0126: Building a Company You Can Sell (Even If You Don't Want To) with Author, Speaker, Co-Founder and Managing Partner of Innovative Business Advisors Terry Lammers

Ea interviews, episode 126, inspiration, transformation, success stories and the Imperfect Action Round. Seven days a week. Join Mario Ficcini for today's Expert Authority Effect interview. You already have a successful company. Have you ever thought about selling your company? Because I have Terry Lammers here today, certified valuation analyst, and he deals with mergers and acquisitions. It's one thing to have a company, it's another thing to have a profitable company, and it's an entirely other thing to have a company that someone else wants to acquire. And how do you do this at a fair price? Is it even worth acquiring? I am super excited to learn myself as well as bring to you something that I don't think people think about enough. And that's their exit strategy. Because whether you're going to sell your company or not, it's good to be designing it now and building it now that maybe you keep it forever, maybe you don't, but it should still be structured in a way that someone would want to. I'm gonna bring them up right after we thank our sponsor, Mr. Terry Lammers. Winning with Google in 2020. Of course you want to. I'd advise Google search advertising and YouTube specialist Roche Sillers download the free Winning with Google in 2020 guide@eainterviews.com Roshtips Here he is, ladies and gentlemen, Mr. Terry Lammers. Terry, how are you feeling today?

I am fantastic. How are you doing?

I'm feeling great and I'm excited to dive right in because what you're going to be sharing with Expert Authority World here is just. It's so valuable. So tell me, how did you even get into it?

Grew up in a family, oil wholesale and fuel and lubricants company. So we delivered fuel, gasoline, used fuel, lubricants, farmers, trucking, excavating, stuff like that. I kind of took the company over in 1991, had the opportunity to buy 11 other companies and growing that. So I grew the company from about $750,000 in sales the first year. I came back to over 42 million before I sold it in 2010. So it's really where I got my mergers and acquisitions experience. Always been kind of a finance guy. Worked in banking a little bit before I came back to the company, and then ironically, worked in banking again for a little bit after I sold the company and then got my entrepreneurial spirit back and started Innovative Business Advisors. And that's what we do. We help people buy and sell companies, do valuations and coaching to build their company up with our CEO to CEO platform.

What would you say is the biggest thing you've learned from not only doing this on your own, but helping so many other people do it?

You know, I love the name of my book you don't know what you don't know everything you need to know to buy and sell a business. And it really is all about you don't know what you don't know. And even when I had my company, you know, are they really looking at net income? Are they looking at cash flow? Do I really add depreciation back? You know, yes. And those were interesting things that I learned working at the bank after I sold the company. It's kind of like the other side of the fence, you know, what do they really look at? And then once we got into selling companies, even though I had bought, you know, 11 other companies and sold my companies, there's just a lot of aha moments and there is as many non financial things that can affect the value of your company as well as just the true cash flow of your company.

You got to tell us at least one or two.

Oh, so non financial things are huge. So I tell people all the time. You know, you can look at valuations of your company in a couple of different ways. One, there's a financial value. So your company's producing cash flow. What is the value of that cash flow coming from your company? You can look at it from a strategic acquisition when I was buying other oil companies, you know, I talk about it in the book. Me and my accountant would butt heads all the time on the value of a company because he would say you only pay for a company for the value of the cash flow that is generating. Well, you know, if I'm going to buy the company and eliminate 50% of the operating expenses, there's going to be a lot more value coming to me than what the person that owns it now is generating. So that's a strategic acquisition. But there's non financial things that can affect the value of a company. And say you have a company worth a million dollars, it's. And these non financial things, it might not be whether it lowers the value of it from a million $800,000. It might be that.

You have a completely unsellable company. So one of them is what we call the hub and spoke. Are you the hub of the company and the spokes are the owners? The supply, I mean, I'm sorry, the, the suppliers, employees, the customers, are they all coming to you or do you have a company where if I take you out, right. So if I eliminate that hub, the wheel crashes. Do you have a company that without you there, it runs along just fine? I mean, I have an issue with a company we're trying to sell right now that, that's an issue. It's an H vac company, but I had within the past year trucking and logistics company that had a half million dollars in cash flow, which is a good number and that's going to attract a lot of attention. But the owner was the absolute hub and spoke. You take him out of that picture, the company's dead. And it just, it was an unsellable company. So that is, that's a very important thing. Another thing that we call the Switzerland structure. You know, is your company dependent on any one employee, customer or supplier? I look back at my oil company and we had a lubricants blending contract with mobile. Just because I was selling my company doesn't mean that the buyer is going to get that contract. So if my buyer needed that contract, that lubricants blending contract for Mobile, I don't have any control over that. So now you have somebody else that's controlling the sale of your company. You run into that a lot with franchises, you know, and different things. You know, if you get a contract or a customer. Concentration I love to talk about and I think I talk about it in my book and I always talk about it in my podiums, public speaking. I had a client on the fuel business where.

