ValuationPodcast.com - A podcast about all things Business + Valuation.
ValuationPodcast.com - A podcast about all things Business + Valuation.
Selling Your Business: How to Negotiate the Highest Price
Hi, Welcome to ValuationPodcast.com - A podcast and video series about all things related to business and valuation. My name is Melissa Gragg, and I’m a financial mediator and business valuation expert in St. Louis, Missouri.
Today, we are talking about selling your business: How to negotiate the highest price with Jamar Cobb-Dennard. He is a business broker and M&A attorney, and selling businesses is his expertise. Over the last few years, Jamar has completed over $12M in small business deals. He also hosts his own podcast, "What's It Worth?", a business podcast discussing what your business is worth, how to sell a company, and how to buy businesses.
Hi, welcome to valuation podcast.com, a podcast and video series about all things related to business and valuation. My name is Melissa Greg , and I'm a financial mediator and business valuation expert in St. Louis, Missouri. Today we're talking about selling your business and how to negotiate the highest price with Jamar Cobb Denar . He's actually a business broker and an m and a attorney, which I think is pretty important in this process. He actually selling businesses is his entire business. So over the last few years, he's completed over 12 million in small business deals, and he also owns his own podcast. What is it worth? It's a business podcast about what your business is worth, how to sell a company, and how to buy businesses. Welcome. How are you?
Speaker 2:Thank you very much. Uh, I'm delightful today,
Speaker 1:<laugh>. Well, this is awesome. So, we're gonna talk about something that I think business owners don't necessarily prepare for, and what I mean by that is that they typically are not necessarily looking to sell their company. They're looking to grow their company or acquire other companies, but they don't envision this retirement process. I think that that is kind of not necessarily , um, the best long-term planning, right? So I think that even if you're not planning on selling your company, you should create companies with the end in mind and how to sell it and start from the beginning to do that. But even if you don't want to prepare, one thing that I'm seeing is people are being approached by buyers. So like, just a simple start of the conversation is, you know, what are some important steps to even get prepared when you're selling your company that maybe you wouldn't think about or maybe it's easy to do, right?
Speaker 2:Sure. And what you mentioned about , uh, beginning with the end in mind is the most important piece that most business owners forget and don't think about , uh, forget or don't think about. So business owners are great at running their companies, and that's what they've essentially been , um, uh, been in the business of, is running a great business producing cash flow for themselves. Um , but they're not starting that with , um, the end of, how do I retire from this business? How do I eventually exit if I wanna spend more time with my kids or with my family, or other hobbies or other career interests, et cetera. And so not only does , um, not thinking about the end, prevent people from effectively being able to sell, it also impacts the , uh, margins in the business as you're running your business. And then third, it impacts what opportunities you have to sell at the end. So , um, I do have eight steps , uh, essentially that people think about , um, as they're preparing to sell their business. Um, but the first big thing is , uh, what would happen if I exited my business, not only from a financial standpoint , uh, thinking of, okay, if there are 10% broker fees, if there's a 20% , uh, capital gains tax , um, what am I actually gonna net from the sale of that business? What do I need to net in order to retire? Or what do I need to net and , uh, to keep my standard of living going , um, as I continue to work, do other projects, raise my family, et cetera? Um, but as somebody's preparing to actually sell their business, number one is the financial performance of the , of that business. So looking at the p and l, making sure that , uh, the ratios , uh, fit industry standard, because if we're looking at large scale buyers, if you're over a million or $2 million in private equity in, in adjusted ebitda, then private equity firms, family offices, strategic buyers start knocking at the door at that point. So what does your financial performance look like compared to other businesses in a similar size, in the same industry? Um, what are your margins? What's your gross margin? What's your net margin? How do you decrease cost of goods sold as much as possible so that you're producing more profit and essentially printing money? Um , second is growth potential. There are three things that every buyer's looking at , uh, when they , uh, are seeking to buy a company. And I refer to it with the acronym, CEO. They're looking for cashflow. They're