Maximizing The Value of Your Business Before Selling

Hello, future billionaires. Welcome back to another episode of the Invest Like a Billionaire podcast. I've got a very interesting interview today. It's going to be a little bit different than some of our other interviews. This is an interview with a longtime investment banker. We brought him on the show to talk about how to maximize the value of the sale of your business. So this isn't going to apply to everybody. It's really going to be more focused for those listeners that are entrepreneurs that are growing businesses or anyone that's just interested in learning how, you know, mergers acquisitions, private equity works kind of on the inside. But he really has some amazing insights to help you learn how to identify what he calls value drivers in your business and have the potential to, you know, one scenario he said, you know, the difference between $25 million sale and a $45 million sale by understanding some of these things and being ready ahead of time. It's a little bit nerdy. We kind of get into the weeds of some of these things in how to identify these and how to increase the value of your business. But I think it's really, really interesting. I know we have a lot of listeners that are entrepreneurs that are looking to sell their business one someday so that they can convert that into passive income, passive investments, and eventually be out of the business they've been growing. So very, very valuable if you're in that position. And I think you guys are really going to enjoy it. If you guys are enjoying this podcast, we really, really appreciate you leaving reviews, sharing with a friend and letting us know what you think in the comments. And, you know, leave us feedback on our website, thebillionairepodcast.com. Appreciate you listening. Hope you enjoy the show. This is the Invest Like a Billionaire podcast where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you'll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra-wealthy, discuss economics, and interview successful investors. Looking for passive investments done for you? With Aspen Funds, we help accredited investors that are looking for higher yields and diversification from the stock market. As a passive investor, we do all the work for you, making sure your money is working hard for you in alternative investments. In fact, our team invests alongside you in every deal, so our interests are aligned. We focus on macro-driven alternative investments so your portfolio is best positioned for this economic environment. Get started and download your free economic report today. Welcome back to another episode of the Invest Like a Billionaire podcast. I'm your host, Ben Frazier, and very excited to have our guest today, Channing Hamlet. Channing is the managing director at Objective, which is an investment banking valuation firm. and he's been in private equity investment banking for a very long time. Over 25 years experience in business and investment banking and work with a lot of different clients and very excited to have him on the show. And I'll explain why in a minute. But Channing, thanks so much for, for coming on and talking with our listeners here.

Yeah, Ben, thanks for having me. I'm super excited about it. So looking forward to diving in. Yeah.

So when your team reached out to us and I was looking through your bio, I thought I should be really cool to bring on because one of the focuses of our podcast is talking about alternative investments. And, you know, most people think real estate. The big one is private equity. And a lot of people have interest in private equity. What does that mean? It's this kind of, you know, sexy word that's thrown around a lot. But what's also really interesting, too, is the more we've gone on with this show, the more listeners that we have that are business owners, entrepreneurs that have been building businesses for a long time and eventually will be selling and, you know, trying to create a liquidity event. They can kind of then convert into more of an investment portfolio. And, you know, this is probably going to be a segment in the show that's kind of geared more towards that type of audience. But just it's going to be really interesting overall for just understanding what are the value drivers in your business, right? How do you maximize the value of your business and kind of prep it for sale? And, you know, coming from my background, which is more on the banking side, and I financed, you know, several small and mid-sized mergers and acquisitions, a lot of people kind of come to the table just thinking, you know, I want to sell, so I'm going to sell this year. Let's do it. But it's really something that has to be, you know, usually well thought out, well planned. And there's a lot of implications if you don't do it well. So that's what I wanted to bring you on, Jay. You've worked with so many business owners and clients helping them sell their businesses, learning what that looks like, different ways of structuring. So it's a whole host of things I want to get into. But with that, why don't you share a little bit more on your background, kind of how you got into what you're doing and kind of types of people that you're working with and helping?

