Hobby Business Pitfalls and Selling Your Company

Business Brain the Show for entrepreneurs episode 409 for Wednesday, December 7, 2022. Greetings folks and welcome to welcome back to Business Brain, the show by, for and about Entrepreneurs, the entrepreneurs podcast where we use our business brains in all aspects of our lives every single week. Sponsors for this episode include shopify.com SBS that's where you can go to get your 14 day trial and full access to Shopify's entire suite of features, as well as bambi@bambi.com where you can go and get your dedicated HR manager. We'll have some more details to share about both of those as well as a promo code for both of them. A little bit here for now. Back here in Durham, New Hampshire, I'm.

Dave Hamilton and in Lafayette, California, I'm Shannon Jean. I'm excited to be here. Those are my two favorite sponsors today.

I, I, well, they're today they're my two favorite sponsors. That's correct. Yeah.

They're awesome.

Yeah.

Super app, super applicable to what we talk about here every week on Business Brain.

Absolutely cool. Yeah. Yeah, it's, it's a, it's a great fit. It's no wonder they keep coming back. I'm, I'm glad they keep coming back. I don't mean to say that egotistically, but it's a, it is a good fit. I'm glad they agree that it's a good fit. Yeah, it's good.

I agree with their agreement.

We got, we've got a couple of emails here. We got one from Mike that, that, that sort of rang true with me when I was going through it this morning. I just got back from a trip to New York where I lots of great things happened. We were just there for a couple days to celebrate my son's birthday with him and but I will share one of these anecdotes, but it relates to Mike because, see, the business Brain is always working, Mike writes. He says I just finished listening to episode 406 on increasing engagement and will obey your command and send in a note to feedback at BusinessBrain show. He says he is a longtime intermittent listener and second time emailer from Western Canada. Says the conversational nature of the show as a general format is what keeps me coming back. I particularly enjoy your perspectives and ways of looking at things when you relate a story from your past while responding to a listener question. It's always interesting stuff. I don't currently run a small business, Mike says, but I have run a couple in the past and my family has been running a small business for 40 years. So my head is often in that mindset. Many of your discussions fall into a zone where the lessons learned also inspire ideas for side projects. My current side Project is a YouTube channel that may or may not become an income stream. Time will tell. I'd like to hear your thoughts on the journey of a hobby turning into a side hustle and then a primary gig. Pros and cons, such as hobby skills versus business skills and losing the love of the hobby as it becomes an obligation. Looking forward to whatever comes down the pipe next. Well, Mike, good news. You are right here with us. It's. It's. This is an interesting one. This perspective.

It is.

Opens up a lot of thoughts for me because you know, what he discussed. The idea of the evolving hobby is. Is something I've done a couple of times. And there's often what I. What I think of as this moment of intention when I find myself deciding to do something businesslike with my hobby. Perhaps as simple as just tracking expenses and income, right? Like, oh, wait, this might be tax deductible. It's usually driven by that to be, you know, to be honest, it's smart, right? It's like, well, wait a minute, wait a minute, wait. I'm actively participating in this. It's costing me money, and I'm earning something. And so it has to be sort of those three things happening simultaneously that make me start to do the thing that begins that conversion from simple hobby to business. And I've been fortunate enough to notice this and do it a few times in my life, right? My, you know, my whole computing, computer consulting career that led to a lot of other things that I do certainly was that way. My musical life certainly has been that way, and I've had other things as well. But when I. And it's happened enough to me and been good enough to me that when I see friends in this position, I will often, even in an unsolicited fashion, offer advice about, hey, you know, you're doing this thing, you're making a little bit of money from it. You know, you're making these little coasters or whatever, and you sold them to somebody. Well, you should just write that off so you can at least get, you know, the money back for the parts for the stuff that you're, you know, you can lose money for up to five years at least. That was the rule back then. I don't know what it is now. Check with your accountant. But, you know, it's like, why not take the tax deduction and just Just that. Right. You know, don't, don't even worry about marketing it or anything. Just take the tax deduction. It's, it's right there for you. You know, I don't make the rules. They do, but, you know, follow them and I'll get this resistance sometimes, not all the time. You know, that's along the lines of, well, if I treat my hobby like a business, then it will taint my beloved hobby. To which I, of course, tell them they're right because they're my friends and I don't want to upset them. But internally I'm thinking, yeah, except that if you actually succeed at turning your hobby into a job, then you'll have a job doing something you love. And I don't.

