How To Sell Your Home Service Business For The Most Money | Ep 70

Welcome back to the show. I'm your host, Phil Risher. And on today's episode, we're going to be discussing building and selling a home service business for maximum value with Patrick Lang. Thanks so much for joining us today, Patrick.

Absolutely. Thank you so much for having me on.

For sure. So Patrick Lang is a seasoned business broker and the owner of Business Modification group, specializing in H Vac, plumbing and electrical company sales. With over 136 transactions closed, he's the guy you want to talk to when it comes to maximizing the value of your company. Patrick's expertise lies in preparing companies for acquisition, structuring profitable exits, and connecting sellers with the right buyers. He also works with 1 to 10 million home service businesses, which is our bread and butter who listen to this show. So it's a perfect fit. Can you tell us the background? Like, how did you get into this selling home service businesses?

Yeah, absolutely. So it's a long, winding story. So I, I come from a financial planning background initially, and it just wasn't fun anymore. So I, I sold that business. And some people have a midlife crisis and buy a Corvette. I bought a swimming pool service company, actually. Wow. And so we started cleaning swimming pools. And we did that for probably five years. Grew, grew a big business. And along the way I bought and sold and grew and acquired. And when I sold that off, I met a business broker. And I didn't even know what a business broker was, right. I'd sold, I'd sold four of my own companies. Probably at that time, had bought five or six companies. I didn't know a business broker existed. So met a business broker, told me what he did. I said I could do that. I've been doing it for myself, I can do it for others. Became a business broker. And that was probably 13 or 14 years ago when I entered the brokerage world and I, I sold everything, right? Bars, restaurants, gas stations, flower shops. You name it, I sold it. Wow. And I listed a heating and air company for sale. And I love businesses with barriers to entry. I love home service. I live in Florida. I don't know a husband dumb enough in the state of Florida to tell his wife he's not fixing the air in the summertime. And I thought, what a great opportunity. So I bought the company I had listed for sale. I ran it for two years and realized I missed the business. Brokerage world was part of it. And, and, and, and it probably wasn't great for me or for my employees for me to have a business where I relied on employees Again, I, I come from the world where you're just happy to go to work and you don't have to coddle people and beg them to go to work and pay them a bunch of money and tell them how sweet they are and all the things they've got to do. So I came from this different background, I guess. So I went to sell the company and I was still doing brokering along the way. Not in a major capacity, but still doing it. And when I went to go sell it, we were a small company, under $2 million in sales. I realized if you're doing $20 million, people would line up to help you. If you're doing 2 million. I couldn't find anybody who knew anything about selling it. And I thought, wow, as a broker, if I can't find information, what is somebody who's been a heating and air guy for 30 years going to be like? So, right. I, at that point, a little over six and a half years ago, I thought there's an opportunity here. My son and daughter in law actually bought me out of my heating and air company. Okay, run it today. My office up until probably six months ago was still in their office. So they got my unsolicited advice every day, which I'm sure they loved. And so, so I was still around the business and based in Florida. First year I sold a few in Florida, then some in Georgia, then the Southeast. And Covid was for many people, the trades. Covid was good and it was good for my business too. I could fly from Florida to LA round trip for 250 bucks. I was the only guy on the plane. Every seat was first class, every hotel was wide open, every rental car was open. So I started, just became nationwide and started traveling. It seems like I live on a plane now, but. And I've been fortunate in the last six years, if you mentioned, I've sold 136 companies and we've been fortunate to stay busy. Wow.

So very cool story because you have been on both sides of running a home service business, trying to sell a home service business running into the pitfalls. And so it probably comes pretty natural for you to discuss the topics when you meet with people. It's not just some financial guy who's just looking at EBITDA or something like that.

Yeah, I think that really makes a difference, right. I've, I've been in all three phases. I've bought, I've ran and I've sold. And so, and the reality to me, selling a business, to me the numbers are the Easy part, right?

Yeah.

