The Exit Engine Podcast Episode 4: Understanding Private Equity Groups

Welcome to the My Exit Engine Podcast, episode 4. Hey there, welcome to Exit Engine Podcast. This is Joe Stapleton, joined as always by my partner and friend, John Kniff. Hey, John.

Joe, good morning to you.

How you doing, man?

I'm doing well. I'm doing well.

Cool. What are we going to talk about today?

We are going to talk about private equity. And what about— what are we going to talk about private equity? The good, the bad, and some numbers.

Ooh, okay. I like it.

So I like numbers.

Yeah.

When I say numbers and I say some sort of— it's really private equity's impact on our economy here in the US. It's specifically in the US, but the sort of remarkable transformation that private equity has had, um, on our economy and the way it's changed our economy in the last, let's call it, 20 years since 2000, is some of the stats that I have. So I'm going to get them in front of me. I have a couple stats here. Um, it's rather amazing how much growth there's been in private equity. In, in 2000, About 4% of corporate equity was controlled by private equity. Guess what it is approximately today?

It's pretty high. I'm going to say it's— you said it was 4%. Is that what you said? 4%. Yep. So I'm going to say that it's like 40%.

It's 20%. But still, that's an incredible growth. And where that's come from is a couple of different places, right? So it's come from private equity's growth, obviously, but also it's come from public companies becoming private companies and being taken private by private equity, by other entities. But at its peak, public companies, there was 8,000 public companies in 1996. Currently, in 2024, there's fewer than 4,000. Now, not all of those companies were taken or were bought by private equity firms. However, a large percentage of them were, and the impact is about 11.5 million people are employed by private equity firms, which is sort of an amazing statistic considering, again, 20 years ago it was so small.

That is kind of nuts because let's put this in perspective. There are about 34, Close to 34 million total businesses in the United States. Okay, 33 million of those are small. Yeah, small because considered small businesses, which in this case, which is just so everybody knows the definition of small business. Most businesses that you know are actually small businesses. All right, the big the big corporations that have thousands of employees and things like that, that's that's a large business. It's the medium-sized business that gets lost in all this because the reality is is that the medium-sized business are employees of between one. in 500— 100, sorry, 100 in 500 employees. Okay, that's just medium size. So most of the time when we're talking about business, especially in the United States, we are actually talking about what we call SMEs, which is small and medium-sized enterprises, right? The reason I'm bringing this up is to say that when you've got 11 million individuals working for private equity companies, Right. And that's the— that number is a third of the total number of businesses that exist in the United States. Right. There is— that is a very telling statistic right there. That ratio is very telling about where— about the impact private equity is having right now on everything.

Yeah. And as you can imagine, those numbers, you know, there's folk— there's specific industries that are highly— that have been highly attractive, and private equity firms have bought companies. As an example, nursing homes across the country, assisted living facilities. They're a huge target of private equity for many number of reasons. We're not going to get into those reasons now, but there's many— that's been very attractive. And private equity firms have, it seems, an insatiable appetite. I read a statistic, and I know these numbers are sort of quoted in different places, but in different times, but is it $1 trillion that I heard that's under— or that I read that it's, um, that's, that's in dry powder, not only in invested funds, but in dry powder in existing private equity firms, uh, currently?

Correct.

Which is an amazing figure considering that's money that needs to get invested and will get invested because of the mandates that those private equity firms have with their investors, with the endowments. The pension funds that own them.

We talked a little bit last week about private equity and the way that these funds work. And understanding this, again, a real quick recap is that private equity group or PEG or private equity fund is an investment fund, a private group, pile of money, pool of money that's been brought together by individual into a pool by individual investors. The private equity group is a business, okay, that essentially, um, take, you know, uh, goes in and, and solicits the funds from investors, builds a pool, talks about what they're going to invest in, has maybe a certain level of operational experience in a certain sector or a bunch of different sectors, and is— what they're trying to do is bring their expertise to bear on behalf of investors be able to go in and purchase companies that they will, that in general, that they will hold for about 3 to 5 years. They're looking for companies that have some kind of deficiency that they can exploit.

Okay.