That could be the case. Yeah.

I don't see. Right. It's not all, it's not a guarantee that that's what's going to happen, but it's definitely not going to happen if you artificially limit that evolution. And that's just one of those things that makes me scratch my head, man. Like I, it's not how I think. I use my business brain all the time. It's why we do a show called Business Brain. So, but, and I don't, I don't, I don't mean this to be judgmental, but it is judgmental, but it's morally more judgmental about me. Like, I, I, it just doesn't make sense to me why you wouldn't want to take advantage of that. But I understand that some people choose not to. And so, like, like I said, because they're my friends, I back off.

But yeah, my take on it is a little different. I've done this as well. You know, I love to fish. So I bought a cabin on a river and I turned that into a business so I could go up there and stay there and fish. And I have to go up to maintain it and take care of it. So those are all expenses that now I get to write off. And if I do a little fishing every time I go up, that's, you know, that's okay.

Yeah, you're allowed to have fun. And you're also allowed to do, quote, unquote, non business things on an otherwise valid. On a valid business trip. I don't want to say otherwise. Valid business trip. Like, you know, you don't have to be working 247 for a trip to be considered a business trip by the irs. In fact, not even close.

Certain things. Yeah, that's right. That's right. So the. A Couple things I want to talk about the, the tainting your hobby kind of thing, but. Or your feelings towards it. But first, my take on the hobby aspect is. And thinking about turning it into a business. That's awesome. And that's, that's exactly. Or just a great example of using your business brain because you're even just considering it. It's like, wow, maybe I could make money at this. But my take on it is that it. It's probably not going to work out exactly that well. I know it won't. It won't work out exactly the way you think it will. So you may not wind up making money at doing the hobby part of it, but maybe there's some ancillary thing that. That comes and gets involved in it, that turns into a revenue stream. So, so that, that framework and that thought process is really important because it just gets you thinking and it opens up opportunities that, that may come along and connections that you may make, and you just never know where those, those things will lead. You can burn yourself out on something. And like, I started, you know, one of my first companies because I loved Apple products. They changed my life with another business that I had. So I thought, wow, gosh, wouldn't it be great if I could actually create a company around this stuff? And I will say over the years, after dealing with hundreds of thousands of Apple products, the, the shine did wear off a bit.

Right.

Because you kind of get. Step behind the velvet curtain, you learn everything about it. But, but I still love working with the products and I still respect what they are and how they empower my life.

Yeah. The magic goes away sometimes for things a little bit, but that's gonna, the reality is it's gonna go like that's gonna evolve anyway.

Anyway.

Yes. Yeah. Because I'm, I'm in the same boat. You know, Apple and their products has very clearly been a driving force and informed my business decisions and, and the businesses that I've had. And yeah, I'm not usually enamored at. I don't usually find myself, you know, in awe of Apple's products like I might have been initially. But, you know, I mean, I have another business where I have a podcast that helps people with their Apple products. And I love that. I mean, it's great, you know, so there's other things about that. You know, just leave yourself open to it and you can leave yourself enjoy. Yeah, yeah.

And what I found is that I doing this hobby thing, as if the business does grow enough, there's a good chance you may Wind up managing people that are doing your hobby.

Yes. Right.

Or being involved in that. So if you can get interested in either managing people, management, learning, and helping other people. One of the biggest secrets to my success is that I focused a lot on helping other people be successful, whether they worked for me or not. You know, suppliers, I always tried to let they need to be successful and make money on me, so on and so forth. But I also love the deal aspect, and I didn't know that when I was younger until I started doing it. And that's how. That. That was another ancillary thing. So it'll be different, but it doesn't have to, you know, it won't be. It doesn't have to be ruined.

It's not going to be bad.

Yeah, yeah, it'll be. It'll be great.

I. I run into people. Go ahead. Sorry.

Well, what I was going to say is that we. We're all about thinking differently on this show. Not thinking like a normal person that just goes to work every day. Nothing wrong with that. But, you know, Mike's thought process. Don't take the way other people think about, oh, your hobby. You're going to. And let it impact, you know, your growth of your hobby business.