It mathematically makes sense or it doesn't. So if it doesn't, you don't sell it. It's just that easy. To me, it's everything else that comes with it. And so many people, their business is their baby, you know, and they don't, they don't have any hobbies, they don't know what they're going to do. So there's a lot that goes into that.

Yeah.

With all the financial buyers who've entered the marketplace, there's. The deals have changed, Right. My first two years, every deal I did was mom and pops buying other mom and pops. My next two years, almost every deal I did was a financial buyer or private equity company gobbling them up. And now the last two years, it's been a split. So probably half of my buyers have been financial buyers of some sort and the other half are mom and pops buying other mom and pops, kids buying out their parents, employees buying out their boss. So there's a little bit of everything.

Yeah, very cool. So with these home service business, let's say 1 to 10 million, what are some things that they should be doing now to prepare their business? Like common things that you're like, okay, you got to solve this, you got to solve this. That way you're ready to roll whenever you do decide that you want to sell the company.

Yeah. You know, there's four things I kind of preach about. There's a lot, a lot more than that goes into it, but really four main things, and that's one, getting themselves out of the band. So most of the companies that I see that are stuck at a million dollars or less in sales is because the owner won't get out of their own way. They're the best technician, they're the best salesman, they're the best bookkeeper. They're the best, best, best. And I don't have any buyers that call me and say, hey, I want to buy a business where I can work in the field for 16 hours a day and then go home and do paperwork. Right. It's a high paying job, not a business really. So getting out of their way. The second is a business built on service and repair as opposed to new construction or project based work holds a higher value, more consistent, deeper share of client wallet. There's a lot of reasons that go into that. The third one is really cleaning up their books and their systems. Many people treat their business like it's their personal checking account. And so, you know, it's the I'm self employed, so I have to save taxes as opposed to showing a profit. And they don't really have necessarily systems in place to do that. And the fourth is really maintenance agreements or some type of repetitive revenue. Buyers love that. Buyers love consistency of income and being able to turn on a switch. Right. And call existing clients or their marketing or whatever their system is that they're building. Having that ready to go.

Awesome, that's a great list. The biggest one for most people is number two, the service and repair side of things. I think a lot of people have that if they've, if they've shifted from, you know, the new builds and stuff. A lot of companies like electrical contractors, they, they're still behind the eight ball on service contracts for a lot of them. So let's say it's a 40 year old business. They have a, you know, repeat customers that, oh, they all call us but they don't have service agreements in place. What do you recommend for them and how do they show that when they're looking to get evaluation or something like that? Like how do they make that good?

Yeah, absolutely. So I meet with a lot of people and I'll say, do you have maintenance agreements? Well, yeah. Okay, how many do you have? Well, they don't really prepay it. They just call me when it's time for maintenance. That's not what a buyer is looking for, Right. A buyer wants a client who is prepaying for their own loyalty, right. If you have a heating and air guy or girl and you pay him 200 bucks a year for two visits, if it breaks, you're calling the person you pay 200 bucks to. So, so they're paying for that loyalty. And so we recommend doing it, you know, most of it. The reality is in most of these businesses, and use your prime example, 30 year old business, been taking care of people forever, have done an incredible job. Most of those owners don't believe in prepaid maintenance agreements.

Right.

Think I'm losing money, right? It's, I'm too busy, I don't have time to go do it. I'm, it's going to take, take up my demand time. And the reality is customers want it. Oftentimes they hear about it from other places and they just don't even offer it. So it's not even an option for them. So we say ask them about it, you know, what we like to see. And I'll use heating and air for this example is per million dollars in sales, 500 maintenance agreements. It's a hard number to shoot for, but it Certainly it helps them long term. It helps with staff retention, it helps with training newer staff members, it helps with building customer loyalty, it helps for additional sales opportunity. And there's all sorts of opportunities that are in there. I don't need to preach to you about the benefits agreement, but. And so many sellers that are set in their ways or owners that are set in their ways don't believe that.