Yeah, I mean, like, long story short, I started my career in investment banking and or It's a longer story than that, but it's really started in investment banking and I worked for a larger firm on the East Coast and the group I worked for had developed a real specialty in working with like family-owned and entrepreneur-owned private companies. And so I learned that a sort of how to work with a family business and a lot of the unique characteristics of that and how to help them sell their companies. And I also had the opportunity to work with public companies and billion-dollar mergers and fairness opinions and had this sort of general kind of corporate finance background early in my career. But, you know, really fell in love with working with these family businesses. And, you know, often we'd work with businesses that had been around, you know, 50, 75, 100 years through multiple generations. And for whatever reason, the family decided it was time to change their family strategy from operating a company where much of their wealth was invested to selling that company and diversifying their assets and becoming an investor and helping them navigate that process of the sale was something that was like just really rewarding and really fun. And working with families and entrepreneurs and private companies in terms of helping them have, you know, a big payday at the end of a process and how grateful they are and how we change their lives is like really rewarding. And so that really kind of hooked me, you know, in my early mid-20s when I started in investment banking. And plenty of stories where, you know, a business owner would thank me for the work and persistence of helping them get their deal done and just having that be really rewarding. And so that really got me like hooked early in my career as opposed to working for some large public company, you know, helping the shareholders make money. Or whatever. I mean, in the family world or smaller world where there's a face and a name that you're helping, way more rewarding. So I started in investment banking, then I worked at a $300 million private equity firm. And while I was there, we invested in about, about 20 companies. And so I really saw what private equity firms look at and how they think. I transitioned out of that to do something a little bit more entrepreneurial and wound up in a kind of corporate development job for a couple of years. And then for the last 20 years, I've been the founder of two, two different sort of investment banking and valuation firms.

Very cool. So kind of seen both sides of the equation, both on the buy side and helping with the private equity firm, but also on the sell side in helping people sell. So that's really what we're focused on now is helping these business owners get ready to sell to generate the maximum amount of value, right? Because there's certain things that you can do to kind of better position yourself. And I think a lot of, a lot of business owners have this, this natural conflict, right? I saw this a lot from the financing side when I did this, where, you know, you want to show as little income as possible, like on your tax returns, so you pay less income tax. But when you're doing that, you're impairing the value because most valuations are done or one form of them is a discounted cash flow analysis. And if you're showing less cash flow, then, you know, you're going to have a lower valuation. And so there's this kind of natural conflict where, you know, you want to pay less taxes and you don't want to really show how much you're making, but you also want to get the maximum amount of value possible. So talk about some of the challenges that you kind of see, you know, a lot of business owners run into when they're kind of making this transition from, I've been running this business for a long time, I'm making good money, and maybe the next generation doesn't want to be in the business. So I'm really having to think, what's my exit planning? How do I move on? And what's that process look like?