Yeah. And for those of you that listen to my Gig Gab podcast for musicians, some of what I'm about to say will be an overlap for this week's show. But I was really blown away. I was down in New York, as I said, and I posted something online asking people's advice on things to do while we were there, you know, and one of my friends, a guitar player that I played up here in New Hampshire with in a bunch of theater pits, commented. He's like, you know your friend Andy. Him. My friend Andy has staff rate tickets to Wicked. He's, you know, the show on Broadway. Because he's the. He's. He plays guitar and Wicked. And I'm going to explain that. He's like, you should.

That's cool.

Yeah, you should. You should ask me and I can get you tickets and then you can go for cheap. So we did. We wound up doing that. I knew Andy. I met Andy, I don't know, maybe about five years ago, six years ago, we did a bunch of theater shows together. And while he was here, he was really trying to piece together a career for himself as a theater pit musician. And it just seemed like he was frustrated because in his mind, he knew that this was possible to be, like a stable, lucrative thing. And it seemed preposterous to Me, I know what theater musicians make because I am one. You make somewhere between $50 and $150 a service. A service being either a rehearsal or performance. And it's hard to piece that together into something that can pay your mortgage and put food on the table. Right? Yeah, but he was, you know, he was driven on this. Now, he had been in New York before and he told me that he had subbed on Broadway for Rock of Ages, the musical, you know, that was made after the movie. And it's like, yeah, okay, but I mean, you're just a sub. Whatever. Like, I sort of dismissed that. And then this time around, I went down there and he is thriving, right? Like, he's making a ton of money. Um, and yeah, and, and I'm like, oh, so you, you know, you're, that's amazing. You're the guitar player. He's like, well, I'm actually not the chairholder. Chairholder being the person named in the program that is on the contract to play the guitar every night for the theater show.

Okay.

He says I'm his sub. I'm his primary sub. And I'm like, okay, wait a minute, like you're thriving and surviving here as a sub? And he's like, oh, yeah. And he explained this whole thing to me. And if you want like more of the details, feel free to listen to gig gab from this week. Uh, because I, I, I went into it, but in essence, it takes a long time to find an opportunity where you can earn your spot as the, the chair holder of one of these theater pit jobs. Right. Because it's stable gig. It's a stable gig. There's eight performances a week, depending on how it all works. It's all union rates, but depending on how many instruments you are asked to play, you actually wind up making more. And then you make even more if you're, if you need to be on stage because you get like a stipend for or an add on, they call them doubles, but you don't get double. But, you know, a double for being on stage, for costuming, for choreography. Like all these things add up and you know, you can walk away post tax with somewhere between 250 and 500 bucks a performance. Post tax, you do that six times a week now, you know, like there's money to be made here.

And how many hours of work is that?

Well, it depends. He was telling me about one show where, because the band was on stage and this, that and the other thing, it was a one act show, which means there was no intermission, a hundred minutes long. So let's say he was there for two hours, maybe a little more than two hours to get costume and all that stuff. And he was post tax walking out with 500 bucks.

That's cool. Yeah, that's a good gig.

It's a good gig. And he's doing something he loves. This is definitely a hobby turn. He could. He has all day to hang out with his family. Like, you know, he can. He can be the one that takes his kid to school in classes, you know, his partner's working, like all of these things, and he's thriving. And it was like I told him, like, now I understand why you were frustrated here in New Hampshire because you knew what this, like, I had no concept that you could, like, literally thrive as a sub. And he told me, he's like, well, some subs make more than the principal, the chairholder, because you were able to do more than, you know, if you can sub on enough shows, you can probably get in 10 performances a week. You know, if you want to work every day and if you're hungry and that's what you need to do to, to, you know, start getting things rolling, like, that's what you do. And. And they have the. Because it's all union, they have a pension that they feed, which of course is why these chairholders hold on to their positions as long as they do. In fact, at this point, yeah. He says the guy who holds the chair only wants. He. The union says he has to play 51% of the shows every quarter. So he does, and that's it. But he's fascinating fueling his pension. Right. It's this whole other world that it, like none of us would have known about if somebody didn't decide, hey, I'm willing to take my hobby and turn it into something that could make money. Right. And now it's like his primary gig. And. And I mean, obviously he's a talented guitar player. I suppose that goes without saying. He can read music. He, you know, he can play pretty much anything you throw in front of him. I mean, all of those things are sort of, you know, table stakes to have a gig like that. But. But that's. Not that I don't want to dismiss that. I mean, it's doable. Like, you can. If you put in the time, you can develop the skills and you can do it right? So.

