe you could have done a little bit better if there are certain things could have been implemented.
[00:23:10] Kyle Griffith: To answer your question, so let me twist it around a little bit as a, as a leader and a CEO of your company, you have to empower your employees. You have to empower your staff and you have to let them know that their, their voices is heard and your voices is cherished and you wanna constantly gain feedback.
[00:23:28] Kyle Griffith: There’s one good quote, I’ll give you, “The more input gives better output.” So the more information you give back, the more data as a CEO, you can process and make the decisions. The buck stops at you, and you have to be a quick decision maker and be decisive and decide what direction you’re gonna go in.
[00:23:48] Kyle Griffith: So if you are planning on exiting your company and you have some key people, you have to have that conversation with them and start empowering them. You’re not gonna tell ’em I’m selling the company, but say, Hey, Hey, Joan you know, I really appreciate the years you’ve been working with us.
[00:24:02] Kyle Griffith: You’ve been some great things here. You’re really a natural at doing this, and I know you wanna be challenged here. I wanna give you the opportunity to explore your career with our company and provide some more advancement.
[00:24:14] Kyle Griffith: I’m gonna create opportunity for you or career path and let them feel excited. Give them some opportunities to work and, and build them up. They don’t know that your plan is to either transition to coming to them or have them be a key person moving forward.
[00:24:27] Kyle Griffith: They don’t know that at this point, but you start empowering your staff and getting them prepared for, for a potential transition and relinquishing some of that power. It takes away anxiety and that emotional attachment to that one particular employee or that job that you think where you’re irreplaceable.
[00:24:44] Kyle Griffith: I’m the only person who can run the business, like I can. And something you need coaching. Another thing you can do is get a board, put together an advisory board, get some outside opinion and some feedback. Sometimes me, or you might educate our client and say, Hey, John or Jane, this is what you should do as far as the next best steps.
[00:25:03] Kyle Griffith: And they may not listen, but one of their peers, like if another HVAC contractor tells another contractor, Hey, this is what I’ve done. It’s worked for me. They’ll quick a listen. So getting on a board, getting feedback from other peers, what they have done can release that emotional anxiety and attachment to staff and tasks that you have done, that you have wanna, you know, get, get rid of.
[00:25:26] Kyle Griffith: And one other thing, Kevin, cause I’m really passionate about this. I wanna share. So one other thing, and you did mention this a lot of, business owners they’re businesses are their identity. So one of the reasons that I may have this attachment is that, Hey, when I sell, I’m known for being, you know, Dr. Smith.
[00:25:46] Kyle Griffith: I’m known for being whatever the case may be. Right? When I sell a company, you have almost like a mistaken identity. So part of that attachment is, Hey, this is what I’ve been doing all the years and what I’m gonna do next. So a lot of these clients, like we work with psychologists and so on.
[00:26:02] Kyle Griffith: We wanna think about, okay, what charities we wanna support? Are you philanthropic? What you gonna do next? Start thinking 5 and 10 years down the road, all, all goes back to the exit plan. Like, why are you, why are you doing what you’re doing beginning to begin with? Or how are you gonna transition out?
[00:26:15] Kyle Griffith: So you wanna have them thinking about fishing, golfing, all the fun stuff, playing with the grandkids and all that, all that great stuff. If you’ve been a dentist all your life, it’s tough to kind of detach from that world. But now you can be a spokesperson. You could probably work with a charity.
[00:26:31] Kyle Griffith: You work with a trade association, you could be in the same space, but now you’re not running the company. You’re still doing what us in the same industry, but in a different capacity. So there’s different ways to go about it.
[00:26:43] Kevin Dieny: Wow, so let’s say someone puts it off. They don’t have an extra strategy and let’s say some crisis happens, anything. Where they now have to figure it out in the 11th hour, maybe the owner, something tragic happens to the owner. You know, I don’t know, but let’s say the business immediately has to try to figure this out from a, the disadvantage of they haven’t had the plan or the strategy built along the way.
[00:27:10] Kevin Dieny: Why is that such a bad place to be?
[00:27:13] Kyle Griffith: So, yeah, it, it is, it is a bad place to be. I’ll give you a story. So we, we sold a contract in business and I wanna protect the innocent. In this particular scenario, the owner passed away and the, the son inherited the business. Now the owner had no exit plan, nothing in place. The son worked in the business, but didn’t want to be the business.