Yeah. And so if they, if you do a million dollars and you get 500 service agreements, because I think is pretty good, the people that are coming in and buying, that's one of the qualifiers that they would be asking is like, how many maintenance agreements that you have? Because that's how they're trying to benchmark the revenue that they don't pull you out and then it's all gone.

If you look at most of my ads for all of our listings, one of the first or second sentence in every ad is going to be how many maintenance agreements? Because it's going to get asked at the end of the day. Every buyer is going to say, how many are there? Now do I sell a lot of companies who don't have maintenance agreements? Yeah, absolutely I do. And there's a lot of people who, who are done. When they call me, they're not looking. They're not, they're not saying, what do I need to do to build it for the next two years to sell it. They're saying, hey, I'm done. Yeah, business. And so we go to market at that standpoint right. Before things get worse or they lose any more interest that could potentially hurt it. So, so in that scenario, we don't, we don't do anything. But, you know, doing what we can to, to add to those maintenance agreements is definitely beneficial.

Yeah. Okay, let's say that you, someone reached out to you, I'm done. I need to get out of this thing. A lot of times they're burnt out and they're probably because it's a job to them and it's not like a true owned business. So you meet with them, how do you coach them or work with them to like, get out of the van or not even just the van, but like, how do you teach them to, like, not be, not to be the job? How do you. What do they do?

So here's the reality. Maintenance agreements is one of the ways to do it. So many people don't hire somebody because they're worried about the shoulder season. Right. I hire this person. What am I going to do when things slow down? Well, maintenance agreements solves that is an excellent opportunity to keep somebody busy and to keep cash flow coming in. So. So that's, that's why I preach about in with the. Getting yourself out of the van is. So that's how you can replace yourself. Right. By getting enough work that's consistent. So when it does slow down that you've got something for those people to do.

Yeah. Makes complete sense. Do you say like, you know, within six months to a year, you should be all ready to go, you know, to sell your company or do you have a time frame or anything or.

It's just so reality is, it's different for everybody. My first company, when I was ready to sell, I'd have paid somebody a ticket. Right. I mean, I was done. Yeah. Many people get to me like that. And what happens, I see some people wait too late. You know, it's the quarterback who should have retired two years ago and didn't. Yeah. So numbers are down. It's the same thing with the business. I have a lot of people call me and say, hey, I'm doing. I'll say, tell me about your business. Oh, we're doing $3 million in sales, $2 million in sales, and blah, blah, blah. They send me their tax return. Looks like a completely different business. It's like it's a million dollars in sales. Well, we used to, but I can't find any help and blah. And now it's down to them. They're 70 years old and they're doing all the service calls they can do. And because they should have sold it three years prior. So. So getting out before you need to get out is super important because when that desire is lost, obviously. You know, Phil, running a business is tough, right?

Yeah.

And it's not getting easier as you're aging. And so for many people, they keep thinking, well, if I just wait another year, I can hire somebody and train somebody, and business is going to pick up and then it keeps going down. And a buyer's not going to pay for you for what you did three years ago. They're paying you for what you're doing now.

Yeah, that's right. We had a company, they were doing like 5 or 6 million, and he was doing a million, you know, bottom line. And he had just hit that after like 20, 25 years. And he was kind of at like the peak, you know, but he was so stressed of like, all this stress on top of him, and he was going back and forth, you know, should I sell? Should I not sell? And this was in the 2022, 20, 23, whatever. And he, he ultimately sold for like six or seven times and he got out and he's like, it's the best decision I ever made. And he was at, he was kind of like riding that high, going up. But to your point, if he would have kept, kept it going and then it, it can snow, it can nosedive pretty quickly, which unfortunately then, then you're behind the eight ball.

Try to catch up.

Yeah, right. Yeah.