And there's a huge. I mean, if, if you can. I don't know how that type of business relationship works, but if you can actually run it like a business and if you can get paid, inform a, you know, a become a solopreneur. There's a ton of other benefits. And if, if you take away one thing from this conversation about hobby businesses is that it's not just about how much money you make or this kind of. There's just so many benefits that come to you. Tax benefits and educational benefits. Just there's, there's a ton of great stuff that happens when you own a business and as you get into it, you'll learn them more. You can go back and listen to other shows that we've done. So that mindset is really important and that's a great way to use your business brain.

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Of course, because Bambi is their own business, they serve many clients, but the one you get is dedicated to you and it's the same one you get every time. So this gives you access to the HR expertise and personal touch that you and your business need. And look, you could go hire your own HR manager, but they cost like 80 grand a year. Bambi, like I said, starts at just $99 per month. You can schedule your free conversation today to see how much Bambi can take off your plate. To do it, go to Bambi.com right now and type in Small business under podcast when you sign up. It'll really help us here with the show spelled bam b e-e.com bambi.com type in small business. You're going to be on your way. And our thanks to Bambi for sponsoring this episode. There's that notification sound that I like, right? Notifications usually are not something welcomed in our day, but that one is the sound of another sale on our sponsor Shopify, the all in one commerce platform to start, run and grow your Business. And those notifications are the ones we really like. Shopify makes it simple to sell to anyone from anywhere. And with Shopify, you'll create an online store in your vibe, discover new customers and grow the following that keeps those customers coming back. Shopify has all the sales channels sorted, so your business keeps growing from an in person point of sale system to an all in one e commerce platform. Even across social media platforms like TikTok, Facebook and Instagram. Shopify's got 24. 7 support and free libraries full of educational content. Which means that Shopify's got you every step of the way. And this is how and why every minute, new sellers around the world make their first sale with Shopify. And you will too. Shannon and I, we've done it as well. You'll be joining us. We've used Shopify and various ventures in the past. It's amazing how simple it is because they've done the hard work of making the complex stuff simple. So they work on that. You work on what you do with your business. It's like a dream come true. When you're ready to launch your thing into the spotlight, do it with Shopify, the commerce platform, backing millions of businesses down the street and around the globe. Sign up for a free trial at shopify.comsbs all lowercase go to shopify.comsbs to start selling online today. Shopify.comsbs and our thanks to Shopify for sponsoring this episode. All right, we have a question that has actually not made it into each of the most recent episodes and so we're going to remedy that here. Came from listener Jeff and it was part of a larger question, but he said in response, like Mike, to our request for more interaction. And part of that he said you talked recently about a business that you sold and we've both had businesses that we sold. So I think this is fair to sort of point to both of us. Although my guess is he was talking about me just based on recent. But you never know, right? And he says when you talked about it, what you talked about was extremely vague, like, hey, I got this buyer and we did our due diligence. And you know what? Now I'm not part of that anymore and here's how I feel about it. And he says, that's great, but the reality is, how did you find the buyer? What were the steps you actually went through? Do you have a PDF of the bullet points of these things that you need to look out for? You know what you're looking for in a buyer? These are the Red flags that had me concerned, but ultimately were okay. You know, those kinds of pragmatic things would be very interesting to those of us that run businesses. And Jeff, you are absolutely right. Now, part of the reason that I didn't go through that is I, I didn't think to. To do some of it. The other part is that Shannon and I actually did go through a lot of that stuff and have for each other several times over the years. But it's. It's a hard dance because this show isn't just me, Shannon, and you, dear listener, having a conversation. It. It is. It is. There. There are thousands of people listening, and there are. There's confidentiality involved, both for the buyer and for. For us as the sellers and also any of the people who were involved and are involved in the business, not just the buyer, but, you know, employees and teammates and partners and all of those things. So it's a tough conversation to have, but I think we can have more of it than we. Than we certainly have have had. And I'm happy to talk through more of the Mac observer sale now, especially that we're, you know, almost a year out from it. I have a little more perspective, and I've been able to. I've. I've learned how to process it and talk more about some of those details. So I'm, so, I'm happy to do that. Do you have any thoughts, Shannon, or do you, like. Do you want to.