In a general way that they can then turn around and they can make, uh, you know, you know, whatever their vig is, they want to make 15 or 30%, whatever, on top of what they paid for it over the next 3 years. And that money obviously then gets distributed back out to their, to their investors. Right. What John's talking about right now is dry powder. And the dry powder is the, is what we, is a term, not terms that we use to say this is money that has not yet been deployed, meaning that it is sitting in a bank, in a checking account somewhere in, uh, that the private equity fund has. Maybe it's getting 3 or 4% interest or whatever on that right now while it sits there. Um, but the reality is that until it's actually used to purchase a business and then held for 3 years in that business, The, you know, that's when the investor is making their money, right? After the end of the 3 years when that company is resold and then that fund is being divided up again based on how much money you put into it, etc., etc. So you're getting your return at that point, correct?

Yeah. And what, and what this means for entrepreneurs is it's overwhelmingly a positive thing for all entrepreneurs out there. And the reason is, you know, there's something like 18,000 private equity firms And they are of all flavors. They invest in small business. They take— you see the headlines. They take companies like Squarespace was announced recently is going private and all these companies. So there's people that play in that sort of strategy.

Right. And I just want to clear this up.

Please.

Going private. So what you're talking about—

Yeah.

What you're talking about are public companies, companies that have already IPO'd years ago. were, are, were traded on the stock market, whether that was the New York Stock Exchange or NASDAQ or any of the, whatever, whatever, whatever, uh, you know, board it was on. And now private equity coming into those companies, buying up all the shares of the companies back from the shareholders, public, right? And taking the company from being public back to being private. What's the benefit, John, of going private? After you've been public?

Yes. So one of them is there is an extremely large cost to being a public company. And what do I mean by cost? Well, you have to hire certain specific jobs. One job is an investor relations officer, as an example. And what an investor relations officer does every single day is she deals with Wall Street analysts and she deals with Fidelities of the world, the buy-side institutions that own that public company. That's just one cost. There's all sorts of costs of Securities and Exchange Commission. There's attorney fees. You need to file your public documents every quarter. You need to keep track of all sorts of risk statements, Sarbanes-Oxley compliance. We can do a whole podcast on that. It'd be really boring and put everyone else to sleep. I find it very interesting because I used to do it 20 years ago. But the reason that they go private, Joe, one of them, is they can save all this money on those expenses that are necessary to be a public company and file those required documents with the Securities and Exchange Commission, with tax authorities, all sorts of things like that.

And the other benefit that goes along with that, obviously, is that they are no longer in America. They are no longer required to file anything about the business on any level, in any way, shape, or form, with the exception of announcing now, which is new this year, who was— who were the members of the LLC are. So basically, that's the only requirement there is of a private company. So there's a huge benefit in being able to even keep— stay out of the way of the SEC, to stay out of the view of basically any kind of regulation except for what the regular— what was required by the industry.

Yeah. And the big— the big one, obviously, I don't know if that was last year, I can't remember now, but it's Twitter. Right. What Elon Musk took— what he did was he offered, I think, $40 billion to take Twitter private. And as a result of that transaction, he no longer has to file the financial statements. He no longer has to file how many employees he has. He no longer has to let the public via the SEC know about the finances of the activities. And obviously, you no longer have a publicly traded stock that people can buy. So it's, it's It's purchased by— with that example, was purchased by him. But the private equity firm, it takes advantage of all those benefits that Elon did when he took Twitter public— took Twitter private, excuse me. And they do that with Squarespace recently, with all sorts of companies who were once private, had all these requirements, and now they're private and they can restructure them in the ways that, A, can make them more profitable, but B, inevitably, you know, sometimes leads to like job losses and sort of refocusing the business on a more profitable scale.

So the private equity companies get a bad rap sometimes because they are thought of as the— what's the analogy? They're thought of as the guys who are coming in, stripping the car down for parts and whatever, and reselling it. In this case, you're talking about firing people, reducing the thing, tightening the screws so much that they can make a profit and the whole thing. Now, That's probably true to some degree. Like everything, there's a little bit of truth in it. But is that the norm? Is that like what they're all about?