And now the numbers are down and, and so it creates its own problems. And there was a lot of people. Covid was good for a lot of home service companies, businesses at home. They realized their air conditioner didn't blow as cold as they thought it did. Light switch was bad or you know, these other things are, you know, their toilet need to be replaced. And so they were there and it became an issue where they weren't gone eight hours a day. And so, so it was good for a lot of people and it was their peak. And for many of them it would have been a great time to get out.

Yeah. So someone calls you, you know, 1 to 10 million and they're like, hey, so Patrick, what's my business worth? How do you, how do you figure that out?

Couple, couple ways. One, so this is going to be self promotion, so I apologize in advance. But like on my website, on the front page, it's click here to find out what your business is worth. So, so somebody can enter in some details. Gross sales, how much is repeat revenue, maintenance agreements, there's, there's questions on there about it and we'll give them a report that we physically do. It's not just some computer generated. It's, this is what we take our time and read through it and go through it. It's going to sell somewhere between this and this range. Now if they, they say hey, that, that may be close enough or I want to know what it is, then we'll do an actual full on valuation. We have a questionnaire that we send out that ask them, you know, commercial versus residential, what new construction exposure you have, what is your staff do, what do you do on a daily day basis, all that kind of stuff. And we get their financials so we'll dial it in. Yeah, both of them are complementary. The reality is, and I said it earlier, you know, for most of these people, most sellers specifically in the trades, their, their business is their baby right at the end of the day. And many of them have no clue what it's worth.

I know.

And they don't know who to Ask.

I know.

And I meet people at trade shows and events that took horrible deals because someone said, this is what it was worth and that's what they took. And I'm thinking, what? Why in the world did you take that? Because the reality is they didn't know who to go to. When I sold my first few businesses, I didn't have a clue. I said, this sounded like a good deal to me. It was a good deal for the buyer. We did it. And so I made all the mistakes that people make. And so. But I also sit at too many kitchen tables with 70 year old couples and say, hey, your baby's ugly. Nobody wants to buy it, you've done it wrong. And you do that once or twice, not a big deal. You do it a couple hundred times, it'll rip your heart out.

Yeah.

Because if you're 40 and I say, hey, you're doing it wrong, your baby's ugly, well, you fix it. Yeah, but when you're 70 and I'm saying that, you're done. And many of these people spent their whole life thinking this, this was their retirement plan. If you look at Most business owners, 80% of their wealth is tied up in their business. And so they think because they went to a trade show or seminar and somebody got up on stage and said, I sold it for a 20 time multiple or something like that, and now they think theirs is worth that. And so, so I spend a tremendous amount of my time doing shows like this, speaking at industry events, writing articles. So. And to say I'll do evaluation for anyone at any time for no charge, because I don't, I don't want 10 years from now to be having that same conversation. Because up until then you could say, hey, I didn't know, I didn't know who to ask. I didn't know where to go. And I'm trying to do it now to say here, you know where to go, even if you don't do business with me, find out what it's worth. I have a lot of people that say, hey, I've got somebody making me an offer. Can you take a look and tell me if it's a good deal? Yeah, it is. Or no, it's not. Here's the numbers. So, yeah, so we do that. But there's a lot of other people in the industry to do it as well. Right. So I'm not the only guy that sells trade companies. There's a lot of people that'll do it. And most of them are good people and are willing to give Back as well. But. But to sit down over and over and over and over again, say you've done it wrong, you've wasted 30 or 40 years. It's horrible.

Yeah. I think there's like two parts to it, from what I know, which is, you know, you could look at very simple ways, like take your profit and then multiply that by like maybe three or four times and that will give you some semblance of it. But on the flip side is how ingrained are you in the business? So that when we pull you out, it's not like the business is gone, which there's a lot of different levers here that you need to pull. That's just a very simplified version of like, what something might be worth, I'm sure.

Absolutely. And that's what the questions.

Yeah.