No, I. And I, I. I can address some of the specifics of this as well and offer up some tips, because I, you know, we've been through this a couple times in a couple of different ways.

Yeah.

And. And then been a part of it where it didn't work out, you know, when you were almost to the altar. So that. Yeah, we definitely can offer some more specifics. And thanks for pointing it out, Jeff. And we can do that now.

Yeah, I would say, you know, because, yeah, this year I've. I've gone through it with a different business where we did get not all the way to the altar, but, you know, far enough along that it looked like things were moving, and then. And then they did not. And, you know, but that's okay. We retrench and figure it out, but that's part of it. So perhaps the very first piece of advice that I will give you when you think you might be selling your business is don't start thinking like you might be selling your business or certainly don't start acting that way. But more importantly, don't start thinking that way, because you don't want to emotionally detach from the business until after. After the check clears. And this is so hard to do. Like, I. I know logically, you're all probably nodding your heads, like, oh, yeah, that makes sense. It's hard to do. I went through it with Mac observer last year, and it was a very. That was a very quick deal. You know, we. We started those conversations in September, and the deal was done in December. That's pretty quick. We had, like I said, this other business that we knew not to emotionally detach from, and we didn't entirely, but in retrospect, we did sort of take our foot off the gas a little bit, assuming that, well, why would we want to start these new initiatives if. If it's going to be somebody else's, you know, those kinds of things. It only was a couple of months that we did that, and then we're like, wait, wait, that's a mistake. You know, let's not. Let's not do that. And then my favorite example is you and me, Shannon, with deals on the web years and years ago, that one really did get to the altar. I mean, we.

Yeah.

And you and I were so far removed from it on the day we realized it was still ours.

Yes. Then the day after, we were like, wait, what now?

What do we do now? Like, we were supposed to get the check today, and instead it's.

We were gone.

Same. But.

And we were done.

We were done. Yeah, that's right.

Yeah.

Yeah.

And the business suffered because. Because of it.

The business died because of it.

Yeah, it died. Yeah, exactly. Exactly. And it was a huge lesson. And that maybe where, you know, you. You got that. That takeaway from all those years ago.

Oh, first, not maybe, you know.

Yeah, counting the chick. You know, counting eggs or whatever. Counting the chickens before the eggs hatch.

But it wasn't even that. We were. We had spent the money that we never got right. It was. It was the. The emotional detachment because it's hard. Here's the problem. You know, you create a business, you put, you know, your heart, your soul and your time into it. You make sacrifices on behalf of the business. It's yours. There's probably going to be a period of time, if you're anything like me, where you don't even. You can't even imagine selling the business, you know, that somebody else could run it. Like, it's impossible. And. And then you go through this process of, well, I've got to. I've got to unravel my emotions from this thing. And, and, and, and then you do that successfully and find, wait, wait, I'm still here, you know, so, and it can, it can just put you in a bad position, negotiation wise in terms of, to, to get to the, some of the specifics that, that Jeff correctly accuses us of ignoring, which we've already done thus far. Uh, in terms of vetting the buyer, you know, things to look out for, it's hard to offer too many specifics, but we've been through it a few times, so I, I think I can, I can, I can do a couple of these. One is to make sure that they have the money that they say they have. And if you're working with a, if your business is large enough, and when I say large enough, I would say something maybe above 3 million gross a year. And I would say that's sort of the bare minimum if you're going to work with an M and A firm. And the reason I say that's a bare minimum is a. Their markets sort of live in that realm. And above, of course, but also you're going to be paying a sales commission, a pretty hefty one. It's kind of like a real estate transaction. So you're paying somewhere between 4 and 10%, let's say, of the sales price. So, you know, you know, you want to make sure that you're, it's not just cutting into everything that you're going to get out of the business, but if you're working with an M and a firm, they will often take care of that part of it for you and verify funds. But if they're not, or if you're working with a place like Empire Flippers or Flippa, right. Which are other places to sell business, you go online, Empire Flippers, Flippa, there's website closers as well. If you have a website that you're selling and they will vet buyers and they will, you know, require bank statements to show that they have the cash or a loan or something that they can do. I did that with the buyer for the Mac observer last year. I went through that with him and he successfully proved that. Yep, I've got, in fact, he started there. He sort of knew, look, I want you to know I'm serious. So I'm just going to show you, you know, the, the funds and, and that, that was a good sign that. Oh, wait a minute. That's sort of what pulled me off the fence of, of, of deciding to even engage with this guy. Because, you know, you get tire kickers every now and then. And you don't want to waste your time, but there's that. And. Yeah, yeah. So that's one thing. Certainly. Go ahead, please. Yeah, yeah.