No. And that's a good sort of transition. And yes, it's like that, stripping down the analogy in some cases. However, what that does, if you're selling a car, and in the analogy, it's you're selling your company, there are so many more potential buyers for your car. So there's buyers that want you to keep your business and be an investor in the business. There's buyers that want to buy the whole thing and have you, um, have you grow the company and stay along for, to help them grow and expand the business and grow into different markets. And the money that you get from a private equity firm can be the fuel that you use to go into new geographic areas, you know, create additional products, serve additional customers, whatever your, whatever the growth plan for your business can be. Private equity can be the jump starter, can be the accelerant to that growth. by providing that, that sort of patient or more patient capital to do that. The other thing that it does from a public company and getting back to that public company is you no longer have to report quarterly earnings, which is a huge lift off of the management team. Trust me, I was— I consulted with these management teams for the first 11 years of my career and everything revolves around that quarterly cycle. When you remove yourself from that quarterly cycle, you can think in terms of years. And you can think, think in terms of multiple-year plan, whereas you can do that in the public company to a degree, but you always have to keep your eye on the quarterly calendar and what your investors are going to think of. What are you, Joe, what are you delivering today? What are you delivering next quarter? And it creates a culture of, of, of you're literally a hamster wheel. You're on a hamster wheel. And with private equity, it can be 2 years, 3 years down the road. Things take time. Sometimes products and projects take a long time because it's— they're involved. A growth plan has to work. You have to, you have to try something. You can experiment. You can experiment much more freely in a private— with a private equity firm. And when you're private, as opposed to where you're in the glare of the public markets all the time with your quarter, with, you know, that your quarter release is coming out. Uh, in the next, you know, 60, 90, 45 days.

And of course, anything that goes on when your company— when it's public, anything that goes in your company public relations-wise, or right, or whatever, the whole thing, all, all, you know, has an impact potentially on your stock price because it's having an impact on investors. And the investors be able— or get, get to, get to stand up and say, stop doing this, or they get to say, I want to change the CEO, or whatever those things are. So the reality is, is that there's not— there's a there's a lot of pressure there for a public company.

Yes.

And a lot of it's good things. It protects investors. So, you know, the reality is the way that the— the reason that the SEC exists, right, is to, is to allow— is to put some kind of regulation and stuff and consumer protection in, built into the process, so that it wasn't— it's not like the early days when, you know, when Alexander Hamilton was first starting the banking system and the whole thing, and the free-for-alls that were going on with the stock market and people pretending to have stock prices and changing, or pretending to have revenue in their companies. All kinds of shady shit went on before the SEC came about. And so being able to— so the private— a lot of what's happening now is that private equity firms are taking these companies from being public to being private again, where they can have a lot more control, they can have a lot less regulation, they can have a lot less, uh, you know, and, and, and less pressure than to be able to do their growth. Now, the question is the growth that they're going to do by taking these private companies. Now, you, you, like our audience most of the time is not public companies, right?

Right, exactly.

For the private company, um, you mentioned the basic that, that the private equity firms can be, are a huge benefit because it increases the buyer pool.

It increases the buyer pool. It, there's, there's all sorts of opportunities and there's, there's so many different flavors of private equity firms, right? So the ones we mentioned previously that take companies that take companies private. There's, there's also many that play in the— that love to buy companies that are between $5 and $15 million in revenue, that have smaller, even smaller EBITDA portions. There's ones that go up to $100 million in revenue. But, but, but because the proliferation in all these private equity firms, there's basically one that I would, I would bet that would match Any of the companies that are on this, that are listening to this podcast right now. In other words, if you have a, let's call it a, let's say, not a pharmaceutical company, but let's say you have a nursing home and you're a nursing home business or you're any type of healthcare businesses. I'm working with, I work with private equity firms that eat those companies up. They love the growth trajectory. They love the margins. They love the ability to grow, and they will be the patient capital behind you to help you grow your company into whatever you want it. And if you have a clear business plan, if you have adequate financials and you know your business and you know your numbers and you know where you want to go and you're looking for a private equity firm, I pretty much guarantee you that a private equity firm's out there. I mean, Jo, you've worked with IT companies with an insatiable appetite for IT businesses. I'm working with a company that has an insatiable appetite for roofing businesses. I mean, those couldn't be 2 more different private equity firms, and those are just the 2 of us, right? Um, it's really amazing how much growth there's been and how much growth and specialization there's been in private equity firms.

Well, I think absolutely. And I think what— with the proliferation of the amount of of groups out there, of funds out there, what happens is the competition gets tighter. So what, what, what do these private equity firms have to do? They have to be more creative. They have to find a niche. They have to be a little bit more specific about what, about where they play and what their style is. Some people are bringing more operational components to it. There are private equity firms that are bringing, well, I have a cadre of CEOs that we have on staff that we just deploy to you. Um, if that's the, you know, in that case, things like that. We've got operational experience. We've got, by the way, private equity firms, as we mentioned last week, have often have what they call portfolio companies and then add, buy, and then those companies buy other companies to add on to their services or their product range or whatever that is.