looking for great employees who can run the company without the owner there, and they're looking for opportunities to grow . So, cashflow we just talked about in terms of financial performance, employees, we'll talk about a little bit later, but here are opportunities for growth. Um, are there additional services or additional products that can be added to the business? Um, is the industry one that's actually growing right now? Um, those are important things to not only , um, think about when marketing a business for sale, but also starting to grab onto those opportunities now. So the business is already growing and , uh, in the flow of growth for a potential buyer as they're coming. Um, the Switzerland structure, we call that , um, the 80 20 rule, or is there any one customer, supplier or employee that could essentially tank the business if they were gone? Um, customer concentration, employee concentration, and supplier concentration , um, are , uh, big items that potential buyers always look at. So how do you diversify your customer base? How do you diversify your supplier base to ensure that , um, you're not reliant on one of those that could destroy the company? Um, valuation? Is the business a moneymaker or is it a money pit? Um, recurring revenue. How do you take something that's a service base or a single product purchase , um, and turn it into a subscription model? Uh, that'll take your valuation from maybe three or four times profit to 10 times profit just by having recurring repeatable revenue. Um, what differentiates the business? Um, how high are your customer service scores? And then finally, can your business run without you? Key point on that employee piece, can your business run without you? Are you able to step away from the business or sell the business and be able to produce the same amount of cash flow even though that owner isn't there? So those are those eight , uh, steps essentially to think about as you're preparing to, to sell your business.
Speaker 1:Wow. And that, I think that those were a lot of questions that you should be asking yourself, because again, when you're really far in the business, and you've maybe been doing this 10, 20, 30, 40, 50 years, right? You may not have a perspective of what the market looks like, you may not have a perspective of what buyers are looking for. Um, a lot of times we are telling people to do some things, not just right before they wanna sell, but like many years before they go to sell. And part of it is like, financially, it might be good to start getting like a reviewed or audited financial so that you have some, you know, something better to provide to buyers. But it's also like this kind of cleaning up like, you know, a three year growth period looks better to a buyer, a trailing 12 that can , you know, that continues to go up, looks good for a buyer, you know? So what are some even longer term kind of things that they should consider , um, or things that you've seen that really move the needle to maximize value in, you know, and we can even pick a particular industry if you want, but there are things that you can do not just increase revenue or decrease, you know, like it's really more strategic. Like what would a buyer pay a premium for, right? Mm-Hmm,
Speaker 2:<affirmative>. So even before I get to that question about what a buyer would pay a premium for, I do wanna reinforce what you said, Melissa, about getting valuations done early. Many people, well, there's two things. One, some people don't realize that they can get their business valued. So newsflash, that's a thing. It only costs a couple thousand dollars. And very quickly you can get , um, an idea of what your business is worth, because it's, for most people, their largest piece of their financial portfolio is their business. So why wouldn't you want to know what that biggest piece is and how much it could be worth? Um, the other thing that you mentioned, Melissa, that's really important is about preparation. So I never like to , um, compare selling a business to a home because it's very different, but that's the sale process that most people go through. And it's one of the larger sale processes that many people go through when you're selling a home. Um, you don't just put the home on the market with dirty walls and pour carpet and bad landscaping, right? You fix the landscaping, you clean the carpets or replace it, you paint the walls, right? So everything looks the best, so you get a premium price. Um, and it works the same way with the business. Now , um, we kind of threw away cash flow in terms of what's going to bring a premium to the business, but that's really it. Um, most business brokers and most buyers that are coming to the table, unless it's a couple of specialized industries, are looking at cash flow first. Is it repeatable? Has it been consistent? Is it growing? And , uh, do those cashflow margins match , uh, what they should be for the industry? So cashflow is king, always king, always king. So what can you do over the course of the next one, two, and three years to