I want to address this, like, how we're. Specific question, you know, how did you find the buyer?

Yeah.

I want to back up a little bit more, and I also. Well, I think that it's important to get someone else's perspective about your business, whether it's, you know, a partner. In my case, it was, you know, my wife who worked for the company who told me, you know, you don't. They don't need you anymore. You know, your skill set is not required at this business anymore. And I really didn't want to hear that. But. And I. It was a really good jolt to think about. Okay, maybe I. Maybe we should find somebody to take the business to another level and do something else. It was in maintenance mode, and that's just not my specialty. And it needed a better manager to take it to another level, a better, you know, the logistics, all that kind of stuff. But as far as where you find the buyer, the best buyers, in my opinion, find you because they're already looking. It's like being at the dance and not, you know, you want to be the. The. I use this bad analogy, but like the hottest girl at the dance that everybody wants to ask to dance.

Right.

You don't want to be desperate and chasing everybody all over the place. So. And it's not that you want to play hard to get, but, you know, your value, the value of your business, it's provided for you. It's hopefully, you know, providing for employees and all this kind of stuff. And you can certainly put the word out to people, oh, yeah, you know, hey, I might be interested. And now, like, to Dave's point, if you're working with an M and A firm, that's. That's a different story. They're going to go out and search and vet people. And that's. That's awesome. But in the. In the situations where I've sold businesses, I've had. I feel like we had a better relationship because they wanted to buy me.

Yeah.

First, before I reached out to them, it was an easy. I didn't have to pitch it as much.

Right.

Because, I mean, yeah, there was some pitching, and I had to do a lot of due diligence. And I. I go back to more part of the. And I don't know if it's in the E. Myth or another book that. That we've talked about, but there's a saying you know, you want to run your business like you're going to sell it tomorrow, and that makes you more efficient. It makes your reporting better, your accounting better. And that helped me a lot. And I've had businesses that I've sold that the accounting wasn't so great and it took months to clean up, to actually make a sale happen, versus other ones that it was, it was quick and easy because we had, we'd kept on top of it. Yeah, yeah. So if you can, you know, go ahead.

No, I was going to say, yeah, the, the, it's certainly handy when a buyer comes to you. What you don't get the benefit of there is finding out if there is other interest in your business and, and potentially getting a better price for it. However, you know, every business. Businesses are weird, right? It, it's, it's. I, I say it's like buying a house or selling a house, and it's true. But most houses are built for, in standard ways, right. For people to live in. Okay, fine, you know, you might need three bedrooms, you might need two, but you're going to have bathrooms, you're going to have a kitchen, you're going to have a living room. You know, houses have a lot of common features that are just part of having a house. Right. It's going to have heat or it's going to have, you know, it's climate control of some part, some sort, if that's, you know, necessary in your area of the country. Businesses are different. Every business is, you know, I hate to say every business is unique, but they are. And their businesses can be radically different from one another. So it's not quite as simple as finding someone who's looking for a house that wants to buy, you know, that decides your house is good enough. Most people that buy businesses aren't going to choose your business because it's good enough. They're going to choose it because it's exactly what they want to buy. And if they don't.

Yeah. And they have the skill set.

Right.

Something is, oh, are you in this industry? Are you part of a larger company that's buying smaller companies?