So yeah, and we have, funny, I have one I just talked to, um, uh, the gentleman this morning and he's ravenous. And I would use that, I don't use that word lightly. He is actively looking for multiple companies to buy. And he has the model that Joe just mentioned. He has prior CEOs on staff. He has industry— they have industry expertise, and they focus on 2 or 3 industries. One is asset-backed securities, and they love those businesses. They've done it before. And they come in, they buy a chunk of the company, they let the entrepreneurs stay. They want the entrepreneurs to stay. They, they, they truly provide patient capital as well as industry expertise to help you grow the business. So there are all sorts of flavors. This is just one aspect of it. There's other people that come in and they have an idea for a platform and they have the portfolio company that exists and they roll it onto— they roll new companies. The roofing company as an example, the healthcare services company that I'm working with, uh, with a company down in Texas that's looking to just roll those companies up into one bigger company and provide the same service across the country. So they're looking for geographic expansion of healthcare services companies, um, and they have— again, they have an expansive and ravenous appetite for these businesses. But the point is, there's all different flavors. There's ones that want to buy a majority of the company, um, there's ones that want to take a minority stake, there's ones when they want you to stay around. There's earnout potential. And I guess the point is the flavor is, or the specialization is sort of limitless.

And so that's why it becomes so, it's why it's become so important as the potential seller, right? To have, to be able to do your homework on, well, first of all, on what it is that you want as the seller. Okay? So the first, this is why our methodology always starts off with asking yourself, Who are you and what is it that you want out of this? Okay. Out of the business. I don't, I mean, what do you want to, how do you want to get out of the business? What I mean is, what do you want from it in terms of your lifestyle, in terms of your, what are you going to do next? What are the things, you know, and then, and paint a picture as to what your life might look like after this transaction was done. Right. That's where we start. And then we work backwards from that.

Exactly.

Yeah, there are so many permutations, right? And finding the right fit for you becomes a real thing, especially if you're not leaving, right? Because you're not just— right, most people, and this is— this becomes a real issue. So, you know, look, we can, we can identify with all of you out there who are in this position, which is that, you know, you are on the fence about selling your company most of the time. And the reason is, is that on one hand, Look, there are some people that are just done, right, John? I mean, there are some people I know, we can each point to people that we know that were just like, look, just sell this thing. I'm out of it. I'm done. I'm tired. I have an interest in golf or in sailing, or I have another business that I'm doing or whatever, or I'm spending time with my grandkids or whatever that thing is. And that's what I'm going to do. And I'm over this, man. Just sell this thing for as much as I could possibly get and move on. And there's nothing wrong with that. For a lot of people, though, it is so wrapped up in who you are as a person that letting go of it starts to— and the thought of letting it go with it starts to kind of sneak into your thought process without you even sometimes really even knowing it, right? And one of the things that we come across all the time, in fact, we've come across it with someone we're working with right now, John, is terms of, I want to go, I want to be able to sell my company. But I don't like the guys who are coming to me right now asking to buy my company. I don't like them. I'm not going to be partners with them for 3 years while I earn out if I don't like them. And that, that's not— does not work for me. So find me something else.

And there's no reason— to your point, Joe, there's no reason for a company— anyone listening to this should settle on a deal that's not optimal.

Right?

They want to buy 60% of the company. He wants the— he wants— you want to sell 20% of the company. You want to have an active role in the future. They don't want that active role. Like, there's no reason that, that, that you as an investor, as an entrepreneur, needs to settle, uh, because there's so many permutations and so many flavors of private equity firms that, that if you want to stay and you want another bite at the apple and you just want some capital to fuel your business the next 3 years because you've got a great idea for XYZ or ABC. Angel investors, private equity firms, there's all sorts of options out there for you if you're looking for capital to grow your business.

That's right. So, uh, on the private equity thing, let's talk a little bit about the— some of the downsides. Uh, you know, there are a couple of other downsides to the private equity thing in terms of our economy in general, like this isn't necessarily bad for investors, but one of the complaints that we hear about private equity firms, or the bad raps that private equity firms get a lot, is that they are in the habit basically of destroying the companies that they buy. Whether it's because of their own incompetence or because of their inability to be able to make it work, or because they are not interested in the long-term health of anything, they're just looking to get their You know, to get their, uh, to get their profit out of it before they go, the whole thing. Is this, uh, how real is this?

