The Hidden Risk in Your Exit: Why Most Business Owners Aren’t Ready to Sell with Marc Barbeau

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 episode of the B2B Growth Blueprint Podcast. I'm your host, Mark Osborne. And today I'm very excited to welcome my guest, Mark Barbeau. Now, Mark, I'm going to read his bio to make sure I get this right. He is a Certified Exit Planning Advisor, or CEPA®, Vice President of Business Development at ForteOne Capital. He leverages 22 years of wealth management and private banking experience to empower business owners and high-net-worth individuals through complex private equity transitions. At ForteOne Capital, he plays a pivotal role in sourcing and executing proprietary investment opportunities within the manufacturing sector. He's got deep expertise in acquisitions, exits, large custom credit, and investment strategies. He helps clients maximize value while minimizing risk through tailored solutions. Previously, Mark served as director and private wealth advisor at BMO Private Bank, where he led a client strategy team to craft bespoke wealth management plans aligned with each client's professional, philanthropic, and lifestyle goals. His earlier senior roles included positions at Wells Fargo, Northern Trust, LaSalle Bank, Bank of America, PNC, Amcor, and BankOne, developing innovative private banking and commercial finance solutions focused on high net worth and institutional clients. His entrepreneurial background includes managing one of Quebec's largest racehorse breeding and racing operations for over 17 years, giving him a very unique operational and leadership perspective. Educational credentials include finance degree from Champlain College, a financial planning certificate from DePaul University, and that Certified Exit Planning Advisor certification back in 2019. So, Mark, welcome to the show.

Thank you. Thank you. I'm very excited to be here.

Yeah, so I've been looking forward to our conversation, and obviously you've done a lot, spent a lot of time in banking, but not just sort of traditional banking, also doing some kind of unique things. Why don't you give our audience a little bit of background? Tell us your story of how you got to where you are today.

Sure. So, I mean, I started in financial services primarily as a senior private banker doing customized credit for ultra-high-net-worth individuals. And that would be including their business, it would include real estate and also personal loans for them. Very unique opportunity to kind of get to know somebody on a really personal level and try to bring some thought to the table in regards to different structures that they could take advantage of.

That's right.

And provide them the lowest cost to access capital. And so with that, I Really started going into the cross-selling of the investment management business as well during that process. And at the end of my career in the wealth management space, I was primarily business development for accumulating investment management business. And in doing so, I focused on the area of business succession or business exit strategies because of, in my view, that's the— the primary vehicle of wealth creation in the United States is through the business owner exiting a sale of a business.

Okay.

And so with that, I went to get my CEPA certification in 2019 to get a better, stronger acumen around that process. And working, you know, 22 years covering commercial bankers in the banks that I worked at, I was able to, you know, always Be introduced to business owners and and understand the challenges. Also running a business of my own, I you know I know the challenges, the day-to-day challenges of a business owner. And you know when they work in their business, it's hard to work on your business, and it's also hard to work on your personal long-term goals. And my my observation in years of working with business owners is I always saw that they lacked the focus or attention in the preparation. For an exit. And they usually wait till after the sale is in process and almost completed, and then they say, oh wow, I got to do a lot of things. And they should be doing it all along in the process. So I think with the CEPA certification, that's something that they kind of emphasize a lot, that you should be preparing for your exit on a personal level as well as on the business level. And that's a, you know, that's that's a high task. I mean, it's a lot of work for both sides. So we're here to help them. We are— my role is at FortéOne is to find businesses to purchase. We're focused in the middle market space and middle market to us is defined as $2 million to about $8 million in EBITDA.

Wow.

We have larger companies than that as well that we're purchasing, but that's kind of the focus and primarily what I would call lifestyle businesses that are owned and operated by the baby boomer generation, which, you know, right now we believe that there's a huge transition taking place in the next 5 years. You know, the youngest baby boomer is 61, the oldest is close to 80. And, you know, that's prime, you know, for that retirement age. And, you know, Many of these owners have weathered, you know, really difficult times during the financial crisis in '08, with COVID recently. And, you know, they were able to save the business and turn it around. But they got to the point now, I think, that a lot of them are saying, I'm kind of tired of doing that and I want the exit. So that's kind of what we're focused on.