You know, it's interesting. Our firm is called Objective, and really there's a sort of core foundational belief that business owners should make decisions based on their personal objectives. And so this, decision. And I think the issue that we face that's most difficult is sitting down with a business owner who's thinking about selling their business. And it's like, hey, do I sell it this year or do I wait and sell it in the future? And, you know, really trying to get smart about what, you know, is the company ready? Are there things you can do to optimize the value? Are there risks or issues that are going to make it tough to sell? And then personally, like, are you personally ready? And like, you know, put all that into a basket and make the decision. It's a, it's a very complex decision. But, you know, I think there's like a couple of just sort of fundamental themes that are really interesting. One theme is most business owners don't understand the, the level of data a buyer is going to require, whether it's a private equity firm or a strategic buyer. Most business owners don't understand the level of data that a buyer is going to require in order to get comfortable paying a premium for the business. And so a lot of, a lot of companies in the market we work in, the sub-$100 million revenue market, don't necessarily invest in sophisticated systems and budgeting and KPI tracking and this and that. And it becomes difficult to sell the company for a premium because it's hard to get access to the data needed to provide like real insights on the value to a buyer. So I think a lot of companies just like under, under-invest in the infrastructure and, and data and organization required to really have a clean package to sell to a buyer. One, two, Early in my career when I worked in private equity, like, you know, we would invest in a company and our first meeting and really this would happen during the course of due diligence. But for sure in the first meeting after the investment, we would be talking to the management team about, you know, what are the value drivers of this business? What changes do we want to make over the next 3 to 5 years to really optimize the value of our investment? And we would identify a number of like key metrics that we wanted to track. And we would ask the management team to report, not complicated, but to report on, you know, half a dozen to a dozen metrics that we thought were like the key value drivers or strategic shifts we wanted to make in the business to optimize our investment. And, and we meet with the management team quarterly or monthly, depending on sort of how we set up our board meetings. And go over those value drivers. And, you know, as my business school professors used to say, what gets measured gets done. I have yet to meet a private company that like that doesn't have an institutional owner. I have yet to meet a private company that can pull out a piece of paper and say, here are my value drivers and like, here's my progress over the last X number of years, you know, professional investors and private equity firms regularly use that tool and it works. And most private companies don't really take the time to understand their value drivers and, you know, map them out and have like a real strategic plan against them. I think a lot of business owners get kind of caught up in this underinvestment in infrastructure and get pulled into working in the business and don't really take the time to work on the business. But, you know, that's like a second kind of a second theme. And then a third theme is a lot of businesses have inherent risks in them that make them difficult to sell, whether it's customer concentration, kind of key man risk. One or two salespeople have relationships with all the customers, or the owner that wants to cash out has relationships with all the customers. Or they, they have, you know, legal issues with intellectual property or former employees or something like that. And when a buyer can't get comfortable with that stuff, maybe they'll buy the business, maybe they won't. But they definitely, when, when they start seeing like a whole series of issues and risks, like a premium is off the table. And so, you know, I think a lot of, a lot of business owners don't really But just the net-net-net, a lot of business owners don't seem to really take the time and effort to understand and optimize the value of their business, take the time to really step back and be ready for a due diligence effort in terms of managing a lot of the risks in the business. And then many of them don't sort of on a personal level fully know what they want. And when a company comes to us and they want to sell their business, they're not clear on what they want. They don't understand and haven't optimized their value drivers and they're not ready to go through due diligence. Like, the business can still be sold. However, the likelihood of getting a premium goes way down. And so a lot of these things that I'm talking about, you know, it's not something that you just like— it's not like a homework assignment that you finish over a weekend. It takes some, like, real you know, real thought, effort, and preparation. And so the most success we've had as a firm selling companies for a premium, the company shows up to an investment banker process like well-prepared and ready. And when they're well-prepared and ready, it makes it a lot easier to, you know, find that premium buyer and, you know, negotiate and close a deal at a premium.

And we are saying, you know, close a deal at a premium or sell for a premium. I mean, depending on the size of the revenue or income of the business, that could mean many millions of dollars that you're getting, you know, as a premium, right? It's not just, hey, we get, you know, another $10,000 on the price. I mean, these can be massively impactful drivers from a total sales standpoint. Am I right in that?

Yeah. I mean, I think when you, when you, when you look at you know, any particular industry, there's a range of values that companies go for. And so, you know, the— for a $5 to $10 million EBITDA, and again, like, I'm totally going to generalize here. And so, you know, different industries, different companies and different cycles trade on wildly different terms. But, you know, for a— for a sort of like a standard company that's in the $5 to $10 million EBITDA range in this market, you know, you would see those companies trading for between 5 and 9 times EBITDA. And so a buyer sits there and looks at, you know, all of the value drivers and risks. And if the value drivers are not well understood and communicated and there's a lot of risks, it's going to be closer to 5. If, if like everything's like well communicated, and the business is organized with a great management team, it's going to be closer to 9. And when you look at the difference between 5 and 9, you know, on a $5 million EBITDA business, that's $20 million. That's the difference between selling it for $25 million or $45 million. So there's a lot of value that can be created by being strategic and thoughtful about prepping a business, you know, prepping a business to sell. And running the business well so that you're driving the value.

Yeah. Going back to one of the second points you made on value drivers, and can you just spend a little bit of time there? Because I think, you know, coming from a finance background as well, a little bit more financial speak sometimes of, you know, I think we all understand what that means, but as a business owner, you might ask that like, what are you talking about? Like my value drivers? Like, Am I offering discounts to my customers? Talk about what those are. Give some examples and how someone can create dashboards and those kind of things.