Again, it's just, it's the headlines, right? That you, you say how private equity get into— got into housing recently, right? Or not recently, but in the last 10 years they've bought up a lot of single-family homes, um, and they've bought up a lot of rental, and they're actually investing in build-to-rent companies. Now, that's not necessarily a bad thing, right? It's From, from certain perspective, if you really believe that homeownership is the key, uh, homeownership rates have gone down. However, what these people, what these private equity firms are doing are supplying a product to the market that is desired, right? It's, it's, it's good old supply and demand, and a lot of people are choosing to rent. Um, so that's one example of private equity that, that what they're doing is really they're delivering what customers want. Maybe customers don't want to buy a home. They want to be able to have the amenities that they want, and, and private equity is, is delivering that product. That's one example in housing.

Right.

Um, and, and the jobs, a lot of times when they come in and they're being critiqued for, for, for cutting jobs, um, like in retail as an example, well, people are buying differently, right? That's another sort of consumer preference. I, I know my purchases, purchases from Amazon and from other online retailers went up dramatically during the pandemic. And again, that's just a— that's a function of the market. It's what customers want. Customers want the convenience of getting things delivered. And you can't really blame private equity in most cases for delivering, again, what people want. That means— that can mean that people lose their jobs, unfortunately, but it's sort of reshaping the economy and is one of the reasons why our economy is so frankly dynamic.

No question about it. And I think that part of the— again, like everything else you say, you talk about the headlines. I think another, another concern about the private equity groups that I've heard and stuff too is that, well, we're getting to— we're going to get to the point where, you know, where every business is just owned by a private equity, right? Like everybody's gonna— if everybody sells out to a private equity company, all we're gonna do is that every single thing then will be owned and there'll only be— and there'll only be 5 companies in the world. And I look around going, well, all you've got to say to me is Apple, Google, Amazon, right? This is not private equity. These are all public companies that are buying up and the whole thing. And at some point, these 4 companies will own just about everything. So the point is to say that that can happen whether it's through private equity or not.

Right.

And what we're actually seeing is more of these companies going the other way, Like you said before, which is to take them away from being public and back into private. But even if our audience sees, hey, look, um, if— would it be such a terrible thing if, if all these businesses were grown, started by individuals like our audience, grown to a level, right, optimized for their own, own, own benefit, right? Perhaps the benefit of their employees and all that stuff, if they're that kind of person. Hopefully they are. We know that that actually makes a difference potentially when you are that way. But to be able to get that thing, get that business to a place where it then gets taken over by private equity. And so is there potentially— you talk about reshaping the economy, maybe we're just in a situation in which right now where there's an ironing out of things kind of falling out to see where they land. Because we are actually in a situation where there potentially are right now Too many private equity companies for the amount of companies that there are for sale.

Yeah. And I think that's indicative of the fact that there's a billion— sorry, a trillion dollars. I mean, think of that, a trillion dollars in dry powder. They can't— private equity, I mean, when they say they, they can't find enough businesses to buy because if they could, they wouldn't have a trillion dollars in their bank accounts. They'd have that capital deployed across all the businesses on this on this podcast, right? So that ideally, they don't— they're not bankers. Private equity people are not bankers. They don't make money off the interest. They make money off the investments they make and the growth of those companies. So believe me when I tell you that private equity wants to deploy that capital. They can't find enough companies to deploy capital. And eventually, to your point, Jo, that'll ebb and that ebbs and flows, and that'll ebb back and flow back to Probably private equity firms are closed because if they can't find anything to invest in, their investors won't give them the next round of money when they come back to them for fund 2 or fund 3 or fund 4.

That's right. And the, and the opportunity that exists now for, for our audience is to, is to, A, understand that there is— chances are that no matter what state of your company is in right now, don't worry about that right now. Just know that there is— the potential is there for, for any company potentially to be bought by, by, by, you know, or to have a deal done through a private equity firm because there is some kind of private equity firm out there that's going to be interested. The, the, the thing is, and we, I think we talked a little bit about this last week, is to understand that they, however, they are, these private equity firms are professionals, man. Okay? They know, they know what they're doing. They have the models. They spent, they, they spent the money figuring out the best things to buy, the best places and, and, and the companies they want have some kind of inefficiency that they can exploit. Um, so understanding that and knowing that the re— the reason you will be attractive to private equity is not because you have the healthiest, best, fastest growing business, whatever, in the world, but because there's something that you're not doing that they want, that they want to do Right, to be able to grow that business.