He delivered all the milk out of a dairy and he had about 50 trucks and he used over 10,000 gallons of fuel a week. Great customer. But guess how many customers he had? 1. That makes it a very hard company that it's not for sale. But if he was to go and sell that company, you have one customer, you know, that's a problem. So there's just, there's just a lot of little things. And that's what I like about the coaching. And you know, I'm not selling that. I'm just saying if you own a company, you are eventually going to exit it and you need to be asking questions about how do I meet my goals, who is, you know, I'm a strong advocate of building a team of people around you. So who's your cpa, who's your banker, who's your attorney, you know, who's getting you to where this thing that you built is going to get you to your retirement? Right.

Would you say that there's too many companies out there that they are the company and they don't have a company?

Absolutely. And they don't know to ask the right questions until they get to where the, the, the, the, the worst thing that people coming to me is they want to sell their company in six months.

And so what we always like to term in our company is you're ready to retire but your business isn't. You know, you're ready to get out, but you don't have a company that's ready to sell. And it may take a couple years to get it there. You can get it there easy enough and I can tell plenty of success stories. But.

You know, when somebody comes to you and they say I'm just tired, I'm burnt out, you know, it's a tough sell. And again, you could have a company that financially is worth a fair amount of money, but non financial reasons create a situation where it's just completely not sellable.

That's a very good expert authority insight because I've heard of people that, you know, they're thinking about selling this, that, the other thing. And I mean I'm no certified valuation analyst, but it's pretty easy to see there's no company, it's them. And I look at that more as they're self employed versus you're using business.

Systems, you're selling a job.

Yeah. And there's nothing, I don't say there's anything wrong with that. I'd say it's better than working a job. You started a company, good for you. Sincerely. You know, my first company was like that. When I sold that one to start this one, I looked at things differently going. I don't want it dependent on me. I want to have a team of people. You know, if I, I mean I don't plan on exiting, you know, life anytime soon. But even if you want to disappear on a vacation or a retreat or something, can you still go two, three, four weeks? You know, that's a good test. Can you take a month off and still have a company?

Yeah. Or even a week, you know, that's a, that's a great start. No, and you're, you're exactly right. And it's a tough, it's a tough thing to, it's, they're tough hurdles. I mean when I came back to work for the family business, I jokingly said it was me, my mom and dad, we had two trucks and it was a good day if they both started, you know, so he was out making deliveries every single day. And then you bought a company and you had another driver and then you bought a company and now you're sitting back and kind of directing things. And then, you know, eventually you buy a couple more companies and you got somebody that can direct the drivers. Now you're even a step back further, you know, so it doesn't happen overnight. And if you're in that situation where you are the company and maybe you're making great money, you're right. Don't be overly critical of yourself. But if your retirement goals. So here's the key. I mean, here, here's really something that's important. And I fell right into this. 80%, 80, 85% of my retirement income was going to come from the sale of my company. I mean, when I sold my company in 2010, I probably didn't have more than $80,000 of investable assets. Everything I needed had to come from that company. So if you're in that situation that your retirement income is going to come from the sale of that company, Are you building a company that's actually sellable and do you know the value of it? That's another thing that I would highly encourage people to do. And it's just another sad thing that we see all the time. Do you know the true value of your company and not what your uncle's brother Bob's friend said? You know, have you got a true valuation of the company that you know where you're at? Because we know where the tragedy comes is when a person, a business owner, has it in her head that their company is worth, say $10 million, and then they're 65 years old and they come to us and we value it at $5 million. And oh, by the way, that's before you pay taxes, that's just horrible. You know, to see somebody at that stage in their life and ready to retire in three months and somebody's going to write them this magical check for 10 million and they figure out that the company is really worth 5 less, maybe 40% in taxes.

What do you think? What's a question someone should be asking right now so they don't get to 65 and run into that scenario?