[00:27:37] Kyle Griffith: He was just working in a business. And that happens in a lot of cases. I’ve had multiple clients and scenarios like this. There is a family business. I wanna be there for my family. As soon as the father passed away, he wanted sell. He wanted to sell a company and be out. So the disadvantage to that is that you now you’re selling from an unleveraged position., Where it’s a fire sale, you have to get out.
[00:27:59] Kyle Griffith: A key person is no longer with the company. That CEO has a lot of relationships with the marketplace customers, vendors, and a lot of good will. So you lose out on that. And then another thing every day that passes the value that’s decreases right? There are, I was actually working with another company in the fitness space.
[00:28:22] Kyle Griffith: Where, the same thing, the, the, the father passed away. The son is in the business. The father was so relational, like was a really good charismatic person. Like everyone loves the father. And when he, unfortunately, when he passed away, they had like a mini-mutiny in the company because they didn’t respect the son.
[00:28:43] Kyle Griffith: And this client he’s gonna phone me. He’s crying, like, you know, these guys are not listen to me, you know, that’s, that can be a major, a major issue. That’s a company in a distressed situation and selling in that situation nothing good is gonna happen. Nothing good. Meaning that it’s not gonna get the full value of the company.
[00:29:01] Kyle Griffith: Now, if the father had an exit plan in place. I wanna make sure my son is taken care of. He may not be the best person to run the company, but part of the plan is I’m gonna have some insurance. So an event like, like I pass away or disabled, whatever. That money can go towards hiring an interim CEO, hiring an advisor, hiring someone that we can trust to work with the family and the business to, to a potential exit to sell or wherever the case may be.
[00:29:27] Kyle Griffith: So it’s not a good situation, but we have had multiple cases. We have helped clients in the worst case scenario where the CEO of the company passed away and the families left and another situation can be where they are partners in. The business is multiple partners. and one partner can physically can no longer win the company or is sick disabled, or unfortunately passes away.
[00:29:51] Kyle Griffith: Now the wife, or it could be reversed, could be the, the could be the, the wife running the company, the wife passed away, now the husband, is involved. The other partners may not necessarily wanna work with the spouse cause they don’t know their business. You wanna have some sort of buy-sell agreements in place.
[00:30:05] Kyle Griffith: So the event likelihood, one of the partners passed, something happened. They can take care of the family, they can buy out that partner and take care of the family. So it’s extremely important to have some sort of plan in place because in the unlikelihood that something happens at least your family. Most importantly, your family’s first that’s they’re taken care of.
[00:30:22] Kevin Dieny: And, and in the fire sale environment makes me think of a, another question I had, which was okay. A business has the exit strategy, but you know, in your experience, how long does it, how long let’s say the business decides it’s gonna sell, how long does it usually take to, to have that succession carry out of the sale or the exit happen?
[00:30:41] Kevin Dieny: Is it like a, wow. We can, businesses can sell within a month or is it like, usually it’ll take about three to six months. Is it like a multi-year process? What, what does that kind of look like? Time wise?
[00:30:52] Kyle Griffith: Hey, Kevin, you, you hit you hitting all the key questions, man. So the first question, what my businesses are worth, how valued and how long does it take for me to sell the company? Yeah, those are the top, the top two questions that we get. So the best way to answer this is it depends. So I have sold companies in weeks.
[00:31:10] Kyle Griffith: And I’ve taken years to sell some companies. It really depends. So I’m, I’m part of the committee on the International Business Brokers Association that, that we do these market pulse reports. I’ll be happy to share it with, with your audience. We survey intermediaries, investment bankers, M and Advisors every quarter.
[00:31:27] Kyle Griffith: And one of the questions we ask them, you know, how long does it take for you to close. How long does it take from letter intent to close? What are the multiples? So we have a lot of data. The data we have gotten from, we get about 400 folks to take the survey every quarter. And it’s pretty consistent with, within our company as well.
[00:31:45] Kyle Griffith: We are based in New York, we do deals across the country, but we are based in New York area. 40% of deals close within seven to nine months. Now that number can be very skewed because that 40% is sellable companies. Meaning that, there’s three things that really determine whether our company’s sellable or not.
[00:32:07] Kyle Griffith: Number one, the business has to be ready for sale. Ready for sale, meaning that it’s priced right. Has good key people in place, recurring all the stuff we talk about. The business itself, which is a big one, it has to ready. It has to be packaged, ready to go. Everything, a buyer comes in, we up a data room. Are we good to.