I have a— I have kind of a like a couple checklists that I keep handy that whenever I'm like meeting a new company, I kind of either look at or keep in mind. One is what I would call value drivers, and the other one is like value detractors or, you know, quote unquote, salability factors. And so the value drivers, like one, the first one is really understanding the industry and the market cycle. There's a lot of just a quick story, like in 1990, in the late 1990s, I sold a commercial printing business and at that point in time there were 7 public companies that were doing a consolidation play. In the commercial printing industry. And if you had a commercial printing business that you wanted to sell, you could get 7 offers. You make 7 phone calls and get 7 offers. It was a very active M&A market. And so we had this really well-run commercial printing business. We sold it and got a really good, like, top-of-the-market multiple, like kind of between 7 and 8 times EBITDA, which was a very high multiple. In the mid to late '90s for a commercial printing business. 20 years later, in, you know, 20 years later, you know, the internet has come along. Email marketing is mainstream. People are not, you know, companies are not printing glossy catalogs and brochures and annual reports. The printing industry has changed pretty massively. We got hired to sell a commercial printing business which arguably was a better business. They had incredible technology, this sort of like mass customization technology, very efficient. Their customers were like the who's who of tech companies in the Bay Area. And, but what had happened in that industry is it had been largely consolidated. The industry had some headwinds in the continuing shift from print to digital. And the offers we got for that business were in the 4 to 5 times EBITDA range. So arguably a better company with a better management team, better technology, better customer base, etc., because the market had changed, was worth, you know, 33 to 50% less. And so like paying attention to what's going on in your industry and is there consolidation going on, are there technologies that are changing, like really understanding where you are in that cycle is, is not something that's easy to manage, but it can be important in figuring out timing of when to do a transaction. The rest of the value drivers I have are like more in, in your control. Management team. If you're the owner of a business and you're kind of the man or the woman that runs everything, it's unlikely a buyer is going to write you a fat check and then need to depend on you going forward. And so a business that has like really good continuity with a management team that's going to transition to new ownership is worth more than the same business that doesn't have that management continuity. And so we see a lot of business owners underinvest in their executive team, and then when it comes time to sell their business, they can't really sell their business because they're handcuffed to it. By the new buyer for some period of time. And so on a— the management team and building and building a good management team is a real value driver. Intellectual property. Intellectual property is a value driver. A lot of companies have a lot of like really good proprietary technology, but they haven't gone through the process of, you know, copyright, patent, protect, define, etc. And so if you haven't done a lot of the work to put, to characterize and protect your intellectual property, it's harder to get value for it than if you have. I think really having clear differentiation from competition and having a clear picture of like, why is it that customers hire you? What is it that, that you do uniquely that customers will pay you a premium for? Being able to clearly articulate that. Is super important. Building barriers to entry in your business so that when a buyer is sitting down deciding whether to buy your company or not, there's not— there's not a thought that they could build it themselves because you've built something that is really hard to replicate. And thinking about how to do that is a value driver. And then there are the basic value drivers that, you know, you don't need to listen to this podcast to know. You know, if your, if your revenue growth rate is higher or your EBITDA is higher, you're worth more. If you can demonstrate that as you scale the business, you have operating leverage and your margins grow, you know, that's worth, that's worth more. And so like really just like understanding the basic accounting and financials of valuation in your industry. Is important. I think there's so much research out in the world today on that. It's relatively easy for business owners to get their arms around it. And then the other value driver that we spend a lot of time looking at is predictability of a business. And, you know, have they built sort of recurring and predictable revenue streams? There's a lot of— just an example, there's a lot of companies that have service businesses.

They have—

they might have a technology or product they sell, and then they have a service business along with it. Historically, service businesses would provide service when the customers wanted it. A lot of companies have now gone towards like long-term service contracts, so they have a predictable and stable revenue. They're doing the same thing. They have the same people, the same technology, same process, etc., but they've built a stable revenue stream instead of like a volatile up and down revenue stream. That's worth more. And so like, right, is to engineer and build in predictability in the business is important. And one of the biggest drivers of predictability is having a standardized sales process with clear client acquisition metrics. If, if you know, I spend this much or I have this many meetings or I send this many emails or I do this metric, to get a lead, and then I have this conversion rate from leads and my average sale is this, and you've mapped out your client acquisition process and you can make it— you can make it repeatable and then communicate to a buyer that it's repeatable. A buyer is going to have a lot more comfort with the business that they could own it and continue to grow and build it. And so building some standard processes around client acquisition is a huge value driver because if you can communicate that you have, if you can communicate that you have a handle on predicting and scaling your company and you have the formula to do it, that's a heck of a lot easier than, I don't know, my phone rings every once in a while and like, I signed up more clients this year than I did last year and I think I'm going to do the same thing next year. Like a lot of companies have some version of that story instead of, oh, I have a sales team, each salesperson has, has a quota they need to do 100 meetings a year to get 25 leads, to get 6 clients, to get X million in revenue. If you can boil it down to a process, it's more valuable than if you don't. And so those are some of the sort of core, core value drivers that we think about. And then there's a number of like value detractors, you know, customer concentration or any sort of concentration of risk on on a customer or a vendor or, you know, key employees. Buyers are going to be nervous that they won't have continuity of the business under their ownership. And so, like, trying to engineer out those risks is important. And customer concentration— there's an interesting story on customer concentration that I have, but engineering those risks out is a, is a, is a big— eliminates a big value detractor and risk. You know, litigation and legal issues are an obvious risk. Account— sloppy accounting. A lot of companies are not formally doing accrual and GAAP-based accounting, and there's fluctuations in the numbers from one period to the next, or they're not doing I don't know that middle market companies need to do audited financial statements, but if you do audited financial statements, it gives the buyer a lot of comfort.