Who's on my team? Who's my banker, who's my attorney, who's my cpa, who's my financial advisor? Those are all very important people to have on your team. And, you know, is my financial advisor when I have $80,000 investable income, the guy that I really want, when I get handed a seven plus figure check, you know, is he a fiduciary? You know, has he done dealt with mergers and acquisitions? Does he understand tax consequences of, you Know, helping you through an M and A transaction, you know, is your attorney. So here's another thing with attorneys. Is your attorney your estate planning attorney or is he a business transaction attorney that does M and A? I mean, I, again, we could have a whole nother show on people that have come to me and they're using their estate planning attorney, who's never been through an M and A transaction, to do the sale of their business. It's horrible. I mean, it just, and it creates a ton more expenses and attorneys fees for the client because their attorney, as much as they like to think they know what they're doing, they don't, you know, so it's, you have to build your team, you know, and, and, and really, again, I'm not trying to sell something, but you need to know the value of your company. What's your number? What do I need to retire? You know, if you need 5 million, if you need to sell your company for $5 million to sell your company, because that's what your financial advisor told you, and you have a valuation and it's only worth 2 million, we got some work to do, you know, we got to build it up. If you need $5 million to retire and the value of your company is 10 million, let's make it more sellable and can we get 15 out of it? You know, so.

Have you been able to turn any of those? So for, obviously you mentioned the scenario where they thought they're getting 10, it's closer to 5, less taxes. Have you been able to turn anyone around that thinks they need five, it's worth two or three, and you're able to bring it up to seven or eight, maybe 10.

You know, so I'm being honest, I can't tell you a situation like that, but I can definitely. I literally had a situation last week where I delivered a value. So delivering a valuation is a very interesting thing. You're giving somebody, you know, this people's paper that says what their company's worth and there's 40 pages to it, and they really only care about that first page. Right. So I gave her the valuation and to say she was unhappy with the valuation was an understatement. And so this is really interesting because the date of that valuation was November 11th of 2018. And I met with her November 8th, like last week. And she had called me a couple of weeks ago and said, you know, would you mind stopping by my office and talking again? It's like, this ought to be interesting because she was not happy with me. The Last time I left, you know, so went back, she fired her cpa, she got a new cpa. She withdrew herself from the business because I told her that the hub and spoke was bad. Right. And she made a couple of other changes because her financials were a disaster. But in one year, she literally increased the value of her business by three to four times what I told her before. And she is well on her way to achieving her goals of what she wants for retirement. It's just, it's so humbling to see something like that. So, you know, she told me, she's like, I wasn't happy with you at all. It's like, yeah, really, I had that figured out, trust me. But, but she said I took some of the things you said to heart and I implemented them. And that was really cool.

Well, congratulations to you and her. That's. That's pretty exciting. I know there's a lot of people who would love to get three to four times what their company's worth.

Well, it's not really three to four times what it was worth. I mean, you know, when you look at the valuation, we're still using the same principles to value the company, but she made a lot of changes to make her company more profitable. So more cash flow and eliminate some of the non financial things that would have been a huge issue in trying to sell her company.

I want to touch on that real quick because you've said it a couple of times and there's things that stop a company from being sold that are non financial. And I think a lot of people think that a lot of it comes down to the finances where I've told even my own clients, you know, you want to publish your book, you want to do your video or whatever, who do you have to be to be able to show up like that or put on a show like this? What can you take responsibility for that maybe isn't your client, maybe it isn't, you know, financial. Like you're saying, getting the different people in place, and it sounds like more than 50% comes from non financial things.

You know, every deal is different, but non financial things can really affect the sellability of the company. After I sold my oil company, we had the opportunity to buy a property management company. And so you manage properties, right? There's no collateral to the thing, it's just a cash flow monster. It's great recurring revenue. But.

The contracts to manage the properties for the property owners, there was no clause in the contract that it was transferable.

So that meant if we bought the Company as an asset purchase, we would have had to rewrite over 400 contracts. So it forced us to do a stock purchase which is a little bit less desirable. Doesn't make it unsellable. But it would have been nice if somebody would have talked to her a while back. That's almost kind of a, you know, a Switzerland structure type of deal where there's one thing that could really impede the sale of that company. So you know, just a little thing like that when you get 400 contracts you imagine what are the cost to renegotiate all 400 of them contracts. Yikes.

And do you think all 400 would have re upped on it?

No, not. Well, anytime you got to renegotiate a contract. What's the, what's the word I just said? Negotiate. Well, let's talk about this. Right. Well now I'm going to let my attorney look at it. Well, we want to take this out. You know, that's, that's a pan indoors box of worms.

So what would it have taken a year, 2, 5, 10, whatever. I don't know how old the company is, but what would it have taken to put that simple thing in there that said they are transferable back earlier on and it would have been a no brainer for you.

So I'm not an attorney, so I don't want an attorney listening to the show going, that's not right. But if you, it would have, what it would have been is it put something in there that the license is transferable like literally a sentence or a.

Paragraph into the contract, allegedly, whatever the.

Legalese is to it. But that did that, but that the contract is transferable.

So obviously we're not attorneys, but we could Play 1 on TV. But it literally would come down to just a little bit of paperwork, maybe an extra page.

