4 Things You Need to Do to Get into the Owner's Seat

Welcome back. Real estate team builders. It's going to be a fun call. Jessica Fialkovich, her company is called Exit Factor, and she got into business brokerage. It was her, her husband and her dog, she was just telling me. And they scaled that business to 40 agents over three states. And I just want to introduce you and really just talk about your. Your business ownership journey and what that was like. You guys were in wine and kind of in the world of, you know, going from the retail sort of storefront to online. So I want you to talk about that and then the real. So for everyone to keep listening. Jessica has seen, you know, financial advisors successfully exit their businesses and what they needed to do to do it. And we don't see that a lot in real estate. So we're going to dig into the big push of our time together is for Jessica to teach us how to set our businesses up in a way where it's sellable and she can even help you with it when you get to that point. So, Jessica, kind of introduce yourself through your business journey in the wine business, and then we'll get into Exit Factor and how you can help us exit real estate.

There you go. Thank you so much for having me on the show. I love talking to this crowd because as business brokers, we're licensed real estate agents too. So it's kind of like my people, right? Um, but so, yeah, so I got my start in business at the age of 24. I decided with my husband, he was my fiance at the time, that our first foray into business was going to be into wine. Not a whole lot of thought went into that business. We had a friend that owned a cool wine store. He got to hang out all day, drink wine with his friends, and we're like, oh, yeah, we'll just do that, right? And what I found was that it was, it was a really interesting time to build a business. You hear all these stories about successful companies that were built during recessions and depressions, and we were recipients of that. So we entered the space of wine during the depths of the recession, late 2009, and wine is. And we got into the luxury space. So we weren't selling like Yellowtail or anything like that. We're selling higher end wine. And in luxury wine, it's allocated like Art's allocated. So, so, like, you have to interview with these winemakers, like, fly out to their wineries and be offered the opportunity to resell their wine. And usually it's very difficult to get into that space, but during the recession, a Lot of their retailers had gone belly up, had no cash. So we were there and we weren't. Like, we didn't have tons of cash, but we actually had some. Like, we had some money in our bank account. So we got approved on some of these accounts really easily. And so we built that business over three years. And the pivot that we took that really made us successful, as you mentioned, is we went online. So it was just about the time when you were allowed to sell wine across state lines, sell wine online. And we, being in the luxury market, started working with collectors all across the U.S. canada, and also Hong Kong, we got into. And that was really a fun space to be in. Super successful, super profitable. But then this guy named Gary Vaynerchuk, and he'd been around. Gary was around longer than us, but he really gained some steam. And everybody. So to hear about the wine library, and everybody in the industry was talking about what he was doing. So all the retailers, and this is about, like, 2011, started going online. So then the market was getting crowded, the margins were going down, and we kind of saw the writing on the wall. Just like, you know, why we didn't sell Yellowtail is because nobody makes money on Yellowtail. It's just a race to the bottom. Like, how low can I lower my margins so I can get people to walk in the door? I mean, it happens in a lot of industries, but it's very prevalent in the alcohol industry. So we saw that was going to be the same thing for online and for luxury. So we decided to exit that business in 2012. We sold the business to somebody outside of the industry that just wanted a fun pastime, and we were able to successfully sell that company. But what I learned through that transaction is kind of what propelled my journey next into business brokerage and exit planning. Um, which we can get into. But, yeah, my past is in the wine industry. I know way more about wine than any human possibly needs to know. But still drink it, still enjoy it.

Yeah. I was going to say we were chatting before I hit record, and you said, well, maybe the wine part isn't so exciting. But I was like, I know real estate agents have the, like, toughest job ever. I am sure. Well, they're probably drinking their fair share of Yellowtail. Yeah. And you said you sold a $25,000 bottle of wine, which I don't know anyone that would ever do something.

Yeah, that was through the Hong Kong markets. It's crazy how much Asia will pay for some. Some wines. Although I do have to say, like, in the U.S. i mean, it was quite frequent that we would sell wine for a couple thousand dollars a bottle.