Right.

I think sloppy processes, reliance on key individuals, poor IT security— that over the last 5 years, that like IT security has become a big one. We've had a lot of clients that have had— buyers now do cyber risk assessments And we've had clients that have not done well on the cyber risk assessment, and it creates big issues in the transaction discussions. Compliance with industry regulations and standards. As a small company, you can often get away with cutting some corners here and there. But if you're trying to sell to like a sophisticated private equity firm or a public company, you know, someone there is going to understand the industry regulations. And those are not, those are not people that want to take risks with industry regulations. And so a lot of public companies, if you have sloppy practices or what have you, they can't buy your company because if, if you wind up on the front page of the paper that you are not following such and such regulation in this one department, the, the media doesn't delineate that it was like one small department from an acquisition. They delineate that it was Microsoft was doing something wrong or Google was doing something wrong. And so Microsoft and Google and big buyers like don't take risks with that stuff. And so just being like totally dialed on that, like totally dialed on that stuff is like super important. And so I know I talked a lot, but like those are some value drivers and value detractors that they're not all easy to do. But, you know, putting some thought into mitigating and building around those can make a huge difference when it comes time to, Yeah, I think those are, those are so insightful.

And you think about, right, if this is a family-owned company that's been around for however many years, and just as you naturally grow a company, you're generally so focused on building the business and not, like you said, working on the business. And a lot of times these things just happen by happenstance, right? I mean, I remember trying to finance certain businesses and they had these massive you know, customer concentrations, like if they work with a government agency or something that was 90% of their revenue and they're, you know, they're making a lot of money, but you can't really sell, you know, a business with that type of concentration. It's like, you don't, you don't really think about these things until you take a step back and really take an honest assessment of, you know, what are the potential detractors that are, we're going to, you know, create a discount in my business.

Yeah, you know, it's interesting. The customer concentration one is really interesting. We, we worked with a company a couple of years ago where 40% of the revenue came from one customer. The, the management team, before we started the sale process, the management team went to that customer and they said, look, we're thinking about doing a sale transaction. It's going to be good for you because we're going to bring in a buyer that has more resources. We can do more for you. We'd like— you're an important— you're our largest customer and you're really important to us. What we'd like to do is sign a long-term contract with you, and we'd like you to serve as a reference for us during the sale process. Interesting.

Yeah.

So now I get on the phone with a buyer and I get on the phone with the buyer, and buyers often ask, do they have customer concentration? And I, you know, I could answer it and say, yeah, they do. They have one customer that's 40% of their revenue. They have an amazing relationship with this customer. They— we've already gone to the customer and told them that we're in this process. We signed a long-term contract and the CEO of that customer has offered to be a reference. Here's his name and phone number. You can call him anytime. And so the business still customer concentration. However, the management team was able to mitigate it by putting, you know, pieces in place around it. And so a lot of people I talk to that have customer concentration or vendor concentration or something like that, sit there and say, look, you know, I built my business for 30 years and like, this has always been a core customer and it always will be. And I, I know this is an issue, but I haven't been able to manage around it. But I have a great relationship with this client. You know, we can transition them to the new buyer. Great. Can we call the client together and talk to them about the sale process? No, no, I don't want to spook them. Oh, I thought you had a good relationship. You know, I like to write. So, so, but there are like, if you do have a good relationship with whoever, whatever entity it is, whether it's a vendor or customer or key employee, whatever, and you genuinely have a good relationship, you should be able to go to them in advance of the transaction, communicate what you're doing, and, you know, put pieces in place around it to mitigate the risk. And that works perfectly fine. And that's, that's a lot easier than going and finding another large customer. But if you're not willing or able to put those pieces in place, then that's a huge red flag for the buyer. Because if you, if you've had this relationship with this customer for a long period of time and you can't put those pieces in place, how am I as a new buyer showing up going to do that? And so there are ways to work around these issues rather than like solve them from a classical business standpoint. It just requires some thought and effort and preparation in advance of a sale, in advance of a process.