And then, right, and then they can leverage something that you don't have in order to take your business to a different level. Like, just as an example, you know, they have access to capital, they have access to technology, they have access to experts that may not be available to, or likely are not available to you as a small business owner, whereas they can leverage—

Unless you're an exit engine.

Yeah.

An exit engine.

But, and that's, that's the importance of what Jo mentioned earlier, is you have to get your, your company in order. And one of the things that's, that we've noticed when we're talking to entrepreneurs is that's, that's lacking, frankly, is a plan to exit your business. Right. So you might have your financials in order. You might have your suppliers in order. You might have a great relationship with your bank, but you haven't put enough time into thinking Man, I'm 60 and I want to get out of this thing by the time I'm 63. What am I— what can I do now to prepare for that? And how am I going to find the right private equity firm or the right investor to take my business over? What do I need to do now? What can I— what do I need to do in the next 18 months, 12 months?

And how long is it going to take? So understanding that the time to be doing this isn't the day before you want to retire. The day for doing this comes way before that because it could also drive the entire trajectory of your business over the long term based on what it is you ultimately want the result to be, right? And it depends on your industry, it depends on your business, it depends on where you live, it depends on the geography, it depends on— there are many, many, many, many variables, which is why there's no one-size-fits-all. Yeah.

But, but yeah, and it's like the court, it's like the public company discussion we had earlier. Obviously, you're not a public company. However, if you were planning on selling in 2 years, there are things you do differently to prepare the company for sale in 2 years from an investment standpoint, from a product standpoint, from an employee standpoint that you do for a 2-year time horizon as opposed to next month, next quarter, next year that would be part of that exit planning that you could start doing now.

Right, exactly. And the idea is that what you want to be able to do, what we coach our people to do, is to make sure that you get to a place where when, no matter what happens, you have a plan that you can execute for exiting this business on your own terms based on when it happens and what is happening in that situation, what is causing that exit. So remember that it's one thing that we're not— what we're not advocating is that we sit down and you have a plan for 10 years, and if you don't hit that and there's nothing, nothing about that plan changes. Quite the opposite, right? The idea is that you, you stay on top of this. You know that this year— oh, I see a regulation event happening this year that might impact me. Maybe now is the time to try to actually get out of this thing. So I'm going to pull this lever, which is going to be my exit strategy for this situation in this time period. and, and try to see if I can maximize that right now, understanding that if I don't, if I can't, or if something changes about the regulation, I'm not tied to doing anything. I can now just say, okay, not gonna happen, that one's aside, you know, crisis averted, or whatever it is. And I can hang on there for another few years and maybe get— and maybe maximize it a little bit more because I've been able to, you know, to survive that, you know, that, that the circumstance that may have caused me to think about getting out of it. So again, with knowing that private equity firms are out there is incredibly beneficial because you can know that in no uncertain terms that there's— chances are there's going to be something, there's going to be somebody who's going to want to buy your business. And knowing that is—

Yep.

I mean, and knowing that, by the way, as an entrepreneur, Writing your business plan for the first time ought to be something that helps you, you know, get through the first few years as well, right?

Yeah. And also one of the other benefits of ExitEngine and the community is you'll see other people sell their companies and learn from those experiences, right? So that you'll see during your time at ExitEngine, it'll be clear that when someone gets an investment from a private equity firm, gets bought by a private equity firm, and you learn from all those deals that you, you know, you read about the big ones in the Wall Street Journal, but you hear about the ones that happen within the ExitEngine community in your sessions.

And it makes it real and it makes it right there and it gives you, you know, and it kind of gives you, you know, there's this hope. And I think that, you know, this is the thing. I know I'm a broken record because I come back to this all the time, which is that, you know, we, what we're, one of our missions here is to try to make people understand that when you dream about having the business, don't stop there. Dream about what the business will give you in total, some of its freedom and financial flexibility and all those things that come with even just owning the business, because hopefully you're in a position where you're making more than the average person and you're— and you have a business that's sustainable and you're potentially— we also know that the small businesses are the majority employee, employ half the people in this country.