Yeah. What, what makes you interested? But also like, what makes qualified. What makes you qualified or confident? It's, it's less. I found it less about being qualified to run the business and more about being confident that they are qualified to run the business. So as, as we were going through what I'll call the negotiation process of any of these businesses, and this goes all the way back to when you and I attempted to or almost sold deals on the web. Which. It was a scenario where the buyer came to us. It was actually a public company, but, you know, they. It was the same kind of thing. They came to us, knocked on the door cold on one afternoon and were like, hey, are you for sale? You know. But it was that the negotiation process was as much proving the value of the business as it was proving how easy it's going to be for you, dear buyer, to take this business and profit from it when you're running it in ways that maybe I couldn't even do right, you know, with the business. And that it's a very interesting scenario to be in because it requires a little bit of humility. I mean, you know, I. In many of these conversations, I correctly, you don't want to lie to people because generally people can tell when you're lying. But I, you know, there are things that you wouldn't normally say in the course of running a business. Like, oh, yeah, I'm terrible at this part of it, but it sounds like you're much better at this part. Like, with Mac observer, very specifically, SEO was something we never got right. But this guy that came in understood SEO, and he also understood that we had never gotten it right. And he realized that this might be a huge opportunity for him to take this established property with huge domain authority and actually do some legitimate SEO with it and really grow it pretty quickly. And as soon as I realized that to myself, I thought, wow, he's right, you know, but it takes a lot to admit that. However, in the sales process, admitting that's important because if I told him, no, no, no, you're wrong, SEO is never going to help this business. It doesn't matter. Well, I might have talked myself out of selling or talked him out of buying the business. Right. Like, you know, I had to kind of go with it. Like, yeah, you're right. We are terrible at that. You seem to be better. You believe that you're better if you run with that. And that became a huge part of our conversations. Like, yeah, here are things we've noticed over the years that we probably should have had. Never took action on. We did other things instead. And let me tell you about those two. But it wasn't. It was more about talking up the business than it was talking up me because I didn't want to be hired by this person that bought this. Right.

That's a weakness. If all this stuff revolves around you as the owner, that's. That's a weakness.

That's a huge problem. Yeah, yeah.

What you want to promote is your systems, right?

The systems that they can inherit. That's correct.

And manage. And perhaps manage better. And you know, your, Your database, your proprietary software, your website, your workflow. I mean, you know, the managers, your supervisors, all those systems that you've, you know, put your blood, sweat and tears into developing all the time, that is what attracts buyers, and that's what makes your company worth more.

Because they're going to seem like you're such a master that you're the only human on the planet that could have created those systems. Right. You just want to.

Ye.

You want to say, look, we've tried a bunch of different things and here's what we've learned. You get to buy the result of that, those experiments. Right. Lots of mistakes are made. A few good decisions, you know, were made along the way. You now know that that's what you're buying. Here's a business that's profitable. Obviously you want to show them the books. You have to do that. But. But yeah, keeping your ego out of it, I found to be hugely valuable. And because I don't need them to respect my business acumen, I just need them to. To sign the check at that point. I mean, you know, it's like, that's just the reality of it. Like you said, you're not selling yourself unless you are. You know, if you're trying to do an Aqua Hire, that's a whole different thing. Aqua Hire is where somebody buys a business really just to. To shut down or not shut down, but maybe shut down your business and, and then bring you on board. And that, that happens too. It happens all the time. In fact, if you're an iPhone user, the Shortcuts app that's on your iPhone started as an app that two guys wrote called Workflow. And Apple, Aqua hired them, brought them in because they really liked what they were doing. And now they do that same thing for Apple, you know, and they call it Shortcuts. So, like, there's nothing wrong with that, but just know what you're selling and make sure that your actions are in line with what you're selling. So that. That would be another.

Yeah, and I also like the comment about vetting the buyer because, you know, if you're like most small business owners, you care about the people that work for you and you want them to succeed as well. Right. With this new venture. And part of the process of selling the company is selling the people that are going to be there on this new owner if they're going to Stay there.

And if, well, they're part of your system. I don't, I don't mean to say that callously, but, you know, that's one of the things. If someone's buying a business that's profitable, there's, and there's employees, they probably will want those employees to stay because that's, that's, that's part of the system that they're buying. And so, yeah, it needs to be the right person. Yeah.

And you want to, you need to be comfortable presenting it to, to these people that, hey, this is the reason I'm doing it. Yeah. You know, this person could take to another level or solve this problem or what, you know, whatever it is. The last couple things that I would say is you need to. Well, a few things. One is on your financials. You have to get some help restating your financials. And that sounds weird, but that's a really important aspect of this.

It's not cheating.