Yes, that would have, that would have, you know, helped her as it is, it worked out for her, but it might have made the company worth a little bit more. So where I seen the problem is if that was we just acquired that property management company, but if we would have went to acquire another property management company, I don't, you know, I want to merge that company into my existing company. So I don't want to create, have two entities. You know, that just eliminates a lot of efficiencies. So that's where it would have been a real, a bigger issue for us. But it wasn't because this was the first company we bought in that line. But you know, another thing I would tell your viewers and the People that are listening. I have two mantras that I preach all the time. Your company is not about sales and net income. And that's what people look at. My sales are up. Who cares what your net. And I don't even care what your net income is. What's your gross profit and what's your cash flow? You know, because depreciation is a non cash expense. It gets added in to the cash flow and I see it all the time. And I even wondered it myself as a business owner. It's like, man, if I didn't have the depreciation expense, I'd really be profitable. It gets added back, the bank adds it back. I mean, trust me, it gets added back. So it's not about.

Sales and net income, it's about gross profit and cash flow. And the other thing I would tell you about selling your company is it's not about what you sell the company for, what number you get for selling the company. It's about what you get to keep net of taxes after you sold the company. Because I will write you plenty of scenarios where.

I could sell your, you know, obviously it depends on the size, but let's just say I could sell your company for a half million dollars less on purchase price and get you more money net of taxes. And that takes a team of people to help you do that.

But that's good. You have, you know, the, the owner's best interest at heart because again that another, I don't want to say little metric because it's a big metric, but it's a matter of, you know, some commas, paragraphs and you know, percentages and you know, you switch one line on the deal and it goes from, you know, you're making less on the sale but you're keeping more on the back end. That's a big difference.

It is, it's a huge difference. You know, and it's really interesting, even coming down to our company.

We'Re starting to focus more on our coaching program just because we haven't talked about it. But another non financial thing that really affects the value of the company is recurring revenue. So in hindsight starting a brokerage company, like, like why would you do that? Because every time you sell a company, guess what, you gotta go find another company to sell. So on a coaching program it's recurring revenue, but it's a good funnel for selling companies. So that's just another thing that we can coach people on is how do you build recurring revenue into your business. So a perfect example I think is look at An H Vac company. If you're an H Vac company, eating air conditioning, that the prime. The primary part of your business is new construction. What happens if. Let's just say it's housing. What happens if the housing industry crashes? You don't have no business. If you're an H Vac H Vac company and the primary part of your business is service in the housing market crashes, people are still going to need their heating and air conditioning unit serviced. Right? So that is great recurring revenue. And we've sold a lot of H Vac companies. And another big thing that goes along one step further is do you have service contracts with your employees? Think of a subscription model. You know, am I going to, am I going to buy that Starbucks or you know, what is it the Keurig now? You know, do I have a subscription to get so much coffee a month from Keurig, you know, my cable. That's just a renewing, that's a subscription service. That's recurring revenue versus a construction company. You know, I build a house, I build a building, now I have to go find another one to build. So those are things, when you start asking questions, you know, even five years out that you can start building that into the model of your company and you will have a much more sellable company at the end of the day.

And that's a great expert authority insight because so many people don't think about that to the point of the self employed. They have the skill set, they're great at what they do and they just sell that service. But there's nothing else beyond that. And one of the things they can do. And I want to ask you about how come you wanted to publish your book.

So.

Excuse me. Writing a book has always been a bucket list item for me. So doing the book, I got a copy of it here. You don't. Where are we at here? You don't know what. You don't know everything you need to know to buy or sell a business.

So for one, I was a volunteer firefighter for 22 years, so I wanted to write a book about firefighting. And I was going to call it. I was there because people always ask, did you hear about that accident? Like, yeah, I was there. But the book I like, it's, it's a, it kind of takes you through the process. So the beginning of the book is about buying and selling or you know, buying businesses and why you would want to buy an existing business versus a startup. And then there's a simple way to value a business. You know, just the basics of valuing a business, then the process of buying a business. The middle of the book is about building your team. Who's your attorney, who's your cpa, who's your financial advisor. Banker, you know. Right. We talked about this. What's your bankability? That's another huge thing that we haven't talked too much about. But are you a bankable person? You know, what's your ability to go out and borrow money? So there's a chapter on that. Then it gets into building value in your company and we talk about those non financial things that you know, really show you how to build value in that company. And then it gets into selling the company and you know, all the steps, how do I do with employees? And just a lot of little things. It's all my experiences. It's not a very big book but it's packed with information. It's very conversational.

I just talk about things that I did right and things I should have done different because I didn't do everything perfect because I didn't know what I didn't know.

