Planning a Profitable Exit with Melisa Silverman

Welcome to the B2B Growth Blueprint podcast, where we talk with entrepreneurs, founders, and leaders at B2B services, tech, and SaaS companies to learn the systems and processes they've used to create success for their business. We'll also learn from marketing and sales experts to provide insights to help you grow your business. I'm your host, Mark Osborne, and the podcast is brought to you by Modern Revenue Strategies and their 10x ROI B2B Growth Guarantee. Schedule a free diagnostic call to learn the fastest path to double your B2B revenues in just 90 days. Hello and welcome to another edition of the B2B Growth Blueprint Podcast. I am your host, Mark Osborne, Today, I'm very excited to welcome my guest, Melissa Silverman. She's one of the country's foremost experts in business valuation and exit planning. She's president of AvenueM Advisors, a national financial valuation firm specializing in mergers and acquisitions, ESOPs, IP and tax-related valuations, and complex shareholder matters. And she's a partner at The Founders Group, and we're going to talk about the work that she does there. Melissa also serves as Managing Partner, Founders Group, where she guides business owners through the strategic and often emotional process of succession and exit planning. With 20 years of experience and thousands of valuations under her belt across virtually every industry, Melissa brings deep financial insight paired with a clear understanding of how owners can align business value and their own personal goals. She holds multiple professional designations, including the Certified Exit Planning Advisor certification, Certified Valuation Analyst and Certified Machinery and Equipment Appraiser. She's also president of the Greater Los Angeles chapter of the Exit Planning Institute, which is where we met, and was honored with the 2018 Peter Christman Exit Planner of the Year Award. Melissa is a sought-after speaker and advisor for business owners navigating transition. I'm thrilled to have her joining my little podcast here today. So Melissa, welcome to the show.

Thanks so much, Mark. I'm really happy to be here.

So that was a mouthful of awards and designations and certifications in your bio. Why don't you kind of humanize it for us? Tell us your story. How'd you get to where you are today? I know it goes back even to sort of family of origin.

It does. It really does. So I grew up in Ohio. in a small town or a small city in Ohio. And my father built a manufacturing company. There was a plant in Ohio, there was a plant in Kentucky.

Okay.

And he built it up very well and was doing business with all kinds of chemical companies and oil and gas companies and everything, making very, very thick, plastic to wrap all these different things.

Okay.

My father had to sell the business because he had a heart condition and he could no longer remain in Ohio. So at that time, there was no exit planning. There were no people that— or advisors that were around that really could help my father with selling his business. The good news is my father was always an entrepreneur, so he knew a lot about what he was doing, and he had, he had his own advisors that he worked with that did help him through the transaction. And he did, he did fine. And that— and we— well, I have 2 other sisters, and we always thought we were gonna get the business, but that didn't happen. So I went to law school instead. I went to school and, and I got my, my JD, and I started working for a federal judge, which was great. But I'm like, you know, I want to work with more companies. I want to work with more business owners. I want to hear their stories. I want to get to know them, and I want to see how can I help them. So after law school, I actually moved out to California and I got involved with some different technology companies, started their marketing department, and then eventually moved into the mergers and acquisitions. And we were doing, at the, in the heyday, we were doing like 10 acquisitions a year.

Wow.

And so I was doing all the due diligence and integrating the companies into our company. So it was a lot of work, and I really got to see the internal side of what business owners and companies go through. And I think that that was really instrumental in taking me down my path of where I have come from, because my next step was to— my next step was I worked for a company that we were doing some transactions. And in the middle of that, um, the CEO of my company had a heart attack and he, he passed away. And there was no succession plan. There was no exit strategies. We were just— we were a small team at that time, and we were just left holding the bag, trying to figure out what do we do with this company. And things did not end well for that company at all. As a matter of fact, we— they ended up closing the doors and, you know, just everything went away. And I don't want that to happen for business owners. I want business owners to have the kind of exit and be able to sell their business or have a succession of the business in a way that makes them happy, is profitable for them, and is going to provide stability for them in the rest of their phase of life. So I actually, after that, I decided that I want— I was doing all the due diligence. I wanted to now learn how to do that. And so I got involved with a company that does business valuations, a boutique company, and I was mentored by someone who has been doing it for 40-plus years. And I started developing my own book of business. And when I felt it was time, I went out and I started my own company. That's Avenue M Advisors. And I've had Avenue M Advisors now, I think I'm going on 14 years. And that company just does business valuations. So we do every type of valuation except real estate and personal, um, a personal property. But every other type of valuation, everything from families who are looking to transfer wealth to the next generation, charitable donations, business owners who are starting their business, who are growing their business, who have compliance issues, who are developing tax issues, and who might be wanting to sell their, their companies. And also, there's a lot of companies have IP and they don't realize what that means and how valuable that can be. So that's kind of my story and how I got started in doing this line of work.