maximize cashflow, not only from your margins, but also increasing sales and increasing profits at the end? Um, the other big piece is having a general manager in place. So , um, buyers are always concerned unless they're going to be owner operators, but if we're talking about buyers that are purchasing a million and plus of adjusted ebitda, they're looking for some sort of general manager and a leadership team in place. So how strong is that leadership team? And can the business really run without you? Can you go on vacation for 1, 2, 3 weeks and come back and the business is still running? I've got a client who , um, they own a landscaping company and last year they moved Florida and their business actually increased by $2 million after they moved to Florida because they hired a really strong leadership team. So now instead of giving five x for that business, because they have such a strong leadership team, they're gonna get seven to eight x of , uh, cashflow and essentially have , um, increased their price by almost double because of what they've been able to do from a leadership standpoint. So cashflow is king. Uh, can your business run without you? And then the other one that a lot of people forget about or think that they can't do is create recurring revenue streams. So , um, even as a consultant, is there something that you can put online , um, that people can buy individually or independently of you as a accountant? Are there some sort of , um, online portals? Is there , um, a kind of , uh, what do you call it, a product box that can be sent , uh, on a monthly basis, right? Um, or , um, can a portion of the product or service be purchased over time versus being purchased all at once? Being able to see accounts receivable on the books , um, and knowing that there's consistent and repeatable and predictable revenue coming in that can also double a valuation , uh, of a business as a buyer's looking at it?
Speaker 1:Yeah, I think there, there are a couple things , um, that you said. One is the vacation, and I think that that's a biggest thing for a business owner. And it's really like you need to take two weeks, no contact. Like, can your business survive with you two weeks, no contact? And if not, then you have some things to figure out. The other thing that I think we glossed over just a little bit, but you mentioned it at the very beginning, is like, how much do you need to retire? You know? So let's say you, val , you , like, let's say you go through the process, you value your business, it's worth $6 million. You're like, that is great, I'm gonna retire. This is gonna be awesome, but you don't figure out the tax consequences of the sale, right? Because , uh, there's deal structures that could be a stock sale or an asset sale, and those are important mm-hmm , <affirmative> concepts to understand for the tax perspective. But I think that even some of that preparation of like, oh, okay, the 6 million may only be several million. Like, oh, I wasn't planning on that. You know, like some of these things, okay, well, maybe you need to take a couple years and increase the value, right? Mm-Hmm , <affirmative> and work with a consultant to understand what that looks like in nowaday nowadays, it looks like marketing, it looks like social media, you know, it looks like traditional companies kind of doing something different, and that may not be comfortable, but that's where you see synergies and joint ventures and all sorts of other, not just traditional m and a, but like mergers and everything in between. Um, but let's say you get prepared, right? Like, let's say you listen to us, you call somebody, you get a valuation, and you know that your business is worth $6 million right? Now, somebody calls you, right ? And so you're right . Like, and you're doing, because I have a lot of clients that do evaluation every year, it's just their bogey. They either buy in and out partners, you know, but they set the price each year, right? That's my recurring revenue, if you will. But then we have these clients that somebody approaches them, and a lot of people are approach, like, I've never seen so much activity of buyers seeking sellers in m and a in 20 years. So they're calling you, or they're sending you a letter, or they're soliciting you in some capacity. And if they get you on the phone, and what if they're like the biggest player in the, the area or the world or the country or whatever, and they're calling you and the CEO is calling you and like, Hey, do you wanna sell your company? And you're like, well, I don't know. And they're like, great. What , what's the price? How much could we sell it for? How much could you buy it? What do you coach the business owner to say in those situations? Or what should they do? Because this is a critical kind of conversation. A president of a company that you highly respect is calling you direct. And it doesn't always happen like that, but it could, right? Mm-Hmm , <affirmative> , what do you, how should somebody approach this? Because , 'cause this seems like an ideal situation, right?