Yeah, it just, it sounds like just being proactive and identifying what these things are going to be upfront and taking steps ahead of time. And that just makes it a whole lot easier to have that conversation with that, you know, is going to be an issue, right? So it's just making it not an issue and solving it ahead of time. Can you talk a little bit about like, what do you kind of see from like when you kind of get engaged, someone saying, hey, I'm thinking about selling my business to actually, you know, ink in a contract and selling, what's kind of timeframe? I know probably ranges all over the board, but you know, what's that timeframe? Then also layer in just what's a due diligence process look like with the private equity firm? You kind of mentioned that they're going to do due diligence, they're going to want to see these things. And for some people that might be a little scary, like, I don't know what that looks like. And, you know, but hopefully if you're doing some of these things on the front end, it's a little easier. But just kind of shine a light on the path of what that looks like too. Yeah.

Yeah. I mean, I think of the, the the traditional, like, investment banking sale process. And, you know, most firms like ours would tailor it to the specific, you know, the specific circumstances of the client and the company and the industry and what they're trying to accomplish. But in general, it's a 6 to 9 month process. And basically the way we do it is the first 2 months are spent putting the materials together. So we would, you know, which buyers are we going to go to? Let's build a really good, defendable and supportable financial projection model because, you know, most companies like if we were starting a process right now, we would build projections for 2024 and possibly 2025. And we'd want people to be giving us a multiple of the projected EBITDA at close or the projected EBITDA for 2024. And so building a well-thought-out, defendable, and supportable model. And then we put together a confidential information memorandum, a SIM, or the, like, the quote-unquote book. And the book is partly to describe the business, but it's really to describe why the business is valuable. And so we put a lot of work into how are we going to position and explain this company that's going to make it easy for buyers to see the value. And we might even tailor the materials for different buyers or different types of buyers. But that sort of upfront preparation phase is 1 to 2 months depending on how organized the company is when they come to us. Then we would turn our attention to marketing the business and we do it in a very discreet and have a lot of methodologies to preserve confidentiality. And so we don't really share a lot of information until confidentiality agreements are signed. And then the marketing process, generally speaking, is about a 2-month process of reaching out to kind of high-fit buyers, signing a nondisclosure agreement with them, distributing materials, answering questions, really selling them on the idea. And at the end of that phase, we would ask for kind of initial offers, initial indications of interest, IOI. And we would take the, the buyers that give us an initial indication of interest and we would narrow that down to a smaller group that we would do the next phase, and in the next phase we would provide more information. We would host meetings between the management team and the buyers, one or two meetings between the management team and the buyers, and push the buyers to give us offers in the form of a letter of intent. And you can typically get multiple, you know, typically get a lot of offers or multiple offers. And it gives our clients the ability to figure out which buyers are the best fit for them and what kind of transaction they want. And then also which one, which are the best terms. And so you pick— typically you would pick one buyer and go into exclusivity and then negotiate and close a transaction, which takes about 90 days. Sometimes you can get multiple buyers into a parallel path, but typically you pick one buyer and do an exclusive negotiation period with them where they come in and do due diligence. And then you negotiate the purchase contract and close. And that due diligence period is typically between 60 and 90 days. And then the due diligence is kind of beyond what most business owners expect. And most companies are not sort of fully prepared for it. But buyers do 7 to 9 different streams of due diligence and they hire outside experts to come in and analyze the company. And like, they're, they're doing a couple of things. Like, one is they're trying to find problems so that they can either negotiate a better deal or really understand what they're getting into. And they're also making sure they fully understand every element of the business before they own it. So there are no surprises once the keys are handed over. And the, the streams of due diligence are They'll, they'll do like a business and financial projection piece. Typically the buyer would do that themselves and/or in conjunction with a consultant. They'll do an accounting due diligence, the so-called quality of earnings. They'll have a law firm come and analyze all of the company's contracts and understand risks and issues and assignment provisions and so on and so forth. They'll do taxes to make sure the company has paid taxes correctly, and that includes sales tax, use tax, local tax, state tax, federal, etc. They want to make sure they're not stepping into a tax minefield. And some of those taxes, irrespective of what the purchase agreement says, some of those taxes, the liability can be transitioned to the buyer. And so paying taxes correctly and having good records on that is super important. The fifth one I have is they'll do an employment practices study to make sure all of the various independent contractor and employment rules are being followed, because those have very potential, very sizable liabilities and they follow employee. They'll do insurance. Sometimes we've had problems where our clients are underinsured and the buyer will basically say, look, you know, you said your EBITDA was X, but you were underinsured and the premiums when we own it are going to be, you know, $500,000 more. So that's an EBITDA hit. So making like insurance can be a big one. I talked about this earlier in the discussion with you, but technology and intellectual property are areas that buyers look really closely in. For companies that have an element of technology, they'll often hire companies that do like penetration testing, cybersecurity audits, software code review. I mean, it's, it's super in-depth and very tricky to do that type of due diligence. And then some other things they look at for businesses that are highly regulated, like anything in healthcare, they'll look at all of the HIPAA and consumer privacy regulations and make sure you have policies and practices to follow that. And then they'll also do some work on acquisition integration, like what systems are we going to use and how does that all map to what we're currently doing? And, you know, if you're selling to a public company in particular or even a private equity firm, but a public company in particular, The CFO has to provide audited financial statements every quarter to the public. So they— or they— before a company gets acquired, the CFO has to sign off to be sure that they can get all the information and report correctly on a timely basis. And so that can be a stumbling block for companies that have poor accounting infrastructure. So those are the streams of data. I know I talked a lot, but those are the streams of due diligence. And, you know, we've seen on a $50 or $75 million deal, we've seen buyers spend between $1.5 and $2 million on outside experts doing all of this stuff. So it's like, well, it's well beyond just, you know, checking a bunch of boxes and looking at a few documents. It's, it's in-depth and thorough.