So that's wild. All right, so let's talk about, was it the. The process of selling that business that, like, some people get into real estate because they have such a horrible experience with a real estate agent. They're like, they, I could do this way better than, you know, my real estate agent. Did you guys have a good experience? Is that what piqued your interest? What got you into the business brokerage side?

Yeah, so we did not have a great experience. I do say, like, look, looking back at it and looking at, knowing what I know now is how hard it is to sell a business. Our business broker did bring us three offers, all full price, and the buyers were great. Now once he brought us the buyers, he's like, hey, Jess, here's your buyer. Like, figure the rest out on your own. And he disappeared, and I didn't see him until closing. And unlike real estate, there's a lot of steps that go into the selling the business. So our transaction time is about eight to nine months to sell a business. The bulk of that's going through this period called due diligence and negotiating with banks and things like that. So it's not something that's easy to figure out yourself. And it was really stressful for my husband and I to go through that process with no advisors. And at the same time, we would go to our advisors and they'd be like, well, you're too small, we can't help you. And at the time, I think we're doing somewhere between like 3 and 4 million in revenue. So we were small. But if you look at the US statistics, 96% of all US businesses are below a million dollars. So what was eye opening for me was that I think one of my mentors in the wine industry told me, if you can find an industry where you can do something just 1% better than your peers and be successful, that's your golden ticket. And so I was like, well, here I found an industry where if I do something 10% better, I'm still even leaps and bounds ahead of my competition. And I found this niche that wasn't being served of small businesses. So that was really what got me interested in business brokerage in particular and doing sales and acquisitions for the small business owner. So even still today, the average business owner that we work with does just over a million dollars in revenue. We're still really focused in helping small and Main street businesses.

Awesome. So let's Talk about a little. Let's draw some of the parallels that you see between, you know, financial advisors who you're, you know, regularly sounds like successful selling their. Their book of business or their business, however you consider it. And then let's maybe talk about three or four things that you see consistently in this business that have a smooth process, like what makes a sellable business. It would be awesome for real estate agents to know that, you know, okay, if I do this the right way, if I build systems out and there's an actual process to. Or whatever it looks like, let's kind of get into it. But first, talk about, like this parallel between financial advisors and real estate agents.

Yeah. So I see a parallel between, so financial advisors, very similar structure. Right. Like most of the advisors are working under a larger corporation or big bank called Morgan Stanley, ubs, things like that. They're building a book of business usually on their own or with a small team, just like real estate.

Right.

So we're usually aligned with a brand or an office owner or maybe we're running our own office and we're building a book of business with a small team. I think the big difference and the big starting point in the conversation is the mindset. So, and I don't know, because financial advisors for a living talk about secession planning and things like that. They start with a mindset that they know that they're going to have to have a succession plan for their business, whether that's selling their book of business, bringing somebody in that's going to take it over underneath them, but somehow they're going to transition their business at the end and. And still earn income down the road. And I think that's a really. That mindset is like a big key to some of the other strategies that you can implement to make your business sellable. But it starts with, from day one, you know that you're going to exit your business and you want to get something out of your business, you're not just going to close up shop and simply be done with it.

Yeah. And it also, I mean, I'm sure you've read the book E. Myth Revisited by Michael Gerber. It's like the E. Myth question is like, how would I think about my business differently if I were to franchise it 10,000 times?

Yeah.

Essentially roll it out into 10,000 different markets. But also maybe the question is, you know, how would I think about my business differently if I knew in 10 years I was going to sell it? You know, so let's get into some of those things. So what do you see in some of these sort of book a business type businesses that make them sell at higher multiples or some of them maybe don't sell at all?

Yeah. The one major thing is they run it like a business, they don't run it like a practice.

Right.