Crazy.

Are employed by small businesses. So there's a major— it's a major piece of our economy. Um, there is every individual business that's operating today or, or is planning to operate today has the potential to be able to sell as opposed to go out of business. And if you are managing your business, if you're hanging out with us and you're hanging out with a cohort of people that are just like you in the same place that they're in and you're getting advice and you have access to the advisors and the specialists and the experts that the private equity companies have access to and all that stuff, you're going to be better informed. You're going to be able to make a better deal and you're going to get— and you're not going to be taken advantage of by anybody coming and throwing shiny coins in your face. And you're not doing the financials.

Yeah, sorry. And you're not going to be beholden to that one firm that's come to you out of the blue and giving you an offer, it's like you'll be able to not only weigh that offer, but you'll be able to say, I don't think I want to be— I don't think I want to leave the company in, in 6 months, or I don't think I want to stick around for the company for 6 months. It really depends on what you want and what these private equity firms can offer you. Because again, as we've discussed, the more private equity firms out there, the more different flavors there are for what they want and how they want to grow and how they want to operate, interact with So the growth, the growth of the, of, of the private equity, uh, industry, okay, is, is nothing really but a positive for, for business owners right now, um, in terms of their—

because the more there are, the more competition there is, is a good thing for you. It means that they are going to— they're going to be more creative in terms of the, in terms of the offers they make. Uh, there's more, there's more potential financing and more potential different ways to get money. permutations of ways to be able to make deals. And, and, and because there are so many of these companies out there compared to the number of companies that are, that are in the category of what we would call ready to buy, ready to sell, that they are, that there's a huge advantage right now in being a seller. It's a seller's market. It's always a seller's market, basically. And because the private equity firms, because there are more and more private equity firms, The competition gets increased, and that's only a benefit potentially for you because it means that you can wait for the right one and not have to take the first thing that comes along.

Yeah. And getting back to sort of nuts and bolts of what we've experienced recently, and I'll speak for myself, is I'm working with a buyer who wants to buy a business, and the brokers are so busy. They have 5 listings, 5 seller listings. And they are so busy, um, because there is no inventory. And the fact that they have inventory, they're crazy. I can't even get an appointment with them. I tried to get an appointment with them this week to have a buyer buy their business for $30 million, and they're not getting back to me. So what that points to me is it's not a problem with me. That's not a problem with, with, uh, you know, they don't like— they don't like my buyer. They are literally so busy, uh, with their listings And with multiple offers on their listings that, uh, that it's just, it's just crazy when a, when a company, uh, decides to sell, to sell.

So. That's right. Exactly right. So, I mean, the real, the world really is your oyster. And I think that, you know, to understand that going, even going into it, no matter where you are in the journey right now, uh, you're at the beginning, you're close to retirement, wherever you are, uh, understand that the, the idea here is to have a plan. multiple plans, different stripes based on what potentially could happen in order to optimize everything. But know that, that we are living in a world right now where there's more money to buy you than there ever has been. There are, there are, the private equity thing is, is becoming such a force that it's basically taking public companies private, which used to be the other way around. There's very little benefit right now, I think, for people Except to go public, frankly, except for the fact that they just want— obviously, there's a lot more capital. I mean, the reality is the one advantage to IPO is that there's a lot more capital. I mean, you're talking about potentially hundreds of millions of dollars worth of investment all in one shot, which is not something that's going to happen necessarily in a private deal. But, but you don't need that much. I mean, the reality is most of our clients are in a situation where they, you know, where they understand that the value of their business is going to be, you know, is going to be X. And then for an individual or even a couple of partners to be able to, you know, to be able to get, you know, you know, 7 or 8 figures, you know, for the business that they worked their life to get on top, by the way, and that's on top of the way that you were already able to live. You know, if you have a successful business and you're paying yourself $300,000 or $400,000 a year, and there's, you know, and there's even more discretionary income out there and stuff, and you can use your, you know, you're using your business to pay for your cars and your things and whatever, all that stuff, all good, by the way. We love that. That's cool.

Yep.

Um, we're not here to, you know, we're not here to, to tell the IRS on anything or whatever, but the point is, is that to say that that's, that's the benefit, right? But the ultimate benefit is to be able to now to create, you know, an even more generational wealth, right? By being able to understand that your business is valuable. And if you just, if you, if you have in your mind, okay, that one day I'm going to sell this company.