[00:32:31] Kyle Griffith: Okay, number two, is that the owner has to be ready. Cause I’ve been on transactions where we have gotten full price and the owner’s like, Hmm, I don’t know if I want to sell anymore. I think I want give it a shot. Right? So we are talking about the emotional attachment and seller’s remorse. The owner of the company has to be ready to move on either into another company or relocate or whatever their reasons are is for retirement.
[00:32:59] Kyle Griffith: The third major factor is that, is the business ready for the market? Is there a market for the company? Those are the three factors. So when we assess our clients, we assess it on those three things.
[00:33:13] Kyle Griffith: If we have those three, sometimes we have two outta three, which is okay. Those companies take about seven to nine months to get done, or even less. Now selling a company there’s a lot of variables. So a lot of stuff that’s out of our control, right? Things happen. People get up and quit, right? I’ve I’ve been in working in deals where the owners found out that there’s a part.
[00:33:37] Kyle Griffith: I was working a deal. One time the partner was stealing from him and providing services outside the company. Deals where there were no contracts with employees, through noncompete, things happen. A lot of things happen with the business itself. And the best example of that is COVID. When COVID hits, we had multiple deals on a contract and some of them, we had to take off, take off the market and wait.
[00:34:00] Kyle Griffith: So things come up, right. Deals will get done. Some of them is outta control. There are in internal factors that affect the closing and sale of a company. And there are external factors, COVID being one of them. The other fact about it, there’s the is two parties to a sale. The buyer, right? You have a buyer in the middle of buy a company and a wife and husband can say, you know what John.
[00:34:22] Kyle Griffith: I don’t know about this. I don’t think it’s a good idea. Let’s just keep on doing what we’re doing. Let’s find another company, right. Or the bank can the bank usually underwrites and approve these loans? The bank can come back. You know what? It’s been some time since we agreed to a particular offering, term sheet and rather, um, we need some insurance.
[00:34:44] Kyle Griffith: We need this, we need, you know, things come from the bank, the funds. Funds can no longer be available. A lot of things happen. So that factors into the sale price, to the timing. But I would say about 40% in our research, 40% gets done in about that’s seven to nine month range. And that’s the timeline when we say to our clients, we want to get you out here and say, we want to get you sold in seven to nine months.
[00:35:10] Kevin Dieny: And you mentioned the buyer and I wanna focus this on like the exit strategy of the business, but I think if for a moment, if you could give us the opposite perspective of the buyer, I think that helps the sellers too. From the perspective of the buyer, you mentioned, there’s the value, there’s the things that, you know, that are through the analysis that are being determined too.
[00:35:29] Kevin Dieny: But what are, what are some other considerations a buyer has, what does the buyer go through in terms of being like, oh, I wanna buy a business. I don’t, where do I start? Right. Where do I, how do I start that? So what does that other side look like?
[00:35:41] Kyle Griffith: Hey Kevin, that’s a second podcast, man. We have to come back, hah hah hah. We gotta come back. That’s a big one, so, okay. Let me break it down. High level for you real quick. So as a buyer, three things are important. Cashflow, number one, you’ve got a family to support, right?
[00:35:59] Kyle Griffith: So you’re looking for businesses with financials and financials that are, you don’t always get audited financials, but a business that’s already has valuation done or has a quality of earnings report. So you wanna get clean numbers and you wanna make sure the numbers that represented is what it should be and what it is.
[00:36:19] Kyle Griffith: And some of it, we spoke about a little bit earlier. So as a buyer, you wanna minimize your risk in the deal, minimizing the risk as you, you know, talk about financial due diligence, making sure the numbers is what it is. There’s legal due diligence, has a company been in any, any lawsuits, sexual harassment cases, any issues with any, any contracts worker’s comp.
[00:36:44] Kyle Griffith: So you have a legal due diligence, which is equally long list as a financial due diligence. You also have, you know, a human capital due diligence, right? So you inherit, you’re buying a company with five people, five key people that if those five key people, well, let’s say it’s just one person. This one person, if this one person walks away, the entire value for the company goes with that one person.
[00:37:08] Kyle Griffith: Right. So making sure there are some stay agreements. Some these, these employees are incentivized to stay with the deal cause you, you are minimizing your risk. So that’s a conversation you have for the owner. Either the owner bonuses the employees, or part of the proceeds or the, the buyer plays a part in that. In some cases I’ve done deals where the buyer puts together a really nice package for them, including insurance benefits, maybe a car.