That's so interesting. And so the concept of having this intellectual property that, you know, companies aren't taking advantage of, that they aren't valuing, As valuable as it is, is such an interesting sort of concept. So before we move on to some of the other topics, I'm curious, like, what's the most common overlooked intellectual property or IP that companies have that they're not valuing that they should?

Sometimes companies just don't know that what they have is IP. Sometimes it's proprietary formulas.

Okay.

Sometimes it's the products that they have developed and they've developed it in a really unique way that others cannot replicate. And they don't understand that it may not be, you know, you may not have a patent on it, but you have developed something that no one can replicate and that has a lot of value. So we, I see companies out there all the time that have just, you know, products, skincare products, cosmetics, any type of company out there. You have to look at your products and say, can everybody do this? Or is this something that we have designed that is just really unique? And that is your IP, and that can be very, very valuable, and most companies do not even think about it.

That's so interesting. Well, and you come from a marketing background as well, but a lot of times when I'm working with companies, you know, and from a marketing perspective, I talk about, you know, what's your kind of, you know, proprietary proven process? Like, what's the thing that is the way that you approach this that gives your clients confidence that they're gonna get the same success that other clients have gotten because it's a process? And so often, like, they talk about it in kind of hand-wavy terms and I'm like, let's just turn it into a named process. And then it becomes so much more valuable, not only for them because it becomes IP, but also it really makes it concrete for their prospects, which it's, it's so funny what just a little twist can make.

Yeah. And the thing is, is that every company has it. Yeah. They may not know it, but every company has developed something that's unique. I have my company and I have my process and I have how I do it. And it's unique to me, and I know that there's value in that. So I think every business owner has created something that is unique in their own way, and they should be, um, they should be able to sell it and get the value out of their business that they put into their business. Yeah.

Well, and that's such a sort of inspiring mission that you have, which is helping business owners capture the value that they've created and put into the world. And obviously, these sort of like unplanned exits have figured prominently in your life and career, both with your father and with that previous company. I've read this startling statistic, and I'm sure you know this one and others, that 80% of businesses don't sell. when they, you know, when they're ready to sell, they actually don't sell. Talk to us a little bit about why that happens, or, you know, even more, I'm sure it's an even higher percentage of businesses that don't sell at what the founder thinks they're worth. What are some of those, you know, most common reasons, challenges, and how can companies approach that?

So that's a great question. So I think that part of it is expectations, that the business owner has their own number in their head, or they've talked to their buddies on the golf course and they have similar types of companies and they tell them what they've sold for and what the multiple was and all that, and they expect that they're going to go and sell for that same Price. Well, that's not how it works. Um, in the real world, it all depends upon how your business is performing. And any buyer who's going to look at your business, they're going to want to know, how did you come up with the value? How did you come up with the purchase price that you're selling it for? And so you have to prove that. You have to be able to show them where all that value is coming from. And that's where the valuations come in, and it plays a critical role because no business owner should ever think about selling their business or getting ready for an exit without knowing what their business is worth. That's a starting point because you may think that your business is worth X and your business is really worth Y, and it may not be as valuable as you think it is. But it could go the other way as well. It could be that you have your expectations of what it's worth, but we valued it much higher, or there are strategic reasons why the business might be valued much higher than what the business owners thought. So it really depends. But what, what, what is most important is that somebody comes in and does an independent analysis of the business, of all aspects of the business, to see how important are each of these areas to the company and how well are they performing. And by doing that, we are able to really determine, is this company more risky because they don't have processes in place, they don't have the right systems, you know, they're, they're founder basically runs the company, there's no leadership team, or are they less risky and a better option because they do have a leadership team in place and they have put processes in place and they have— they've built up their culture, they built up their brand, they do have some IP, and the business owner is able to take as much time off as he wants. That's a business. So the difference between those 2 concepts is the first one that I identified where the business owner is involved in everything, that's basically a lifestyle type of business and those don't sell for very much.

Yeah.