Yeah. Yeah, that's really helpful to kind of get a framework. And just as we round out the interview here, one of the last things I'd love for you to comment on, because you're obviously focused on representing businesses looking to sell, but you're interacting with buyers all the time, right? That's kind of who you're trying to, to get interested in these, these deals. And, you know, some of our listeners, you know, are, you know, family offices and they are, you know, looking for businesses to buy. And in our kind of, you know, initial conversation, you said, you know, you have some, some thoughts that would be helpful for family offices to think about You know, what are ways that they can put themselves in a position to be a more attractive buyer? Right. Because like you said earlier, there may be a case where this business is very attractive that you're selling. You're going to have multiple offers and a lot of times they're family owned. So there's a natural affinity to want to work with a family office potentially. Right. Because there's that family dynamic. But a lot of times they make it more difficult for them to make the transaction happen and talk about just a few of those things that you've seen.

You know, it's interesting, like when I described the, the sale process and so, you know, we reach out to a large group of buyers, send them information out and ask for initial indications of interest. And when we analyze those initial indications of interest, there's like 3 kind of primary criteria we look at, like what is the value range? Because, you know, obviously our clients want higher value ranges. Who is the buyer and what is their chemistry and culture? Like, are we a fit? Like, do we want to sell our company to them and then work for them going forward? And then the third one is like capability to actually close the transaction. And so there's— we look at all three. And so I think in the market that we primarily work in, which is, you know, entrepreneur-owned or family businesses where in most cases the owners work in the business and in most cases they're going to work for the buyer for some period of time, perhaps a transition or perhaps longer. I think the family office concept resonates well, you know, resonates well. And so I think family offices that, you know, can really have a demonstrated track record of being family-oriented and easy to work with could, could play really well in that, you know, in that kind of framework I talked about of price, chemistry, and capability. I think where, where a lot of family offices fall down is they're not really set up or structured to move quickly and make decisions quickly, and they don't necessarily have like a transparent decision process. And so it's often perceived to be very risky as a seller to work with a family office because there's like one rich family member that controls all the purse strings and they could wake up on a Tuesday and change their mind, as opposed to a private equity firm that has, you know, a dedicated fund and a track record of buying companies and a timeframe on which to deploy their capital. And so when you look at like a family office that has a lower velocity of investments and a pretty like opaque decision-making structure as compared to a private equity firm that's, you know, pretty transparent track record of doing deals and has money they have to work in a short period of time, often we like all else being equal, often we would advise our clients to choose the private equity firm because it's easier to get a transaction done. And so I think for family offices that are wanting to kind of jump into the private equity element, they have a massive advantage in that they're often family-oriented. They can be patient capital, they can be strategic and value-added, and they have like a really good story to tell. But often they shoot themselves in the foot because they don't like— they don't market themselves as easy to work with and they don't have a transparent and, you know, easy process. And so when you're when you're buying a company, if it's a good company, the owner and seller has, you know, multiple different options. And so as a buyer, you really have to sell yourself to the seller to kind of win the, you know, win their hearts and minds so they choose you. And I just have seen family offices not put the, you know, time, effort, and energy into that. A lot of family offices are trying to kind of hide and be under the radar screen, and you don't really know who they are and how they work, and it's this like giant mystery. And I think they're not necessarily doing themselves favors when they want to go and try to buy, buy private companies because they're setting up roadblocks.