How many maintenance agreements do you have in place? So then we'll have have a good understanding of how much of it's repeat revenue. How much. What's your marketing spend? Right. If you're spending 20 or 30% of your budget on marketing, chances are you're not doing a great job of customer retention. Or it's a business that's growing by leaps and bounds. So depending on those two things. So. So we ask very specific questions. What do you do on a daily basis? Are you out in the field turning wrenches? Are you managing? Do you have a GM in place? Do you have a install manager, a service manager? What do you have? So we ask all those questions because what, what happens is that it's a multiple. Right. Based on net income, and it's going to be a range. And so depending on the size of the business, it could be two times, it could be 10 times. Yeah. So in between that range, depending on all those other questions will depend. Is it going to be closer to 2 or closer to 10 or closer to 4, closer to 5, based on the income as well as those other parts.

That's right. And I think it also fluctuates, like with private equity, they're willing to pay a lot more, where right now it might be a little bit more tight and less multiples because it's not as easy to get money. So there's a lot of fluctuation in those valuations. So if you do hear A I got 20 times, well, that was, you know, way back when and now it's a little bit different. And so things change all the time.

Well, here's the reality, too. Nobody brags about the bad deal they got. Right. Nobody gets up on stage and says, I Sold my business and I shouldn't have. And I held a note. It's all tied to earn out and they got all my cash. They don't sit up there and say that. Right. They say it 20 times. Well, it may have said 20 times on paper. What's important to me is what did the check say? At the end of the day, what did the check say? And that's what we focus on. So we try to be real about that. Because one of the first questions I have, somebody calls me and we're talking about valuation, I'll say, what does the check need to say for you to walk away? Well, we're doing 2 million in sales and I won't take less than $5 million. And. And I'll say, I'm not your guy. I just can't get you those kind of numbers because that's not real. Well, I heard somebody at the trade show say that.

Well, that's right.

Lied to you. If you didn't see the check, don't believe it.

Yeah, that's right.

So.

So let's talk a little bit about this. The earn out the second bite of the apple. This whole thing that it might be structured that your business is worth X, but it's really, you don't get that check because there's a lot of these other things. What are some of those things that maybe people need to know about or they fall into these other traps.

Yeah. So part of it is I hear a lot of people saying you have to roll equity or you have to leave some money invested.

Yeah, yeah.

That's a lie. Right. Every deal is different and every buyer is looking for something different. So potentially, does considering investing in the new company or leaving some money invested open you up to more buyers? Absolutely, it does. The more willing you're willing to be creative, the more people come to the table. But so rolling equity, what that is, is if they give you a million dollars for your company and you roll 20% equity, you only get 800,200, 000 stays with them. And they call that the second bite of the apple. And that's. There's lots of different ways that they try to brag how good it is for you, one of which is it's going to save you tax money because you're not going to get that money. The second part is they're going to sell your company. They're going to buy a bunch of them. Yeah. Sell your company down the road and now it's going to be a bigger piece of the pie. Which is true. But just like flipping houses or anything, there's got to be somebody new to sell it to.

Yeah.

So. And they've got to be profitable and they've got to do a good job. Many of these financial buyers are incredible at raising capital, but don't know anything about running an electric company.

That's right.

And so my word of caution is if you're going to give a complete stranger 20% of your retirement income with the belief that they're going to do a better job than you did running the company, you better hope they do.

Yeah.

Because they, they don't say it in the meetings. And I've been through thousands of the meetings. They never say this could be zero. That's absolutely. Could be. Once again, you're 40 years old and selling the business 20%, not a big deal. You're 60 years old, selling it 20 could be a big deal.

Yeah, that's a really good reframe of that second bite because it is all good, you know. But then no one talks about the real downside. What about earnouts? How does that work? And like I had one earn out company that we work with, he sold to a roll up and then within six months he didn't even care about his earn out. He's like, I'm out of here. Then two years later the business folded up and this was a like $8 million H VAC electrical contractor. So it's like that can really happen. And he didn't even get his earn out portion. So what is that? How do, how do people structure that? Or what is it for people?