But the other type where you're bringing in and building your company from the perspective of value and putting all of these systems and, and de-risking the company and developing your IP and doing all these things is going to make you much more valuable. And so somebody has to go in and do that analysis and then look at the markets and say, okay, what have other companies in your industry, what have they sold for? And how similar are they to your company? And we'll put some values to that. Sometimes we're looking at much larger public companies and we're valuing a privately held company. How can you look at that and say that these are similar? You really can't, but there are adjustments that we make so that we can be valuing apples to apples instead of apples to oranges. So that all happens. These are all techniques and approaches that we use in valuation. to put a value on a business. If a business owner is looking to exit or sell their business, one of the most important things that they should have is at least a 3-year projection. That is a roadmap for how can somebody else grow this business. Potential buyers always want to see that. And so, um, so having a set of projections that can be tweaked and can just— you change some variables on it and it shows you what the new numbers are. And with that, we use that to develop a discounted cash flow analysis where we're using future earnings and we're developing what is the present value of the business based on those future earnings. So there are different ways that you can value a business. And, but a business owner has to know their value first before they can grow or exit from their business. So that's the starting point.

Yeah. Well, and that makes so much sense. And, you know, the, it's sort of, it's, it's a truism that a lot of people will recite, but not, not a lot of people, uh, sort of live and practice, which is, you know, the best time to plan your exit is the day that you start your business.

Yes.

And it's sort of like the thing, you know, the best time to plant a tree was 20 years ago. The second best time is today. And so, it's that same sort of practice. And, you know, the best time to have begun planning to sell your business was when you started it. But the second best time is today. And I know that you're, you know, a fan of, you know, the Exit Planning Institute and your CEPA® certification. And I love the approach that that organization takes, which is running your business as if it's ready to sell is actually just a great way to run your business. And you talked about this before about a lot of the things that make your business more valuable are also the things that make your life more enjoyable when you're running the business, like removing founder dependency by creating systems and processes. Talk to me a little bit about how you, as an advisor, help companies and the founders think through and go through these transitions of moving from this sort of founder dependency to having a business that's sellable.

So, great question. And I agree with you that business owners who start their business with the end in mind are the ones that are going to be the most valuable because they already know what their endgame is. And so it's kind of— they're working backwards to figure out how to get there. That's how every business owner should be and every business should be. So when we work with business owners, we try to meet them wherever they're at. And most of the times we have business owners that come in and say, hey, I want to sell my business. I'm just exhausted. I've had it. I want out. Can you help me? And we're like, sure. And they're like, okay, how do we go to market? And I take a step back and I said, well, wait a minute. Are you ready to go to market? And so there's a whole conversation that happens around, you know, what are the steps to get your business ready for an exit? And it takes time. Most companies sell for a discount Because their business is not ready for sale. And so, but there are advisors out there, they're called CEPA®s, Certified Exit Planning Advisors, who can help you. We have a methodology that we all use and we talk the same language to help business owners plan for their exit. So in doing that, it typically— and when I have a business owner that's wanting to sell, I always say to them, let's go back to the beginning because you're not ready to sell yet. So we go back and we always start with a very deep discovery process. We are going to do a calculated business valuation for them. So we're gathering all their financials and corporate documents and all the information that we need for the valuation. So we're already learning a lot about the business. And then we're going to do some assessments. We're going to do a business readiness and a business attractiveness assessment. And we're also going to do a personal and financial readiness assessment. So what's the difference between them? Well, the personal financial is to really understand what planning has the business owner done, have they already done. Most business owners haven't done any planning. They're so focused on their business and they think that they're invincible that they don't have to do the planning. And that's not the case. And there's so much planning that needs to be done before you go and exit your business. And the, the companies that do that planning are going to be much better off because they're going to be able to save so much in taxes and they're going to be able to walk away with much more. And be able to grow it. The business attractiveness is to see how attractive is your business to another company. The business readiness is how ready is your business. So let's take and let's look at an analogy. Take a sports car. You go into a dealership and you look at how beautiful it looks. You know, it's bright red and it's got all the new features on it. The tires are great. I want this thing. But now you got to open up that hood and you have to look in and see, are all the parts there? Is every— is it going to work the way I want it to work? And is it going to be safe? And is it going to let me do all the things, let me go all the places I want to go? It's the same thing with your business. The readiness assessment is about digging in and really understanding and, and, um, how ready you are with all the things that you need to have done for, for your business to really be able to sell it and get what you want for it. So we start with that, and they walk away with these reports that show them their current range of value for their business. But in addition, we show them what their potential range of value could be for the business if they make some of the improvements that we show them in these reports. And that actually takes us to our next engagement, which is where we put together an action plan. We work with the business owner. They are going to review these reports, and we all come together and, and we put together their list and our list, and we're together, we're going to select which are the most important items that need to be fixed first. Always starting with de-risking the company because there are easy ways that you can de-risk the company and make sure that they have the insurance in place and make sure that they have risk policies in place and safety policies in place and cybersecurity because that's a big thing that we have to think about today. So just making sure that their company is protected. Another thing that you need to look at is the IP. Is your IP protected? That's very important, and most business owners don't realize that. So once you get to that, then you can— then we're going to focus on those improvements that the business owner wants to make. Now, if the business owner has a team, has a leadership team, we would facilitate the leadership team to make these improvements. The business owner should not be involved in any of this.