Speaker 2:Yeah. It could seem like an ideal situation. It's , um, those situations can be tricky, but it's, it's really positive and it can be exciting. Um, again, before I answer that direct question, I do want to go back to yeah . Uh, mentioning , uh, uh, retirement planning, taxes, et cetera. Um, one thing to remember is just because you want a certain price for your business doesn't mean that your business is worth that amount. So, yes, just like Melissa said, it may take some time to actually grow the business, work on the business, store some things up, paint those walls, get the carpet done, right, so that you're actually getting , um, and selling the business for the market value, versus just, I need $10 million in order to retire. So that's what somebody needs to pay me. If that's not what your business is worth, that's not what your business is worth. So keep that in mind, and you may need to go back to the drawing board and back to the table , um, to say, okay, what do I need to do to actually make this a $10 million business? And by the way, as you make it a $10 business , um, as EBITDA grows, the multiples also grow. Um, and they're not linear. So you may start out with a three times , um, uh, adjusted EBITDA valuation, but then once you , uh, increase that EBITDA by 50%, you may not just have 50% more ebitda 4.5 times, it may jump to 5, 6, 7 times. Mm-Hmm . <affirmative> . So the work that you're putting in , um, especially if you think about it in these terms, if you put in another dollar worth of profit, you get three or $5 back, right? Mm-Hmm , <affirmative> . So it's not just a a , a linear process. It's , uh, can grow , uh, exponentially is not the word, but it can grow by multiples as you're , uh, working on preparing that business. But the exciting thing is when you're unprepared <laugh> and somebody calls you and says, I wanna buy your business. Um, and the question always comes up, Hey, you know , what would you sell it for? The old aade negotiation is he speaks first loses. So I would not give an answer. Um, and my answer always is, Hey, that's a really great question. Um, based on , uh, the level of complexity of this business and , uh, your experience doing deals, Mr. Byer , um, I'd really expect you to come to the table with , uh, an appropriate offer. And then we can talk about how that offer may be structured after that. And that's it. Um, if they continue to push and press , uh, then , uh, drop back and punt and talk about talking with your CPA, talking with your attorney, getting some valuation done while they're doing due diligence, and that'll give you time to come back and say the exact same thing to them so that they can give you and present you with an offer.
Speaker 1:Yeah. And, and I think that that is the most solid advice that I think that business owners may kind of get this , um, thrill of the game. You know, like everybody loves to negotiate. Everybody thinks that they're a master negotiator, especially if you've owned a business for a long time. Mm-Hmm . <affirmative> . And I think that in this situation, it's sort of like you're almost too close to it, you know? And so you're really excited and you could, you don't even realize the information that you are giving to them. Like, people can tell me financial things and not give me all the pieces of the puzzle, and I can figure it out. Mm-Hmm , <affirmative> like, you don't know. Like if you start to give them information, and the other thing to consider is like, they're approaching you. You know, you, you don't have to respond. You don't have to say , like, you can be very gracious and be like, oh my gosh, you're an amazing company. I would love to have these discussions, but I operate as a team, you know, I have financial people. Um, and that seems like a great discussion to schedule, right? Mm-Hmm . <affirmative> . Because again, if, if you are kind of showing that you have more and, and there is a team and there is a structure, then those would be the, the conversation that you have. If you're just like, oh, yeah, I negotiate all my stuff , you know , um, and, and I know it's 6 million. So let's just see what they respond at. 6 million mm-Hmm. <affirmative> , you might not be able to recover from that initial conversation with that buyer. And it's not saying that like you lose that opportunity, but it is a critical juncture that you might be like, oh, somebody's just, you know, calling. Let's just throw out a number.