Yeah. So you raise a couple of really interesting things in there. And one is this idea that, you know, for business owners and, you know, as an entrepreneur myself, like I've always sort of lamented how little I invest in, you know, the stock market, 401 type things because I'm generally investing in my business. And there's some stats from the Exit Planning Institute that shows that For most business owners, in fact, most of their wealth, about 70% of their net worth or more, is tied up in their own business, not in external investment sort of strategies. And so, it made me feel a little better about sort of my investment strategy of focusing on building that. But that's what makes it all the more important that they have successful sort of transition And exits from their business so they can sort of harvest all that wealth that they've spent a lifetime creating. And it's also interesting that you focus specifically on that kind of 2 to 8 space, because I know that a lot of businesses within there are, as you sort of described, lifestyle businesses. And sometimes lifestyle businesses struggle to have some successful exits. And I'm sure you've seen some of those challenges yourself. For, for, you know, people in our audience that might have, you know, built a successful business that's running at about $2 million a year, and, you know, they're, you know, maybe running a lot of their expenses through it, or, you know, their tax number is a lot lower than their, you know, seller's discretionary, you know, earnings. Tell us a little bit about, you know, some of the challenges that those lifestyle businesses have as they kind of come to market and some of the things that owners should be thinking about today to get ahead of that.

Yeah, sure. So, I mean, when I say lifestyle business, I'm referring to a business owner that pretty well wears all the hats. You know, he's the director of HR, sales, operations, and so on. And, you know, when you're selling a business, it's The buyer is always gonna look at some kind of transition team to stay in the business. So, you know, you gotta start thinking about who those people should be within your organization and start grooming them in preparation for that exit is wise because it helps improve value for the business as well as it provides us an easy flow of change of leadership for the buyer that's going to be buying the company. When I say lifestyle businesses also, I'm thinking about, you know, the owner that has had success for 20, 30, 40 years in some cases. They have grown the business from start. They started in a garage and now they have a nice $15 million revenue business plus. And they're saying, you know, this is enough. I have all the toys. I got the houses. I got everything I I've ever wanted. And, you know, like they look at a growth trajectory that's not necessarily aggressive. They look at it as a, you know, they continue growing organically as they had in the past, but not necessarily really pushing for significant growth until sometimes when they're starting to think about an exit. And what we're finding as buyers we're looking at an opportunity when you might have a really strong year compared to prior years. And a lot of times the owner thinks that he's going to have an exit multiple on that last year, and that's not necessarily true for the buyer. The buyer is going to do some kind of weighted average on an EBITDA looking 3 years back to try to get, you know, is this a sustainable EBITDA number that can be provided going forward, not just a one-off year that with going after a large project or a large client or a one-time event that might not be repeated in future years. So that's, that's the way that buyers are going to look at it. So if you can look at trying to provide or grow the company in preparation for the exit to a sustainable 2 or 3-year runway, that would be much more beneficial when it comes to pricing. And getting your multiple that you're looking for.

Yeah, it's so funny that, you know, we work with businesses that, you know, they've been, you know, they, as you say, sort of a lifestyle. They grew it to a spot that they were comfortable with, you know, that the income that came off of that and didn't really, you know, sort of want to make it grow much more than that. So, they've been popping around at this same level, you know, for several years and they have it in their head that they're going to sell for a certain you know, multiple of what those earnings are. But oftentimes the multiple that they have in their head is one that would be applied to a business that had an upward trajectory in their space, not one that's been sort of moving along flat. And so they sort of realize, oh, maybe we need to do some of the kind of marketing and sales or other operational things that we haven't been doing for several years in order to Really capitalize on what we've built.

Right. Yeah. And then identify the buyer is most often or most probably going to look at what's the growth opportunity for this business after acquisition. And, you know, identifying markets that they could be exploring and have knowledge of those markets and how you would as an owner would go to market with a growth strategy for that buyer. That's always a help conduit for that. We always look to have the owner stay on for a couple of years in the transition period. And that's typically not something that's challenged by the owner. They kind of want to do that. The other thing that we find important while we're talking to business owners is, you know, somebody that's built the company for 40 years, It's their baby, right? I mean, it's just like a child. And what we try to do is preserve the legacy. So the brand of the business. So if they're— we're trying to, we typically try to look at businesses that are the primary provider of that particular product in a given market. So they have a brand recognition in the marketplace and we would maintain and preserve that legacy as well as we value their employees. So a lot of times the owners are worried or concerned about their employees, and our strategy is to do as best as we can to preserve the employee base and to have him or her identify employees that could evolve into a new management team, or maybe already there if they've done what they should be doing, is grooming somebody in a management position in different areas of their organization. And we would, we would, um, we would like that, and we would really want to help, uh, with our operating partners come in and help coach and mentor those employees and help them engage and, uh, and execute on a growth strategy that we would put in place. So, um, and that's, you know, in for the most part has been very well received by the owners that we're talking to and when we're doing acquisitions.