Interesting.

If the business owner is one that he's running the whole business, he's not going to have anybody who can make these improvements, and his day job is running the business. So he has no one who can really help him make these improvements. That's where we come in. We would go in and we will help the company make the improvements and turn the business around. Instead of having a lifestyle business, Build it and grow it from a value perspective. Building a business from a value business, a value perspective, is not just great for exiting a business, but it's great for running and for building your business. That's how companies should start, and that's how they should be focused, because there's so many opportunities that arise by doing that. When we get, we can continue with all those improvements for as long as the business owner wants. But when they get to the point where they're like, okay, I'm done, I don't want, I don't want to keep this anymore, let's, let's move forward, we go through all of the different strategies that are available from an exit perspective. Typically, where the business owner starts with thinking, I'm going to do this type of exit, to now where the business owner ends up, they're thinking that the strategy is very different from what they were initially thinking. So they learn a lot, and there's a lot of education that happens during this whole process. And so they will select their exit. We will— by this time, there's a team involved, and we will work together to put an exit or succession plan in place and present it to the business owner. And if they want to go forward, then we help them execute that plan. Bring in the right team members. We help with due diligence, putting— getting the— we start our data room when we start the engagement with the business valuation because we're collecting all of the information, some of the information that you need for due diligence. So from the very beginning, we have already started your data room and we have a due diligence list that we work with our business owners to put together. So that when they get an LOI, they're always ready for it. They are ready to hand over their information to a, to a potential buyer if they get a signed LOI. And that's really important because buyers want to see that you're ready. And those companies that show them that they can give the information right away, they're going to sell for a lot more. than somebody who has to go and, you know, run circles and try to gather everything and find out where everything is, and they don't have everything, and it's not in right order, and it's, it's, you know, there's just so many things missing from it. So that's what we try to help business owners with, and then we help them, we advise them throughout the transition. So that's how we work with business owners, and that's how— No matter who is working with a business owner, there should be a process for how can they get them from where they start to the end line and accomplish the goals that the business owner wants to accomplish. It's not about us. It's about the business owner, and it's about their business and what is the right thing for them. That's what we try to help them with.

So it's so interesting listening to you kind of describe it because it's one of those things that people don't think about. It's almost like people hate to plan for life insurance because they don't like to think about death. And many times businesses the same way, like they don't like to think about planning for the end because they're just focused on growing it for today. And there's so much to do. And I love that the Exit Planning Institute has sort of created this value acceleration methodology and framework that allows multiple different advisors to come in and add value, but along a similar sort of framework so that someone can come in specifically focused on what are you going to do after you retire? Like, this business has made up most of your life. and where you spend your time. So, let's think about what you're going to do with that time when it's not in the business. And they can dovetail really nicely with someone who's also thinking through, well, what are the tax implications of selling this business?

Yes.

And have a similar framework, which I love that sort of unified methodology throughout and the ability to bring in multiple advisors to work as sort of a cohesive team Even if maybe they've never worked before because they can have the same sort of shared framework.

Well, exit planning and succession planning is all about being a team sport. You know, it used to be that business owners, they sold their business, but it was always siloed. They were working with an investment bank. They weren't working with any other advisors. So after they sold their business, they were really unhappy. because no one helped them plan for the taxes that they were going to have to pay. No one helped them get ready for what do I do the next day. And while you're planning for that, you should already be doing those things. So there's a lot that doesn't happen when you try to do it with one advisor. Now, you may have an advisor that is kind of a one-stop shop. We are kind of like that because we focus on the business side. And we do have some attorneys on our team that do focus on the taxes, minimizing the taxes and estate planning techniques that you can use and, and conflict. But there needs to be a financial advisor or an advisor on the personal side that is running and making sure that everything the business owner needs to be planning for, like long-term insurance. Long-term care insurance. You know, everybody's living longer these days, but nobody is planning for it. And I know business owners think that they're invincible, but when you get into your 70s and your 80s, things do happen and you do have to plan for that. And so this is where the financial advisor is so critical, and they play a very important role in helping the business owner get ready for that transition.