So there's two different ways of increasing valuations of companies that I talk about. And one is about quantity of earnings, like how much money does the business actually make. And the other is qualitative, like how is the business run? So if we start with the quantity of earnings side, we actually have to treat our book of business like a separate business. Which means that we're going to keep books and records and we're going to keep track of KPIs in our business. So if somebody wants to investigate that business, it's really easy to reproduce those financials and those KPIs. Like what is my cost of acquisition for getting a new listing?

Right.

How long does it take me to sell that listing? What are my marketing costs that I go into it and thinking about that whole practice as a business and the documentation, the financial books and records, things like that, it's a really big piece that not only financial planners, we see it in CPAs a lot too. And that's like the difference between selling just like, here's a client list, I'm going to sell it for a few hundred or a few thousand dollars versus selling for a multiple of earnings.

So awesome.

That's the one big one.

Yeah. And that's like, you know, real estate B school, we, we teach agents the B is business school. You know, it's really the business school for real estate agents. And this is like totally my. Where agents do not think about any of this stuff at all. They're just sort of like, I've got this outgoing personality. I'm going to sort of figure out how to, you know, sell X number of homes or whatnot. So at what level like is a business sort of like viable in terms of selling? Like, you know, if an average agent is doing, let's call it a $10,000 commission check. So 100 transactions would be a million dollar business. To me that would feel like the only size real estate agent business that would be sellable. But maybe you've seen like small financial advisors with a smaller book of business. So what, give me, give me some range of what going on.

Yeah, actually so financial advisors are super high in demand right now. If you want to buy a financial advisory practice or book of business, you're looking at a Pretty hefty price tag as a buyer, and that starts even at the smallest levels. So, I mean, we've sold companies that only sold for $10,000.

Right.

And what I tell people is what you want to think about is really, you have two options at the end of your career in real estate or financial advising, and that's you can sell the business, right. And you can get something for it, or you can just shut it down and get nothing.

Right.

So at any level, it is really sellable. You don't have to be at a certain volume. Um, when you get to, I'd say between somewhere between a half a million and probably like two and a half million in commissions and revenue, that's where you buy the biggest bulk of buyers. That's where the greatest number of buyers are interested. So that's where the most competitive space, and that's across all industries. But you can really sell at any size if you structure it like a business that can be transferred and there's different ways you can earn income from it. Yeah, maybe $10,000 doesn't sound like a whole lot, but, like, you could earn referral income, or we call it earn out income in mergers and acquisitions in the future.

Right.

So bringing somebody on that's maybe a bit younger than you or just getting into the industry and they're going to come into your business, maybe the down payment's not that great, but maybe you're earning some residual passive income well into the future.

Yeah. Okay. So setting it up like a business having clean financials, tracking, like all your leading and lagging indicators and all of that. What other things are you seeing in, like, the highest multiple sales that go the smoothest. Give me another. Another couple.

So if we jump into the qualitative side, one big thing, and it's. You brought up the E myth.

Right.

So another thing Michael Gerber talks a lot about is working on the business versus working in the business. And one of the biggest drivers in jumping multiples is how much you're doing in an operator seat in your business. So in real estate, it's hard because usually what we're best at is sales and the client relationships and the getting the deals done. But as much as possible to remove yourself from different seats on the bus. And you probably talk about this in business school, right? And B school. But like, if we go back to financial advisor practices, right. Like, some of the best practices I see, like my financial advisor advisor is not handling paperwork. She's not doing all the gifts and remembering when my birthday is. And My son's birthday and all that stuff. She's not doing any of her scheduling. She's not even really doing any of the financial analysis. She has a team around her that's doing all those other functions so she can serve in her highest and best use, which is developing relationships and rainmaking. And those types of practices I see have a very high multiple, and I could see that translate into real estate as well. I do see a lot of real estate agents, and we struggle with this with our business brokers, too, where they're spending too much of their time on things that aren't producing income. And that restricts the size of their practice.

Right.

But it also restricts the sellability because now you need to find a buyer that wants to come in, and they want to be, you know, the. The managing broker, they want to be the chief business development officer, they want to be the administrative assistant, they want to be the scheduling secretary, they want to be the transaction coordinator. And you don't just. You don't have a lot of people that want to do all of those things.