Yeah, it's interesting because so many owners just sort of, they kind of have this mythos in their mind of, well, there'll be an exit day. It's like, you know, high school graduation. I'm going to throw all my papers up in the air and go out to, you know, school's out for summer blaring on the radio or whatever it is. So often the way that I'm seeing deals be structured today, especially with private equity, it's actually to much benefit of the owner to have multi-stages where they take some chips off the table and do a recapitalization, you know, and bring in that equity partner and then start to have that earnout where they're still in control of their ability of the company to hit those performance metrics. that allow them to get that earnout rather than giving the whole company over to someone else and then just hoping that the company continues to perform well, whereas they can have more of that transitional period.

Right. So, I mean, what we like to do, one thing that's different about us versus private equity is we don't have a defined or a finite timeframe in regards to owning the business. So, we're a long-term hold, 10, 15-year hold. On these companies. So a thoughtful, meaningful growth strategy implementation is what our main goal is with the companies we buy. And that could be through organic or acquisitions of smaller companies or additional companies to be part of the federation of companies under the same type of product mix that they— and then working together, that helps grow everybody's business within the portfolio. We would, you know, look at the owner staying on, like I said, for a couple of years, seller roll of about 20% of the purchase price, maybe seller finance in most cases. And then there would be, you know, growth strategy implemented with some potential earnout opportunities that could benefit from, you know, the long-term hold in addition to the equity play that they have in there. So there's some matrix that can entice them to work with us and help us grow the company because it's beneficial for both.

Yeah. Well, and that's really interesting that you have that sort of portfolio view because it gives you a lot more sort of strategic options to really sort of capture synergies that exist in the marketplace. And having that longer timeframe allows you to do some much more interesting things than, as you say, private equity.

That's—

they got to get out in 2 to 5 years at a certain multiple. And although they might have a portfolio, they're not really able to capture a lot of those synergies because some of those integrations take time.

Right, right. And, you know, a lot of times the difference also with the private equity is that they might have a 5 or 7-year hold period. Their strategy is different because, you know, ours is a longer-term strategy that we want to— we don't want to disrupt the continuity of the business. We just want to elevate the business and elevate the employees within it and create some value going forward. So it's a little bit different strategy. Yeah, works out well.

So you've obviously got a long tenure in this space and worked with a lot of businesses. I'm curious, is there a common sort of theme or maybe a common mistake or misstep that you've seen businesses make because they weren't thinking about that eventual exit? And so then they kind of maybe built some bad habits or maybe overlooked some things that You know, if they had done this earlier, it would have led to a better eventuality. Any sort of watchouts that you might share with our audience of, you know, business owners, entrepreneurs that they should be thinking about today to be ready for that eventual exit?

Yes. I mean, I think that many don't do their financial planning, personal financial planning well enough in advance in a transition. Bigger the company, more complex that could be. It could be— I mean, I had just as an example, when I was in the wealth management side, somebody sell a $200 million business. And what they did is they had a really good CFO with a really strong background in tax planning. And they did— they had transferred stock to the children. in an irrevocable trust.

Right.

And also to his spouse in an irrevocable trust years before the exit took place. And that was really beneficial because there's discounts in the transfer. There's all sorts of reasons why you should really talk to a really good tax advisor to help you think through that and prepare. So on the personal side, the financial side, the estate planning side, that would be one thing that I would say that we don't see very often.

Yeah.

Second one would be customer concentration, like a high percentage of the revenue comes from 1 or 2 major customers. That's a discounted valuation for the buyer. So you might want to, you know, pay attention to that and see how it grows. And then running a lot of personal expenses through the business, you know, income statement. And that's problematic because not only for for the buyer because they're going to really look at that closely, but also the buyer's lenders when they are looking to finance the acquisition. You know, a lot of lenders really pay attention to those add-backs when it comes to add-backs to EBITDA.