Speaker 2:Yeah. And if you say something that's too high, you could turn off a buyer. If you say something that's too low , um, you're not, what's wrong with this business, right? It's like buying a car. Oh, it's $2,000 less than all the other cars. All right ? So what's wrong with this , uh, purchase here? Also, you could be leaving a lot of money on the table. Um, one of the best things that you can , um, say as well to that question is, you know, I'm not really sure yet, but let's dig into some of the financials. 'cause obviously you're a sophisticated buyer and you've done this before. So first, let's go through some pre due diligence, which means that you're sending them your last three years of profit and loss statements and balance sheets. You may be sending them some tax returns. Um, there may be , um, some working capital calculations that they wanna look at, et cetera. Don't let them get too deep into the business, but give 'em some basics. And then , uh, have them come back to you with what's called an IOI or an indication of interest. And it essentially says, here's what we would pay , uh, for the business in , uh, here's what we would pay for the business. Here's what we would essentially , um, uh, give you in terms of terms, whether that's , uh, earnout seller financing, equity, profit sharing, et cetera. And then here's when we'd wanna close. It can be as simple as an email. And then when you know that you're in the ballpark, or they're in the ballpark, then you can say, all right , let's have a conversation and, and formalize this into an LOI and start a fish negotiation back and forth. But , um, answering with a potential price right off the bat is the wrong way to go.
Speaker 1:Yeah, absolutely. And you know, I think there are definitely times where we've used price as a way, you know, to anchor the deal. And we have offered a price at the very beginning, but these are sophisticated methodologies and we know what we're doing and we know the players involved, right? So I think that one of the things that a , a business owner could consider or should consider is that if you respond too cri quickly, you will look like you are the novice in this situation. Like you will . They will know that you have never done a deal that you maybe have not had these conversations. And so it's almost like your desperation to have that conversation could actually make you look more like a novice target. And these are typically bigger buyers. Like they've typically done this process a lot
Speaker 2:<laugh> . Yeah. And the reality is, is that most sellers are novices. Um, they're great at selling their , they're great at running their businesses, but they haven't sold the business yet unless they're actively involved in an acquisition strategy themselves. So that would also be a good time to call , uh, your trusted advisors. And as a business owner, if you don't have a team of trusted advisors , uh, get them, that includes a CPA, that includes a wealth manager, that includes a attorney, that includes a , um, business insurance person, right? Um, and many others. Think of everybody that may be involved in a transaction. Those are the people that you want to have around you all the time . Let me be a little bit more specific. You also wanna make sure that you have folks who have transaction and deal experience. So your family attorney that may have done , uh, your slip and fall case 10 years ago is not the attorney that you wanna call for your $10 million m and a deal. There are different terms in that deal . There are different negotiation points in that deal. And you could be leaving money and great terms on the table if you don't have a professional that has experience specifically in doing deals. So , um, get that team of advisors around you. They can help you with , um, knowing the ropes and , uh, negotiating a deal maturely, even if it's your first , uh, go around at selling a company. Mm-Hmm,
Speaker 1:<affirmative> . Because most of the time, if you get professionals involved that may not necessarily , um, have done deals in the past Mm-Hmm . <affirmative> , Some of the issues will come into play. Most of the issues will come into play like a month out from closing. Mm-Hmm. <affirmative> . And you're so far in the deal that when things like, I call it a retrade, but when things start to like shift and, and they start to ask about working capital adjustments, or they start to , um, say, well, what about the holdback or the indemnifications or any of these? And you're like, what? I didn't know about these things, right? Like, those are gonna be where the deal starts to fall apart, or you're gonna be pressed by a big buyer to do things because they're so close to the deal and they know that you want to do this deal. 'cause now we're two weeks out, we're starting to tell employees we're starting, we're gonna talk to vendors, right? Like it's too far in to pull it back, but you didn't know what you didn't know, right ? Mm-Hmm . <affirmative> . So I think we've given them some ideas of what to consider, you know, if they're negotiating for themselves. Um, but before we talk about you and how you can help and kind of be part of a team, you know, do you have any other suggestions or things that they should consider before they really start to negotiate a deal by themselves? Because again, business owners are used to just talking numbers, right? It's just in your nature that you're gonna want to offer this conversation and you're gonna offer more, right? Than , than maybe you should. The other thing that maybe we should talk about is like signing a non-disclosure and making sure that somebody has to keep this information confidential. You know, so some of those things are why a team would come in and help you with some of this, but what other things should we also consider, or, you know, things to think about in this beginning stages of a deal?