Yeah. That's awesome. All right, so. And like, doing all of those things, like getting out of, like, all of the positions in a practice, you know, to make the transition to business, it's stuff you need to do to make more money anyway and enjoy a better quality of life. So all of this holds true. Even if you never sell it, you probably will own it longer because you built it better. Are you finding that you'll come into contact with a business owner and they're not ready to sell, and you're like, okay, is there any coaching involved? Let's get the business to the point where you have these things in place, and if so, what are those typical things that they're missing to make it sellable at the highest multiple?

Yeah. So that's actually what my role is. Mainly with Exit Factor now is we do group consulting and one to one coaching of getting businesses sellable. So we work with people that are as early as 10 years out, and they just want to build a sellable business from the start to people that are 12 months out and they're trying to do like, kind of like a cleanup job before they go to market. So a lot of things, we do financial cleanup, we do some of this. How can we move you out of the seat? We look at how you can develop recurring income. So recurring income is highly desirable for buyers, and you usually get paid a higher multiple. And what I've seen is that almost all of us have some Sort of recurring income in our business. We just haven't put a process and system to it. So for example, I'll use business brokerage.

Right.

Because it's, there is some overlap with real estate, but most people don't sell multiple businesses in their lifetime. Most of our clients have one, maybe two transactions. So like by, by nature, we're not a recurring business. What we've seen is a lot of our referrals come from the same few partners.

Right.

The 8020 rule. And so the recurring nature of our business is that we're getting the same referral relationships to generate income from us in the future. And creating a process and a system for that, for keeping those relationships in place moved us to more of a recurring model. So I, I see that's possible at every business. It's just opening up your mind of like, how do I develop that recurring nature of income? And if you can, you can really up the multiple and value of the company.

Yeah, so, so a good example, real estate is if like you're like, let's say you're doing half a million of gci, but it's, you know, it's all like via text on your phone and like you show up at different events and you're just outgoing versus like you actually have a database that you could show to a buyer and you have like this touch system and you can like actually show them that there's a system in place. Putting the system in place will get you a sellable business, but it also double your sales, most likely.

So that's really very good system or thinking about like even stealing our concept of the referral partner. So like we have, we have two realtors that are on staff. Not on staff, but our preferred real estate partners. So when we sell businesses, the owners are usually moving.

Right.

So they're like doing some type of life change. And so all of our referrals go to those two people. Um, and that's, that's super valuable for somebody purchasing that practice.

Yeah, it's, I didn't even think of that part of it because I mean, financial advisors, attorneys, accountants are all good referral sources for real estate agents, but also obviously for you guys as well, is that your main source of business just maintaining relationships with local advisors? Is that's kind of what you teach your agents? Yep.

Yeah. Maintaining relationships, but having that like the relationships, like kind of how you talked about that, that touch point with the database is treating your referral partners and those relationships just like another client.

Right.

So how are you going to stay Top of mind to make sure that they continually want to refer to you and not to somebody else.

So awesome. All right, so set your business up like a business with financials. Track your numbers, get. Get out of the day to day. Become more the relationship builder and the rainmaker. So what's a third thing? A good just third piece of business coaching advice we can give for someone that will build a better business and make it sellable.

Yeah. So one thing that was coming to mind that I see done a lot in real estate is about branding. So when we're looking at any generic businesses, we try to build a brand and not a brand around ourselves. So kind of where I'm going with this is I see and I know we have a lot of times we have businesses underneath greater brands, you know, different, you know, exp. And different, like Kentwood, stuff like that we see out here, Sotheby's. But developing your own stuff. Sub brand, that's usually not named after you.

Right.

So I wouldn't want to build a brand called the Fiakovic team. I'd want to build a brand that has some type of transferability to a new team or a new agent. I've seen a couple done really well out in the Colorado area where even though they're like below Sotheby's.

Right.