It's not cheating. And if you've been listening to Business Brain for the last 408 episodes, you know that we are big fans of expensing much of your lifestyle through your business, which is legal. And you know, you should do that. That's a huge benefit. When you restate your earnings, you want to pull out all those things. And so. Okay, well, if we hadn't done this and didn't hold our board meeting in Belize or whatever, wherever it was, then it would, you know, your books will look different. So that's really important.

The other part is, and, and that's the thing that I learned. A term in the last year called SDE or sellers Discretionary Earnings. And oftentimes your entire salary falls into that column. And then, you know, if you have a company car that might fall into that column, you know, like you said, your trip to your board meeting in Belize, some of the edit added stuff that you might do while you're traveling that as far as the IRS is concerned, are legitimate business expenses. But your new owner, your buyer wouldn't necessarily have to make those ex. Those expenses, you know, to, or make those purchases to run the business. All of those things. It's a known thing and it's totally accepted that. You know, and the way I did it with Mac observer, because it really was just me and, and the buyer doing this, this negotiating. There was no middleman. We didn't use an M and a firm, we barely used attorneys. Was. I showed him the, the books and then I showed him the restated books and I explained why the books he wasn't quite as savvy on the terms. And so I. I had to. I had to walk him through this a little bit. It would have been easier if he had his own attorney, to be brutally frank. And if you are going down this path, I highly recommend having your own attorney, and I strongly encourage you to convince the other party, the buyer, to have theirs. Because him not having an attorney almost killed this deal. Because there were things that my attorney was advising me to do. I'd been down this path in different ways, but there were parts of it that were new to me, too. But my attorney was someone I was paying so that I could, in theory, trust them. And I did. I chose to trust him. You know, but he explained certain things to me that, were they not explained to me, would have potentially made me. Were they not explained to me by my attorney, who I trust by default. If they were explained to me by the buyer, I would have filtered them with, well, is this a negotiation tactic, or is this just something that normally happens? And I know the reverse was happening, and it almost killed the deal because he didn't have someone in his corner that could say, no, no, no, hey, whoa, whoa. Don't freak out. Like, this is normal. What you're seeing here is absolutely par for the course. Don't sweat it. Everything's still fine. I know this seems weird, but it's only because you haven't done this before, right? You know, having someone in your court that knows the procedures and can have those conversations can save the deal. Attorneys can also kill the deal, but, you know, you have to. The conversation I had with my attorney when I brought him on board to do this, this deal was, hey, look, I. I need you to tell me everything that you. You. You think I need to know to protect myself. And I also need you to be okay knowing that I'm only gonna go along with about 60% of it, because there's going to be parts of it that I'm just going to choose. Yep. I'm going to ignore your advice here. I'm going to plow forward, and it's going to be okay. And you got to. You got to be okay with that for us to work together. And if you are, then great. But please, just because I'm ignoring 40% of your advice, don't cut your advice down by 40%. Give me 100%. Know that I'm only going to take 40. And if there's one that I choose not to take and you think it's really bad idea, say so. Totally fine. I take no offense at that, you know.

Yeah. And it's a great topic. We could talk, you know, for hours on this because it is important. The other thing you can do is if you go to BusinessBrain show and just search for the term selling, you'll find four or five shows where we talked more in depth about selling your business. And so you may find some helpful things there. The last couple little quick things is think about your story. That's really important when you're talking to a buyer. What is the story of your business that you've built this thing around? And then at the same time, I want to make one comment about financing is think about, okay, am I going to require somebody to write one big check or am I selling maybe to a smaller buyer that needs to finance those things? Really important topics to, to think about beforehand because they can derail your deal. So, so go up business Brain show, search for the term selling and you can pick up more, more help on this topic.

Yeah, there you go. Fun stuff. Good question. If there are, you know, we're, we're, we're ending this segment here because we've been at, we're at like 47 minutes almost on the show. If there are specifics that you want to know. Good news, we're going to do this again next week. Feedbackusinessbrain show. I'd love to hear from you so that we know what specifics you want to know and we're here to help. And if you've got something else, also feedback. BusinessBrain Show. Love to hear from you. You got anything else before we pull the ripcord on this one, man?

No, that's it. It's exciting stuff. I love talking about selling your business. It's a great opportunity.

It can be you, you know, you gotta be okay with the process and you gotta be okay with the eventual outcome too. But yes, it can be for sure. Yeah. Thanks for hanging out with us, folks. Keep living that charmed life and we'll see you next week.