Speaker 2:Yeah. The most important thing to think about is what am I gonna do after I sell my business? There are a couple reasons for that. Um, number one , uh, so you actually have something to do after you sell your business. 'cause you're gonna have two things, a lot of money and a lot of time. I actually had a client , uh, who left my office. They sold a , um, staffing company, and I walked her out to the door and I said, so , uh, you're leaving my office with $3.3 million. Congratulations. Uh, what are you gonna do next? And she said, I don't know , uh, but I have plenty of time and I've got plenty of money, and I love you <laugh>. And it was very, very sweet to to hear that. But , um, you know, now she's doing some house flipping and spending time with her grandkids. And even if it's as simple as I'm gonna do more traveling to another state to see my grandkids, or I'm gonna get a RV so I can , uh, go see all the national parks and right. I mean, just have a vision of what's next so that , um, you don't experience what some business owners experience, which is you've been running your business for 10, 20 years, all of a sudden your purpose and , uh, what you've been doing to fulfill yourself , um, and your life's vision is suddenly gone. So give yourself something to do. The other reason why this is really important is the deal process is simple, but it's not easy. It is emotionally really, really hard. I've seen , um, clients gain a bunch of weight. I've seen clients lose a bunch of weight, especially in that last month. Melissa, like you were talking about , um, I've seen clients with , uh, skin disorders , uh, flare up, and all of a sudden there's flakes all over their, their bodies, people stop shaving, right? It, it is, it's hard. Mm-Hmm . <affirmative> . Um , and so having that vision of, okay, what's next? What's gonna keep me through this? 'cause $5 million won't matter if you feel like trash, right? Mm-Hmm , <affirmative> . So , um, what's gonna really drive me to getting through this really tough process and get to the end. So again, begin with the end in mind. Yes. Know your numbers, but even more important, know your purpose post-sale, and it'll help you get through the deal.
Speaker 1:Well, and I think that that's always a great idea, is to get the hobby, but also it's for the owners that are not taking the vacations. You know? So you have to practice, like, if you think you wanna sell your company even to your employees at some point, right? Because that's a lot. We're seeing a lot of that happen, that you might have two key employees and you could sell to them, and that's a very delightful transaction, right? Mm-Hmm . <affirmative> . But everybody has to be protected and everybody has to be prepared. And I think that getting professionals involved at a sooner stage is the best. You know, like, or talking to your advisors. And if you already have like lawyers or accountants and things like that, maybe they can refer you to somebody who specializes in transactions. Mm-Hmm. <affirmative> . Because those, those types of issues that you are going to deal with , um, even emotionally at the end or transitioning or any of those types of things you can be better prepared for. Um, but because the reality is when somebody comes knocking at your door and they're willing to give you three and a half million, that's probably gonna be easier than going out to market and trying to find a buyer out in the world, right? It, it could be an easier process, but you could also mess it up by thinking that you are such a smart business owner that you know how to deal with this because the buyer's looking for that to take advantage and not as a, as a mean thing. But if they can take advantage, they can take advantage. Like, we recently had a client that, you know, was doing like a $5 million deal. I'll give an example, they're not the right numbers, but a $5 million deal, and there was like a million dollar holdback or something, and I was like, or a working capital adjustment for a million. I was like , um, time out . That working capital adjustment is way too big. Just like you could , that's all you needed to tell me, right? Mm-Hmm . <affirmative> . And so, and they were like, well, why? But we don't know. What should we do? Da , da , da . Exactly. Like, you know, the buyer's not gonna look to screw you over Mm-Hmm . But if you're not paying attention and you sign on the dotted line , um, if anything, they're gonna actually press you after the deal For other things. Like , you know , you have to be mindful of what you're getting into and what the obligations of you are after the sale. Mm-Hmm, <affirmative> . Um, but,