This team has done such a great job branding that they set themselves apart and everybody knows who they are and so it develops that reputation. So there's a lot into going into building a brand. And not a brand expert, but by any means, but it goes back to thinking about your business like a business. The business has a brand that provides a greater reputation and level of, you know, desirability, I'd say, to work with you.

So, yeah, so we have. We have a couple. Couple folks. Like one is the clever people. One is property geeks. These aren't massive businesses, you know, a million and a half to 2 million or so in revenue, but that business is ultimately sellable. More so than if it was the Fialkovich Group, you know, like exit factor in and of itself, you know, if you scale this business, you know, to 50 states. If it was the Fialkovich group and they thought you were the linchpin of the whole thing, you and your husband, it'd be like you'd have to spend half of the due diligence process convincing them that you're not the linchpin.

Yeah. Or you'd have to stay on for years after the transaction, which is really point. That's the whole point of getting Out.

Right.

Is that you get out.

Yeah. Versus, like opening your calendar and say, no, really, we took 26 weeks of vacation. You know, really are disconnected.

Yeah. And it's funny, it's like, even, even if that's true and it's called the Fiakovic Group, that's such a big hurdle from a mental capacity for buyers to jump over. Well, yeah, I get that, but it's named after you. Like, how are people going to feel when they call in? And like, look, you can transfer some names, like if my last name was Smith, like, maybe a different conversation.

Right.

But how are people going to feel where the fiaco, which is. Are not running the group anymore.

Right.

And it's a big mental hurdle for buyers to overcome. And we see in all industries, not just real estate. I mean, we see it in financial planning, we see it in retail, we see it in health and beauty services.

Right.

But it's thinking about, it goes back to like, this is a business, it's an asset, it's not an exception. Extension of ourselves.

Yeah. And it's, it's not impossible when you're a bigger business. I mean, I went from the Lars Group, which, like, just seemed like a good idea.

Like, it's large and that's pretty generic too, right? So. Yeah, yeah, yeah.

But then we went to High Performance Real Estate Advisors, where it was just like, you know, nobody really, over time, nobody knew to, to get in touch with me versus one of our team members. All right, cool. So what, what. Let's kind of tie a bow on this whole thing. Then I'll let you give your, your contact information. And I know you also wrote a book, which is pretty cool. What advice would you give someone, you know, that has an eye toward growth? So that's, let's say they're like 250 to 500,000 kind of. With your own personal business growth journey and now selling probably. I know you guys don't probably do as much volume as a normal real estate agent, but probably you're selling 50 to 100 businesses a year. I mean, how many, how many businesses?

Yeah, we sell. We sell about 150 to 200 businesses a year between our three offices. Yep.

Yeah. So with all of this experience now, so it's like I, it's like kind of like me. I only had one real estate team, but now I coach hundreds of, you know, team builders. What advice would you give somebody that wants to grow their business? Like, just knowing everything, you know, what encouragement. We're going into a complete shift storm. I feel like, yeah, totally unprecedented. Who the heck knows what it's going to look like? What advice would you give us?

Yeah, well, so the biggest thing I think is I just came from a meeting with one of my business partners is. And she was saying to me, it's like, it's funny, once you've built a business like you can then build the business. The next business you build, you can build with the ended mind. Much easier.

Right.

And so if you have built a business before, just build it again. How you would have one of the first business to turn out at the last day. If you haven't built a business before. Surround yourself with people like you, Lars, and just learn from others. One of the greatest pieces of advice I've also received is that you can't learn all the mistakes yourself. Life is just too short and we don't have that much time to build our businesses that we can learn all the mistakes. So learn from others and then build with the fact you will exit your business. Every single one of us will exit our business. It's just we're making a choice if we want to control that future or we're going to let fate decide how that exit ends up. And if you want to control it, you need to really build a business with the things that we talked about. Keep in mind running it like a business focused on profitability. It's another big mistake. I see. And making sure it's not about you, whether that's the brand, the roles you play, anything like that. But know that there is an end date. It's going to come sometimes sooner than you think it is.