Yep.

Instead of, instead of I have a nice business that pays me money, okay? The idea is to understand that's a game changer. But understand that you don't have to worry about some competitor. You don't have to worry about some very specific strategic buyer coming along, right? None of that stuff, right? The, the money is out there right now. It, it wants to be spent. It's looking for you even if you don't know it. You, you just have to basically put yourself in a position to be able to, you know, attune yourself to it so it will come to you. Um, and Exit Engine can help you obviously do all of this stuff. So Um, John, anything else on— do we need to know?

No, I think, I think we covered everything I wanted to cover.

Yeah. So this is a little bit of a primer. Again, we're— we have an entire class on private equity. Okay, so if there's a— if there's something you want to— if this, uh, there's another reason to join ExitEngine, uh, is because you're going to get the valuable content, you're going to get learning resources, you're going to get access to experts and specialists, you're going to get, uh, you're going to get, uh, you know, peer-to-peer learning. You're going to get discounts to events. You're going to get lots of stuff. Go to the website myexitengine.com. But the most important thing we can impart to you right now is, please, we're putting it up on the screen right now. Please, the very first thing, find out where you are on the exit preparedness scale. That is just a way of being able to show you and us where you are so that we know what kind of program we can put around you, what cohort we can put you with. What's gonna be the best learning experience for you to be able to get your business from here to there, and then hopefully have one of these brilliant private equity firms be, you know, be interested. So take that, make sure you get to the website, myexitengine.com. You've got the link to the survey right here. Please do. Sorry, to the assessment. Please take the assessment.

Yep.

You'll notice that the assessment is everything, right, John? Why is this assessment so important?

Because it helps orient us and you and makes, makes you think about the questions that we're asking have a definitive point. And the point is where you are in your planning, where you are in your business, what type of business do you have, and gets you thinking about the exit planning that is sort of implicit in those questions.

And so, and that, that's real value right there. It's completely free. It takes about 7 minutes. My hunch, I've kind of figured this out, that basically is that it takes you— will take you 7 minutes to take the survey. You will— it will give you— it will immediately basically be able to, by taking the survey alone and understanding where you are, we estimate that you could probably grow your business by 7% in 7 months. So 777, okay? Take the 7-minute survey and you're gonna be able to grow the business, your business, the direction you want By 7% in 7 months, right? Think about that, right?

It's nothing.

Yeah, but it's just the start. Yeah.

And just one of those questions revolves around recurring revenue. Does your business have recurring revenue? Should you— what the implication of that is, should your business have recurring revenue? Are you— do you have a product? Do you sell a service? Do you sell projects? Just that's one thing to contemplate. Um, when you're taking this lesson.

Yeah, it's really important because again, all those things have— have the bottom line is important, right? We talk a lot about top line, which is your total revenue, but we talk about your bottom line, which is really in this case your EBITDA, which is what we're really concerned about, right? Which is basically taking all that discretionary money that you spend on things that you can and adding it back in, which increases the value of your company, right? Which is going to increase. So your multiple is going to be against more against more EBITDA, which is going to raise the value and ultimately raise your, you know, your payday. So again, and that's just the financial thing. Remember, please, guys, that there are even— you will encounter, and everybody always does, and no one expects it. Nobody's expecting the emotional fallout that comes as a result of going through this. And so, that's as much choosing the right partner for your personality and your temperament Yeah. Within a private equity firm is just as important as finding the right deal from a financial standpoint. Yeah.

Joe, I think on that note, I think we should leave that here.

We'll leave it right there. Awesome. Great discussion today, John. Thanks so much, guys. Remember, uh, this is, uh, you've been watching the Exit Engine Podcast. Thanks so much for coming. Uh, love to hear your comments, uh, that, you know, down below, uh, any questions that you have, whatever. Uh, we try to answer all the comments as well. So if you get down there and you've got a question, uh, we'd love to hear you. Visit our website, myexitengine.com. Take a look at the packages that we have there. We've got something for everybody. And of course, most importantly, please take the assessment. Let's find out where you are. Let's see if we can work together. All right, John, thanks a lot for today. We'll see you guys next week with another exciting edition of the Exit Engine Podcast. Thanks so much. Have an awesome day. And remember, you are the light at the end of your tunnel.

Thank you, Joe. I like that. I love that line.

All right, cool. Have a great one. Thanks, guys.