[00:37:34] Kyle Griffith: Different things incentivize that employee to stay with the business. I think that’s probably one of the biggest ones outside of real estate. Real estate, it can be, we can be here talking other hours about real estate alone deal with, with landlords. So let’s say business is great, wonderful business, but the landlord is refusing to re renew the lease because he’s gonna essentially break the whole pro his goal.
[00:37:58] Kyle Griffith: As the lease is up in a year, I’m gonna tear it down and build up residential condo. Because that’s the best use for that property location, right. So deal with landlords and here in Manhattan, have some of the toughest landlords. I’m sure I have a lot where you’re at everywhere has because the landlord’s been hit hard during COVID.
[00:38:15] Kyle Griffith: As a buyer you wanna minimize risk, making sure you get all of your questions answered and you have some sort of representation. You have someone like myself or some intermediate that can help and get those questions answered. The, the third thing is okay. What are you as a buyer? What are you gonna bring to the table?
[00:38:35] Kyle Griffith: What’s your value in this transaction? What experience you have, what transferable skills you had have, who, you know? So we spoke earlier about the sellers, infrastructure and your team and so on, who is the buyer’s team? Who are they? Who are you being advised by? Who are your coaches? Who’s gonna help you take this company from five to 10 to 20.
[00:38:56] Kyle Griffith: Are you gonna hire a fractional CFO? Are you gonna help? Are you gonna have someone help you with the numbers with your due diligence? So from the buyer’s perspective, there’s a bunch of questions you can ask a seller, like why they sell in and making sure you understand the numbers. But most importantly, you wanna minimize your risk.
[00:39:12] Kyle Griffith: Cause it’s your is an investment, right? You have to pay those loans back and you wanna see, okay, how are you gonna grow the company? What’s a growth strategy. Now, one thing that buyer can ask a seller is have you done an exit plan or have you done part of the exit plan is a growth strategy, right? So the growth strategy, which is part of the exit plan is that I have a 5 million company.
[00:39:34] Kyle Griffith: I wanna get a 10 million company. And here’s what I I’m gonna do to get into 10. Right? If the seller can have that plan ready and available to present to the buyer. Hey, John, Hey, Sue, I’m looking to retire, but you know what? If my son, Eddie was gonna take the business over, this is a plan we had to get the business to the next level.
[00:39:56] Kyle Griffith: I’ll be happy to help you for the next year or two to initiate this plan and get it going. You know, so all the key things that are very important.
[00:40:05] Kevin Dieny: Just to highlight some of the things right. Which is that we’ve talked about, which is like, okay, what’s an extra strategy, why it’s important, what factors to consider. How often to analyze interpret, kind of get the business, checked. How to look at it from the different perspectives. Considerations about detaching letting it go, what the owner’s plans are, what the growth plan of the business is.
[00:40:27] Kevin Dieny: I think we’ve really covered a lot of stuff in this episode. So Kyle, thank you for coming on. Is there any way people can reach out to you, connect with you, find more about you. If they have questions about this or anything related to this that they can find your company or, or be able to find you?
[00:40:42] Kyle Griffith: Yeah, most definitely. And I appreciate you asking that. So my company is called the N Y B B group N Y BB group. And that’s the website? The N Y B B group.com. That’s thenybbgroup.com. All of information is there. We work with buyers, work with sellers. We do business valuations. Exit plans as well.
[00:41:05] Kyle Griffith: We are a full service mergers and acquisitions company. I started another company two years ago called M and A network. So I’m a CEO founder of that group. And I did that to help and educate business owners that are planning to grow their company in preparation for exit. So with that company, I got 40 advisors that work with companies from startup to exit and, um, M and A is, eminaenetwork.com.
[00:41:29] Kyle Griffith: So it’s E as in Edward, M as in Mary, I as in India, N as in Nancy, A as in apple, E as in Edward dot com, eminaenetwork.com. You can find more information about that. There you can Google my name, or look me up a LinkedIn, like how Kevin and I connected, could pretty much find me everywhere. Thank you, Kevin.
[00:41:47] Kevin Dieny: Awesome. Thank you. So, yeah. And thank you so much, Kyle, for coming on, this has been fantastic exploring a topic. I have not a ton of experience in, but I think it’s something so valuable that every business, and everyone, people in the business could be looking at and, and getting a better understanding for.
[00:42:01] Kevin Dieny: So I appreciate you coming on and thank you for the time. I hope we connect again. So thank you, listeners and hope you got a lot out of this.
[00:42:08] Kyle Griffith: I appreciate you as well, man. This is awesome. Thank you. Thank you. I appreciate it.