Yeah, well, I mean, either that or you, eventually you die, you know.

Yeah. There's a line I use, I was.

Like, yeah, to exit your business.

Guaranteed. We, my, my mentor and I, we always say like you're going to exit your business. It's just whether you walk out the front door or you go feet first, like one way or the other, you're exiting the business.

Right. You know, so do you see kind of a random question, but do you see business owners that have sort of, you know, held on too long and, and they're sort of like, they kind of miss the, you know, they're sort of halfway. They've kind of missed the peak opportunity to sell. Any advice on timing with market cycles or any of that? If somebody's listening and they have time on their side. Any advice there?

Yeah, yeah. So it's interesting timing. The market isn't really that prevalent. Selling businesses, especially small businesses, is pretty stable. Now obviously the last few years we've seen certain industries that like if you wanted to sell a fitness business two years ago, that wasn't happening.

Right.

So we have seen some changes in that, but relatively speaking, across all time, it's pretty stable. What you can time is your business cycle. So you always want to sell just before the peak. So the biggest mistakes that I see is when business owners are like, it's going so well. I'm just going to hang on for another year. I'm going to just hang on for two more years. Well, no one, every buyer wants to buy, buy business that still has the opportunity to grow. No one wants to buy a business at maturity or declining.

Right.

So knowing what cycle your business is in and trying to time it that you're selling just before you hit that peak of maturity, that's when you're going to get the maximum value for it.

Yeah. Let me, let me ask you, obviously without naming names, any businesses in the due diligence process that kind of hit a snag here with some of the recession talk or the market kind of hitting the, hitting the skids. How have you guys dealt with that? What have you seen on that?

Yeah, so I mean, it's different with every industry. What's helpful is especially if some, some businesses have longer term history, we can show what they did during certain micro market cycles. So if they were around during the recession, we can pull those historical reports, which is also why it's good to have reporting, good reporting in your business. And we can show what the expectation would be for another cycle like that. And that gets the buyers a little bit more comfortable. It gets the bankers a little bit more comfortable too. There's also some things that you can put in place in deal negotiation if there is a significant risk for a downturn in certain industries, you can use things like earn out and seller notes. I talk a little bit about that in my book too, as a bridge to solve some of the risk on the buyer's side. We haven't seen a whole lot just yet. Typically with business valuations and business brokerage, we're going to lag behind the market about 18 to 24 months. So what is nice is that we can watch what else is going on and the macroeconomic scheme and then we can predict and give it ourselves a little bit of time of how to handle those objections.

Awesome. All right, cool. So what's the best way for people to grab a copy of the book or to get in touch with you.

If they're like, so yeah. So the best way to reach me is at our website, exitfactor.com if you go to backslash book, you can find the book there. You can also get the first chapter for free if you want to get more of my story. And that'll also give you access to my twice a month newsletters where I just kind of give a whole deep dive of what's going on the market and really how to best position your business.

Awesome. And I only mentioned this. Normally I don't sort of pitch anything when a guest is on, but only because it fits into what you're doing. We just relaunched a program where I'm looking for 100 agents as this market is complete shift storm of a market. And I think it's mostly fear, uncertainty and doubt. I don't think real estate is really going to be hurt that much. But I'm looking for 100 agents to take to a million and then we can contact Jessica with all hundred of them. There we go, all of them. When the market comes back here in three years, go to getbusinessfoundations.com and Jessica, this has been really awesome. I appreciate you. It's just really cool to talk to somebody that you know, gets to see sort of the, the gamut in terms of industries and God only knows the personalities. I did small business acquisitions for an aerospace company and some of the personalities that we came into contact with are like, I cannot believe you run a business and I can't believe we can sell it to someone else. But yeah, some great stories in the book.

They're no names but some great stories, Mr. Smith.

But yeah, appreciate you. And check out Jessica's book for sure. At least the first chapter. Go to exitfactor.com backslash book and we'll talk to you guys soon.