Well, I'm glad you did it because I'm excited to read it. And you also were talking about your coaching program. Why, why did you want to start a coaching program?

You know, really because the coach. Because it is sad when everybody's coming to you and they say I want to sell my company in the next six months. I'm ready to sell it right now. So they're ready to sell but the business isn't ready to sell. So the coaching program is really for people on both sides of the fence that they want to sell their company in the near future or maybe they got 10 years ago. But we're going to, you know, we call it CEO to CEO, chief everything officer to chief executive officer and we will help them with, teach them about non financial things that affect the value of the company and really take a deep dive into their financial statements and make sure they're readable, understandable and it helps them make them, you know, more of a bankable person and you know, whether you're the most non financial person in the world. I can teach you 8 or 10 financial ratios and give you kind of a dashboard that you will understand the heartbeat of your company and what's going on. And it's just, and I mean it's just happened time and time again as we go through this process. And then when you go to, you know, whether you need to build your company and you got to borrow money, you know, when you bring the financial statements in after we have them set up for you, and you know your bankability, you're not going in to your banker, rolling the dice, going, I wonder if I can borrow this much money or not. You're going to know exactly how much money you can borrow and what your collateral is, what the debt service coverage ratio is, and then go find yourself a deal instead of begging for money.

How do you feel when you hear the stories about people going in with confidence versus they would have tried it on their own and not had a desirable result?

So I have one coaching client. It's always funny, so I'm obviously not going to say his name, but he watches the video. He might go, but anybody think he would totally agree with it. He was your typical business owner. It's like, you know, that banker, I know more than he does. That son of a gun, you know, that's just crazy. You don't know what the heck he's doing. And after we got into the coaching, after about four or five months, all of a sudden, it dawned on him. It's like, oh, I'm not a very bankable person. We have some things we need to change. It's not the banker, it's me. And, you know, those are some of the aha moments. People, you just. They don't understand the banking process. And it's like anything else. You know, I used to compare it with the fuel company. I hated going to a customer for the first time, especially out in the middle of the country, in the middle of nowhere. It's like, I don't know how to get there. I haven't been down these roads, you know, but once you know the path, it's no big deal, right? You've done it. Well, we're about teaching you the path. And it's no big deal. You'll. You're going to learn it. It may be a little painful at first, but you'll understand it. And after that, you'll know how to get there.

See? And it's so great that you get to share that. And that's one of the funnest things, I think, from, you know, my coaching, from the books, from speaking, from recording stuff on video. These are all assets, and all you have to do is share your expertise. Because while someone can hire you for your services, as they should.

They can also get the book, they can also get the coaching, they can also get these other things, just like we both have. And now the business isn't just about you. Because the more of these you Create, the more you have their business assets.

Yeah, it is, it really is. You know the other thing that's neat about the valuation piece and I had this.

Happen for the first time. The very first company I valued was a large animal veterinary clinic, so emanated cows, mainly dairy cows out in the middle of the country. And I valued a company so that a partner could buy in. Fast forward five years, the wife who is a CPA of the primary owner called me and says, hey, I just wanted to let you know that it was really neat. We used your valuation from five years ago to redetermine the value of the company today. And now the guy that bought 10% of our company five years ago is buying my husband out and we're going to retire happily.

So that was an asset that they paid for only on paper, but they used the same process to value the company five years later and it worked perfect.

And that's the thing about having systems and processes. It's the same like you said with the banker. It's not that he doesn't want you to grow your business or get approved or whatever because I think most of them want to help. But when you go through the threshold, you know, do you meet the criteria? If there's 10 steps, it's not him saying you, you don't qualify, it's the 10 steps going. It doesn't match up.

No, you're and you're right. And one thing that I'd be critical of bankers, and I feel comfortable saying it because I did plenty of baking myself and I was a banker. Right. But.

One thing where I think bankers are, banks are guilty of is you get a yes or no answer. You don't ever give a, you don't ever get a well, this is why the loan got declined. You know, it's just. No, we're not, we're not comfortable with this. Well, why? Tell me why. You know, and, and I talk about it a lot in the book. I mean, are you even at the right bank? You know, I mean the bank I worked at wouldn't do construction and we wouldn't finance a construction company. They wouldn't finance non owner occupied real estate. So if that's the, that's what you're after and the bank doesn't do that, you're at the wrong bank.

How would you find that out ahead of time?

I'm sorry?

How would you find that out ahead of time?