Speaker 2:And that's why it's good to hire professionals and especially brokers. So brokers are a , uh, low to no risk option when thinking about selling your business. There's a , a couple of really good reasons , uh, to hire specifically brokers. Number one , um, that knowledge process. Um, even understanding how to navigate additional buyers coming in when you're under an exclusive agreement. Um, like you said, how do you negotiate the indemnification working capital ar um, holdbacks, right? How do you even know what those are? I wrote an article that just had definitions of what all the deal terms were, and I had to stop writing because there were like 20 or 25. And I was like, this article is too long. Nobody's gonna read this. TLDR too long didn't read right? <laugh>. Um, so there's, there's a lot to know that you don't realize that you don't know about the deal process. But the other reason to use , um, a broker is marketing. So they can confidentially market your business better than you ever could. Yes, you may get one, two, or three calls from buyers, but the reality is, would you rather those one, two, or three calls from buyers? Would you rather have 10 buyers competing against each other for your business bidding and raising the price? Then you're able to find , uh, three things, right? Buyer, right price, right terms, right buyer. So it's somebody who you feel comfortable with selling that business to and giving, handing your baby over to second, right. Price. Are you getting the actual right price that your business is worth? And then third, right, terms , um, is there , uh, are there ridiculous holdbacks? Um, are there ask , are they asking for indemnification holdbacks that are really big? Is the earnout well structured? Is the seller note , well structured, et cetera. So when you've got a broker there to help you, not only do you get the right terms, you get a better price 'cause you have more buyers and you get better buyers 'cause you have more to choose from.
Speaker 1:Yeah. I think that that's excellent. And that's if you get prepared, right? And have a process, and again, every , like, because I've been in this field for so long, I started in m and a and I've been doing business valuations like pretty much for the past 20 years. Every business that I've created is intended to sell eventually. Like how I named it, how I, you know , like valuation podcast.com right? Is a sellable entity that it could be somebody else hosting, and it doesn't have to be me. Mm-hmm . <affirmative> . But you , I've created these things so that they can be sold in the future. So if somebody wants to get prepared and maybe do some of that, they real realistically, you can always call a valuation person and get a value, right? Mm-Hmm . <affirmative> . But if, if that person doesn't totally understand the market and you know, the air , the area and all of these things, you may be getting a number that can't be supported in the market . Yep . So
Speaker 2:What , and that's the big difference between market valuation and , um, well that's the big, big biggest difference between getting a market price analysis and a , yeah . So valuation is done somewhat in a vacuum with , uh, numbers, data industry, statistics, et cetera. Um , market price analysis is based on comps. Um, so you're looking at data from similar sized companies across the country that have sold within the past 10 years and through gross sales , um, EBITDA adjusted ebitda, et cetera , um, seller discretionary earnings, which is essentially your EBITDA with all of your personal one-time and or large expenses added back in to profit. Um, then you're able to still estimate what the market could or should buy the business for. But at the end of the day, you don't know what the market price is until you have a handful of offers. And that's when the market is really telling you what the business is worth. So I've got , um, I remember I had a client that owned a marketing agency and they wanted , uh, $5 million for their business while all of their offers came in between 1.5 and $3 million. So we had to have a conversation at the end. We said, we've got nine offers for you. They're all between 1.5 and $3 million. I know that we estimated that we could sell your business at four, you want five, but the market is telling us what your business is really worth is 3 million bucks. That could also go the other way where the market's telling you that your business is worth more. But how do you know that if you're just taking the first offer that calls you on the phone and says, Hey, I'd like to purchase your business. Really? You don't know what the market value is until you actually go out to the market, get a few offers, and then come back and look at , uh, what your opportunities are.