Yeah, that makes sense. Janine, what are kind of the folks that you're looking to work with? What types of businesses? What kind of maybe financial parameters do they have to maybe meet or industries or just people that might have interest that, hey, I want to, you know, get an idea? I know you do valuations as well, which is maybe even prior to any engagement to sell, but you kind of give estimations of value ranges, other things. And yeah, we have a little sense of that.

We have two— we have like two distinct practices. We have a business appraisal practice and that's like a full service, you know, a full service from like financial reporting, kind of tax-related valuations, whether it's estate and gift tax, discount studies, etc., for trust strategies. We also do a fair amount of helping people plan ahead for a transaction. Like, you know, what's my company worth? What are the value drivers? Like, should I sell now? Should I sell later? I'm thinking about buying out a strategic partner, or I'm thinking about selling equity to an employee. Like, we do a lot of like valuation work for those types of things. And there's a, there's a wide range of companies we've worked with. It's everything from like you know, 2 entrepreneurs and a dog in the garage that raised their first round of capital that are granting stock options, you know, all the way through to like, you know, fairly sophisticated companies that are doing acquisitions. And then on the other side of our business, which is what I've spent most of the time talking about today, helping business owners sell their companies, most of our transactions are lower middle market. They tend to be businesses that are valued between kind of $25 to $100 million, you know, in, in value. The largest transaction we worked on the last couple of years is about $500 million. The smallest is $10 to $15 million. But, you know, in that sort of like lower middle market range, we love working with family and entrepreneur-owned private companies where we're working with a concentrated group of shareholders where we can really like dig in and roll up our sleeves and help them, you know, accomplish a transaction that's life-changing. That's super rewarding for us. And then we have a number of different industry areas that we're good at. We do a lot in business services and particularly marketing services and technology and companies that do kind of software and services into the healthcare and pharma world. We do a lot in direct-to-consumer e-commerce. We do a lot with like software, SaaS, recurring revenue, SaaS companies. And then we have like a manufacturing, manufacturing expertise. And we do— we've worked with a lot of companies that are doing like highly engineered and precision components. So those are some of the areas where we're successful. And if someone's interested in learning more about us, a list of a lot of the industries and types of projects we've worked on are on our website. And that's a good way, you know, a good way to look it up.

Awesome. Well, Channing, thank you so much for coming on. This was super insightful, and I'm sure listeners will get a lot out of it. And we'll put all those links to the show notes so people can learn more about Objective on your website. So thanks so much for coming on.

Yeah, thanks for having me. I really, really enjoyed it. And, you know, love, love educating business owners on, you know, showing up ready so that when they do decide to do a transaction, they have a fighting chance of getting a premium. So thanks for having me.

Awesome. Thanks, Jamie.