Yeah. So, you know, we've already touched on the fact that it's not everyone's favorite topic, but it's an important topic. But so, for our audience that's listening and, you know, they're running a business and they're now, you know, mentally taking a little bit of a step back and they're thinking about maybe I do need to think a little more about how I'm going to exit this, how I'm going to reap the real rewards of all of this work that I've been putting in to grow the business. What's one thing that they can do today, this week, after listening to this to start on that path?

So, the one thing that I would say that all business owners should do is put down in writing all of the things that you want to do and what you want to— what your goals are, what your objectives are from both a business perspective and a personal perspective. Once you put it on paper, you know, everybody thinks about things and it's all in their head, but when you put something down on paper and you are able to look at it all the time, that is going to push you to take the next step and now start going through and figuring out how do I put the team in place that's going to help me and allow me to accomplish my goals. So that would be the one thing that I would say, that's your starting point.

I love it. Put it down on paper. So there's a stat that I use all the time that Harvard Business School says that companies with a written-down marketing plan experience, you know, 2.5x the success of companies that don't have a written-down plan, regardless of the quality of the plan. Just the fact that it's written down gives you 2.5 times more success.

Totally agree. Totally agree.

That's such a great piece of advice. So, you're obviously a really knowledgeable expert in a lot of really interesting topics that we could spend all day talking about, but I got to be mindful of your time. But before I let you go, give us the pitch a little bit. Like, what types of companies do you work with? You know, who do you help? And, you know, who should reach out?

Okay. So, we work— I work with all business owners. I work with all industries. I'm industry agnostic. It's easy for me to learn about the business. The business owner is going to teach us the business.

Mm-hmm.

We need to understand the markets. We need to understand how do we get at the value of this business. We need to understand what are the steps that the business owner needs to take to get their business ready and to get them in a place where they're ready and they're going to sell for what they want. That's what we try and help business owners with. And again, as I started, I said we always meet the business owner where they're at. So we do try to do that, but we want to make sure that they are able to take advantage of the steps that are going to help them minimize taxes and help keep more proceeds in their pocket and are going to give them the stability and the security that them and their families will be okay throughout their lives. That's what business owners are really looking for. And so that would be my— and that's what we really focus on. So I'm looking to meet all types of business owners, and we can help with evaluation. We can help with a calculated valuation and all the whole process for exit planning. Not because we do it all, but because we are very collaborative and we understand that it's a team sport. So we work with other advisors. If a business owner has advisors in place, that's okay, we can work with them. If their advisors don't have the experience, we have to address that, we have to talk through that. And a lot of times the business owners understand that we have to bring in experts Who have the experience and the expertise in doing transactions or helping with the succession. So there's a lot of things that go into helping a business owner through their exit. And then the last thing that I would say is, you know, I invite any and all business owners to visit our website. I have two websites. One is avnadvisors.com. Another one is foundersgroup.biz, and take a look. You'll see all the services that we provide. You'll see a ton of information, a lot of education, and give me a call. Let's set up a virtual coffee and let's get to know each other, and let's see if there's a way that we can help you either understand the value of your business Or help you with how do you get from where you are today to a successful exit that accomplishes all of your goals and objectives. That's what I would like to do with all of you today or tomorrow.

Well, it all starts with the first step, right? And so, first step, write down your goals. Second step, call Melissa. So, Melissa, thank you so much for joining the show today and sharing a lot of your insight and experience on, you know, how companies can have successful exits. I really appreciate it.

Mark, thank you so much for this opportunity. It has been so wonderful talking with you and just having a conversation about this. And I hope it helps everybody. I hope it helps your audience. And, you know, this is a great service that you're providing to everyone, business owners everywhere. So thank you for what you do.

Well, thank you, Melissa. Talk to you soon.

All right, bye-bye.

Thank you for joining this episode of the B2B Growth Blueprint podcast. We hope you've gained insights to grow your business. If you enjoyed this discussion, please rate, comment, like on your favorite platform, and share to others who will find it useful. Do you know a CEO, founder, or leader at an early-stage B2B services, tech, or SaaS company Who would like to be a guest and share their story? Send us a note. Let's schedule a conversation.