Speaker 1:Yeah. And , and , and I would also say though, that you can know some of the issues. Like, you know, what skeletons are in your closet? Mm-Hmm . <affirmative> . And if you don't, that is exactly why you need a consultant, because those types of things will break deals. You know, like I've been involved with deals that have broken horribly wrong with big companies. I've been in deals where a company simultaneously closed on three different, like we were one of 'em, but there were two other, and this company simultaneously did three purchases on the same day. Wow. But there were movements in the date, which then made sense afterwards, you know, because they were like, oh, we'll push the, the closing date for a couple weeks. Because I mean, it was such big deals that it was like, oh, that's no , like, that's fine, no big deal. And then, then it all coincided. So, you know, some of this stuff is being prepared, but some of it is that if you have the right team, they'll respond. They will be like, oh, that's a red flag. You know? 'cause when the dates were moving, it was a red flag for us . We were like, wait , why are we arbitrary? Like we're all ready to close. Like why are we ar But when you have like 20 people in a deal room, right? These types of really big deals. The other is that you gotta clean up some of that stuff. Like you can't just hope that nobody looks at it or that they don't. They, those are the things that they will dinging your price on, you know ? Mm-Hmm . <affirmative> . So even if we say you could get four or five, if they come in and realize like your , um, daughter is a competitor and you're siphoning off some sales to her, like, that's not gonna be a great conversation, you know? Mm-Hmm . <affirmative> . So it's really being very honest with your advisors about some of the things. And sometimes you don't know what those kind of skeletons are, and we have to come in, or again, getting like an audited financials or reviewed financials. An accounting firm's gonna come in and be like, have you been properly accounting for receivables? You know, like ,
Speaker 2:Yeah, I had a client who lost a $3 million deal because their books weren't tight. And , um, they looked okay to me when we listed the business. Um, and then as soon as you started going through due diligence and really dug in, he was missing $750,000 to the positive, which meant that , um, he completely was not tracking the money. And that rose the , then the question was raised, what else hasn't been tracked? Well , um, if you're missing $750,000 that you should have in your hand, right? Mm-Hmm. <affirmative>. So yeah, having that deal team, people like you, Melissa, people like me and others , um, can really help make sure that somebody's getting , uh, the right buyer right place , right terms, and aren't killing their own deal by mistakes that they've got no insight into.
Speaker 1:So when would , um, somebody ideally hire you, because here's your email address and you also have a podcast, what, what's it worth? Right? Mm-Hmm, <affirmative>. So , um, I mean, can they call you anytime ? Like should they just, if they consider wanting to sell in the future at any time, you know, could they reach out to you and kind of just understand, do you have some resources , um, that they can get started? You've written a bunch of articles, I believe. Mm-Hmm, <affirmative> . Um, so maybe tell 'em some of the ways that they can reach out to you or an ideal , um, way to schedule some time with you if you offer, you know, sessions or, or you know, how , how does somebody work with you?
Speaker 2:Sure. So the easiest way is , um, to continue to connect on , um, LinkedIn and , um, that LinkedIn profile page is just under my number Jamar , or excuse my , my name, Jamar Cobb Denar . Um, and also , uh, what's it worth is a great way to stay in touch as well. Um, in terms of timing of staying in touch , um, it takes eight to 12 months to sell a business on average. My first closing , uh, that I did in this business, it was exactly eight months from the day that we met that prospect to the day that we actually went to closing, which was kind of scary that it was exactly , exactly eight months, but it proved out. Um, uh, what I'm saying is it does take eight to 12 months . So if you're thinking about selling your business now or within the next couple years, talk to me or another broker or valuation specialist now so that you can get prepared. We can certainly , um, take a business where you say, you know what? I just need to get out of this thing as fast as possible. Yeah, we can put it on the market, but still know that you've got eight to 12 months to wait for that thing to actually close. So , um, if you're thinking now, or a year or two in the future, start making , uh, those calls now to your attorney, to your valuation specialist too , a broker to your CPA, get those team of advisors around you so that you're well prepared for the sale and you can get more value than you even thought that you could get in the first place.
Speaker 1:Well, awesome. Thanks you so much, Jamara . This has been really informative and you gave so much information in such little time. So we appreciate you. Um, hopefully you'll be back, maybe we'll talk about specific industries or something like that, how to value them, what they're selling for. But this is a great primer for our audience and we appreciate you. Thank
Speaker 2:You. Thank you. I appreciate it.