Ask questions. But you don't know what you don't know if you don't know to ask the Question. And you think a bank is a bank? Then I tell a quick story in the book. My mom and dad came to me when I worked at the bank I was at, and it was a big bank, is one of the top 10 banks in the United States. And they, they wanted to sell their house and buy a duplex, you know, their retirement age. And they wanted me to help them. Then I'm like, you don't want to go through this big bank. This will take forever. So I sent them to the small community bank. So now they're just really confused. It's like my own son doesn't even want to deal with me. Well, but I sent them to the small community bank where I called the president of the bank while they was on their way over there. And I mean, little, little did they know, but their loan was approved before they even got there. And they literally signed two or three pieces of paper and, you know, it was a done deal. But they go through a big bank. Ugh. You know, we would have. It just would have been a process. So there's nothing wrong with big banks. There's definitely a purpose for them, but you just have to match up what you're trying to do.

What would you say are a couple of things to make someone more bankable?

Well, the biggest thing is that. So the number one thing would be to fill out what's called a debt schedule. And a debt schedule is very simple. You just say you got six loans. No, you know, write it on an Excel spreadsheet, what each loan is for, what the original balance was, what the current balance is, what's your monthly payment, what's the interest rate, and what's the collateral of that loan. So then.

In the maturity of that loan, so then you, you know, you can add up what your total payments are. That is the biggest. I mean, as being a banker, that's the hardest thing to figure out. Where these people got all these loans at, you know, with. From buying a four wheeler, buying a truck, and buying borrowing money on this business asset and that business asset, get it all lined out, and you know what all your monthly payments are, and you know what your debt service coverage ratio is. And then later on, whether it's real estate or whatever, maybe it makes sense, you know, especially with me, as I was buying different companies, maybe it makes sense to.

Combine a couple loans and lower your payments. I just. One of my coaching clients, he borrowed $150,000. But we was able to combine some loans, and his collateral situation allowed that we, even though he added $150,000 in debt. We reduced his payments by close to $4,000. It's huge. But that's what you got to start with. You got to have a debt schedule and you got to know, you know, what your payments are, where everything's at, where's the collateral going to come from? I mean, you got to remember, any loan, there's two basic sides to it. Collateral and cash flow. You know, that's the. And beyond that, it's really pretty simple.

Well, that was a great tip. Thank you for sharing that question for you. Before we go to the imperfect action round, which one of the sharks from Shark Tank would you love to have dinner with?

Oh, my God. You know what? I know all about Shark Tank, but I've never watched it.

Really?

I have it. People ask me that all the time. Do you watch Shark Tank? It's like, no, I do this crap all day long. I want to watch that.

And I don't mean crap. It's fun stuff.

All right then.

So much for that, right?

It's a great show. I love it. You should, you should really check it out.

It's entertaining.

When you, when you were talking about the valuation, one of the things that always happens is someone's like, I want $15 million for the company. They value it at 15 million and it's closer to 3 or 5.

Well, and that's what you know. So the little bit I know about Shark Tank is what's tough about that.

Is.

They are selling ideas. There's no existing cash flow to their ideas. And that's really tough to put a value on something like that. So again, go back to remember the beginning of our, the show, we talked about a financial valuation versus a strategic valuation. You know, they're, they're talking bigger stuff where, you know, I'm introducing this widget and somebody on Shark Tank thinks, you know what, I can take that widget and sell half a million of them, but there's no cash flow behind it. So if I'm going to buy it and I'm depending on the cash flow of the existing product to pay for it, it's not there. So it doesn't work from a financial valuation. That's a tough, you know, it's a tough nut to crack.

And I get hit with that a lot. And when I give valuations, I explain to people, I'm giving you a financial valuation. You know, when the company that bought me was a six billion dollar company, I was their largest competitor in Southern Illinois. By eliminating me, eliminated a lot of their problems. And they needed a lubricant splendid packaging facility, which I had and I didn't know they needed at the time, to be honest with you. But I look at the multiple that I got from my company, it didn't make financial sense. It was a strategic acquisition. Big, big difference. And it's very hard to value a company from a strategic standpoint.

Because it's arbitrary and only the board knows. And you know, it could be a gamble to begin with.

Yeah, I mean, so I say it, it's hard for me to value company from a strategic standpoint. I should say that I should actually retract that a little bit and say it's hard for me to value the company from a strategic standpoint. But when I don't know who the buyer is, I mean, if I'm the buyer, I gotta tell a great story. In the book where there was a company, I had two offices, two bulk plants 30 miles apart, and there was a guy right in the middle. From a financial standpoint, he wanted over a hundred thousand dollars too much for that company. But from a strategic standpoint, I didn't have to add a truck. I didn't need him as a driver. I mean, I was literally going to eliminate 80% of his operating expenses. So did I pay him a hundred thousand dollars more from a financial standpoint than what it was worth? Heck yeah. Because from a strategic standpoint, it made complete sense. And the one thing that would have been horrible for me, this is an area of high customer concentration. I sure as heck didn't want a competitor buying him and opening up shop right in the middle of an area where it's huge customer base. For me, I mean, it would have made no sense to let that happen. So would I pay more for it? Heck, yeah.