Yeah. So, well, and, you know, so I know so many entrepreneurs, you know, they have the real number of what the business makes versus the tax number. Because they're trying to minimize that sort of tax exposure. But as you start to get ready for that sale, maybe it's time to start to make a transition between those 2 to have a better picture of the books.

For sure. And also, it's often, you know, a financial wake-up call because there's a lot of, you know, all of a sudden I had another client made a comment that sold a business and he made it, he says, you know, I had my personal assistant You know, do all my personal stuff. Well, now I don't have that assistant anymore. You know, I feel like a one-legged stool. And he said, you know, so it's funny that that's come up several times in the sale process where they say, you know, my assistant did a lot more than I thought he or she did. And that was a big difference after the sale. So, and the other one is the, what we are concerned about as buyers is the emotional readiness of the owners selling the business because you put a lot of time and effort into due diligence in the process of purchasing a company. And then you don't want to come to the table at the end of the day and then they just say, I just can't sell it.

That's right.

That is something that is a lot of time and expense to go through the process of due diligence on purchasing a business. And we don't want to be as a buyer in those situations when the business owner is not emotionally ready for that sale. And then they should really think about what they're gonna do with the next chapter. So that's part of the reason why we like keeping the owner into the business as a minority equity player as well as continuing running the business during the transition period for a couple of years. And it's because he eases his way into that shock and awe of not owning, you know, I'm not running the company down the road and the total exit. That is, it's a life-changing event. So we recognize that and we want to make that process smooth and easy for the owner. Yeah, there's always situations where there might be a death or there might be an illness that's driving the sale of a business. That's different. But, you know, when it's, you know, owners deciding that this is now the time to retire for whatever reason, you know, those are things they need to really start thinking about.

Yeah, it's so interesting to hear you talk about that personal component because before I started really studying the exit planning space and, you know, doing the CEPA certification like yourself, I was sort of like, why would people care about that owner's personal preparedness, that personal readiness? Why does the next buyer care whether they're going to go golf all day or if they're going to start a foundation for kids or whatever it might be? And then the startling statistic that came up is the number one reason why most businesses don't sell is that the sellers get cold feet. And so if you think about all the work that goes into the diligence and all of the effort from highly paid experts to analyze the business and look at it, to then at the last minute have the owner just back out because they didn't take care of some of those personal things that if they'd had a little bit of coaching, they would have. And so that's a really interesting perspective to think about. As you think about the overall dynamics of what causes deals to derail, it's that cold feet at the end. And by planning for that in advance, you can really sort of anticipate and mitigate that risk.

Correct.

Yeah. So again, Mark, you're an expert in lots of really interesting topics that I'd love to spend more time talking with you about, but I got to be mindful of your time. But before I let you go, like, Tell us specifically about your practice there and who do you work with? Who should reach out to you?

Well, I mean, a couple of really good opportunities for me would come from either other advisors that would be touching that business owner in the process of planning for an exit. It could be an M&A attorney, it could be an accountant, it could be the business owner themselves say, you know what, I'm thinking about selling my business, and I like what I heard and your process and what your mission is. And, you know, I would like to talk to you about it. And one thing that, because of my background on the wealth management side, I would— I have all sorts of referral possibilities to, you know, refer them to really good people that can give them really solid advice in preparation for the personal stuff in regards to a sale of a business. And then the same thing, there's definitely opportunities within commercial banks that have divisions that help a business owner in the preparedness of preparing the business for the sale also. But also the CEPA certification, people that have that certification, there's definitely people that in that space that have those skill sets too that can help them and help them prepare the business for sale.

Awesome. So For folks that are listening and love your approach, this longer timeframe, more strategic kind of investment that might fit within that sort of $2,000,000 to $8,000,000-ish kind of sweet spot, what's the best way for them to get in touch with you?

They can reach us at me at forteonecapital.com. Okay, it's F-O-R-T-E-O-N-E Capital. And/or my email address is m.barbeau@forteonecapital.com.

Awesome. Well, Mark, thank you so much for taking the time to join us today. I really enjoyed our conversation. I'm sure our audience learned a lot.

Yeah, thank you for the interview, and it's really delightful to be part of your organization.

Talk to you soon.

Thank you.

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