Well, that makes total sense what you're saying now, because I'm thinking of other things that it's the same thing. For example, when you're starting your business and you have a dream and you know you can do it, and everyone thinks you're nuts, it doesn't make sense like a financial would. But strategically, you go, you know, give me two years, three years, five years, 10 years, and that's a whole different story. But it's, again, it's so arbitrary. It's like unless it's you or someone you trust or your partner or wife or spouse or husband or whatever, it doesn't make sense to the rest of the world.

And where does the money come from to get that going? Right?

Yeah, it's like the whole adage, you know, entrepreneurs are the only ones who jump off the cliff and build a plane on the way down. It's like, from what, I don't know, we figured out.

I like that. I like that. And it's funny, the older you get, at least for me, the more conservative you get. But that's why. So you know that we kind of coined another term. I call it the glider path and I talk about it in the book. What's really sad is you see companies that were here trying to get on your screen here and then they took, they took their foot off the gas and the things just went.

You know, think of a glider, it's just coming down. So five years later, after they took their foot off the gas, they want to sell it. Well, if they would have sold it back here, the company might have been worth three times as much as what it was five years later. Think of the multiples. You know, three to five is a good multiple. Five, probably a little on the high side. You know, three or four is good number for most average small businesses. But gosh, I did a value to dental company about two years ago and he was a total glider path. If he'd have sold it four years earlier, it would had a financial valuation of about 2 million and four years later, it had a financial valuation of about 800,000.

And I asked him, I said, what happened? He's like, I'm tired. Tired of working all these hours.

You know, tough.

Have you ever seen multiples for 8, 10, do. Let me rephrase that. Do people pay for multiples of 8, 10, 15, 20? Outside of a strategic. Maybe Disney buying every other media company in the world.

So the more cash flow the company has, the higher your multiples are going to be. It's flat. That simple. Other than, you know. No, I don't see it. Other than it's a strategic. Strategic acquisition. But once you start getting cash flows or EBITDA earnings before interest, taxes and amortization, once you start getting above a million dollars, that's a million dollars a year. That's where your multiples are definitely gonna start increasing.

Excellent. Again, thank you for the expert authority insights. We're gonna thank our sponsor and come back to the imperfect action round. Winning with Google in 2020. I have no doubt you want to for your business, but who do you trust and where do you start? I'd advise Rosh Sillers. Not only was he episode 22's featured VIP guest, but he's also a Google specialist with search advertising and YouTube and I had him put together this free winning with Google in 2020 guide for you to get started with. Right now go to eainterviews.com forward/rush tips to get your free download. Now once again, that's eainterviews.com forward/rush tips. And we are back with the imperfect action round. Terry, are you ready to take imperfect action?

Absolutely. I'm curious what this is about.

You're going to love this. I think out of everyone I've interviewed so far, you're going to love this, especially the third one. Okay, number one, these are 60 second answers, rapid fire. What is the fastest path to the cash?

Have a sellable company.

So have a sellable company. Have your ducks in a row. Make sure. What's your financial, you know, do you have, do you have financial statements? The largest part of the value of your company is going to come from the cash flow. You have to have readable financial statements and they have to be up to date, you know, and then you know, do you have your ducks in a row? Do you know where your assets are at? Do you know where the titles are at? You know, all you know, just get your ducks in a row. It's not as it can be. The fastest company I bought was in three days, but you could drag it out to over a year if you don't have your ducks in a row.

Wow, that's a big difference. Number two, what is the biggest problem you see your prospects making and the fastest way for them to fix it?

Prospects is for selling a company. Yes. You know, the biggest problem I see was especially, and I say smaller companies, I would say under 10 million in sales is the owner is overly involved in the company. That is a huge. I got a company right now that should sell for 8 million and the owner is very involved in a company and it's an issue, you have to step back from that company and if it can't run on its own, it will severely affect the value of that company. When you're proud. So this was a shocker to me. I was proud to say, well, and at the time it didn't work out. This. So when I think about this, I would say, I would be proud to say that all of my owners know me and they want to talk to me. Oh, that is completely wrong. You need to have people in place that can run the company without you being there. And I know a slick way to do it.

Oh, I'd love to know that. Is it in the book?

It is in the book.

Nice.

I did.

What's that?

I did it.

And let's tie a number to it. You said it should be selling for 8 mil. How much is it not going to cost them? Because you're going to help them. But where would it be if he doesn't fix it?

It's totally a thing where it doesn't mean that it could sell for 8 million or 6 million. It means that it could sell for 8 million. Or the potential buyer completely walks away because he's like, I'm not going there to run that business every day. That's not. No. There has to be a management team in place. So again, just to.

So it's not costing 2 or 3 million. It's cost potentially 8.

Yes. It makes the company completely unsellable. And I can tell you story after story. Wow.

All right. So don't do that. That's significant.

You got to separate yourself from the business.

And here it is. Number three, what is the best way to maximize customer lifetime value?

Recurring revenue.

Build a recurring revenue into your company, you will get. I mean, anything is a transactional business. You'll be lucky to get one or two times the cash flow of that company you take in. Think of it. So we used other examples, but think of an insurance company. Good times are bad. You have to have insurance, right? That's recurring revenue. You know, even with my company, the oil company back in the day.

Farmers are going to farm, right? They're going to use fuel. Good times are bad. Municipalities are going to run ambulances, fire trucks, police cars. You know, that's recurring revenue. Make do everything and don't. The other thing I would tell people is like, don't tell me you have a business that you can't build recurring revenue into, because I'll show you a model no matter what you got. But recurring revenue is the longest way to keep value to a customer in selling your business.

That's great advice. Thank you. Books. What are a couple that have made the biggest.

That's a good one right there for sure. What are a couple of books that have made the biggest impact on your business or life?

So another good book to read is a book by Tom Dean, Thomas Dean, Every Family's Business. It really tells a cool story about. They have a list of 10 questions that they ask themselves every year about whether, you know, do I want to stay in the business? Do I want to transition to business? Who am I transitioning it to?

John were Illo has the value builder system and he has a book called Built to Sell that's another great book.

That's where I was gonna ask you if you heard of, heard of that one. It's a great one.

Yeah, John's a great guy. I'm wonder Advisory board for the Value Builder System. I'm cheating. I'm looking over here.

To my library, so to speak. You know, the other thing. So maybe it's not a book, but here's another idea that we haven't talked about and it's the last chapter of my book. The last chapter of my book is named don't be like the Dog that Caught the Car. So in other words, know what the heck you're going to do with your life once you sell your company. I was only 40 years old when I sold the company and after three months of sitting at home, it was like, oh my God, this is nuts. I have no. You can only hunt fish and golf so much. Trust me. So know what you're going to do with your life once you sell your business and it will make the difference between you being happy and not being happy. I don't have an exact book for that, but it's a great, that's a.

Great final thought to, you know, put the cherry on top. Thank you for all the insight, all the everything you've shared. I've gotten a lot out of it. Where can people find more about you?

Go to our website, ww.innovative ba.com Innovative's got two ends and B a boy, Apple. Click on the Media tab. Lots of, well, there's tons of great information on the website. If you click on the Media tab, there's a lot of articles that I've written, other podcast videos.

I'm on LinkedIn, Facebook, you know, all the usual stuff. The book is available on Amazon and what's the other one? Kindle. You can get it on Kindle. And I would love to do more public speaking. So if you're in need of a speaker, you know, I would love to do it. Got a couple great topics to talk about, you know, cash flow and your bankability and, and stuff like that. There's, you know, a couple videos on the website that give you an inkling of what we could do. You know, the CEO to CEO coaching platform is awesome. We've been doing coaching for a long time. We're finally putting a brand on it. So that's really exciting.

So, yeah, those are great places to find me.

Excellent. Well, I appreciate you for sharing and you are a great speaker with great knowledge. And even before we got started.

I was excited to hear what you have to share because it's such a value add for everyone listening, for everyone watching. I would love to see you in person and even have a half day event. When you were talking about some of the stuff, I'm like, it's not another show, it's a half day to full day training. If not, you know, two day event. There's so many people I'm just thinking of. I'm. It's exciting. So thank you again.

Well, thank you very much. I appreciate it. It's a fun subject and you know what I like about it more than anything is I didn't learn this out of a book. This is real stuff. I've done it.

I've lived it absolutely well. Expert Authority World, we got another great episode here for you. I'll see you on tomorrow's. Have a great day and God bless. There's money in the metrics. Do you know yours? Pipedrive is the simplest and easiest CRM to close more deals, deepen your relationships and increase your business profits. Get your free trial today@eainterviews.com Pipedrive hey, thanks for listening to today's episode. I hope you got a lot out of it. I know I sure did. If you haven't done so already, I invite you to subscribe to the show and also be sure to check out eainterviews.com for complete show notes, the full interview video experience, links to the resources we mentioned, and more. Have a blessed day and I'll see you tomorrow.