Yeah. Once again, I'm not a huge fan of earnouts so I'll give you my biased opinion on both. So an earn out, it reduces the risk to the buyer. Right. So they're going to say to you, hey, we're going to buy your company for $3 million, but we're going to give you 2 million at closing and a million we're going to keep. And the business has to do a certain amount in either gross sales or net income in order for you to get that other million. If they're ethical, if things go your way, you get your money. If they're not and you no longer run the company so you don't have 100% control on how well it's going to do potentially it could be a bad scenario for you. I had a, I had a call with a seller just before we jumped on and somebody talked to them about an earn out that was going to be using net Income. Well, if they decided to give themselves bonuses. Yeah. Now you don't hit your net income goal and they just saved a million dollars. Now, once again, I'm looking at the extreme opposite end of the spectrum. Right. Assuming everybody's a liar and cheater and you know that my belief in a deal is if you look worst case scenario and you're comfortable with it, then it's probably not a bad deal. But if you look worst case scenario, you think if that happens I'm in bad shape, then it's probably not the deal for you. But an earn out basically ties your pay for what you've spent 20 years building onto its performance moving forward.

Yeah. So you, you mentioned that you're not really that big of a proponent potentially on earnouts. How does someone, you know they're in a negotiation, how do they structure a deal so that way they're not tied to this, they're just like a clean cut. What is that? How do, how do they.

Yeah. When we go to market, we'll typically say that I'll. Well, I'll have a conversation with the seller and say this is what some buyers potentially going to ask, what are your thoughts? And, and if you're not okay with it in our marketing, I'm going to say we're not willing to, to do an earn out. So are we going to chase some potential buyers away? Well, sure we are, you know, at the end of the day. But how much time do you want to spend with somebody who's going to offer you something you're not going to accept anyways?

That's right.

So at the end of the day, I think it's better for the buyer. I'm not wasting their time and they know it. And it's better for the seller because we're not doing phone calls and meetings with somebody who's never going to be a real buyer. Yeah, we say that. The downside. I see. And I'm okay with you selling a business on your own. I've sold a lot of business on my own. I'm not here to say don't do it, but don't do it if you don't understand it. Yeah, I got lucky and I was also a lot younger. If you don't really understand what you're doing and the buyer, which many of them do, say, well, everybody has to do an earn out. That's the only way these deals are done. That's not true. No, but, but if you've never done it, you don't know they're buying up. All these companies, they, they probably know more than I do is what you're thinking in your mind and you accept it. And their thing is, well also we have to do the business just has to stay the same and you get all your money. Well, yeah, but you're not here. They potentially could fire employees or lose employees or raise prices or, or do all sorts of things that potentially may cause a dip in the business. And, and that makes me very nervous. I, I'm a control freak and so I've been self employed for a long time and if my money's tied to somebody else's performance, I have an issue with that.

Yeah, and I completely agree. How are you, how would someone go about finding buyers? So you've sold them by yourself and then obviously you know, you help people. But how you keep you mentioning like you know, in the ads or going to market and that kind of stuff. What does that look like? Do you know, post a Facebook ad like my business is for sale or like what does this look like?

Yeah. So I think it really depends on how you're doing it. Once again, I've sold businesses on my own. Knowing what I know now, I shouldn't have done it. I got lucky because here's part of it. I believe confidentiality needs to be the key. Right. If your employees or your competitors or your customers find out for you're for sale, potentially you could lose them. If you lose your employees, what do you have to sell? Once again we're saying get out of here. Yeah, man. And now you lose people because of it. If you're selling it on your own, how do you sell your own business and somebody not know what's your business? So it kind of puts you in the, in a bad spot. So you have to be very strict on how you do it. My belief is the more, the more eyes we can get on a business, the better we, the better opportunity we have that we can get full market value for it. Right. It's like you're selling your house. You're not going to go ask one person, do you want to buy it? Of course. And assume that's where the market is. You're going to market it and have lots and lots of people looking at it and they're going to dictate where the market is because at the end of the day it's worth what someone is willing to pay for it. So we do what's called blind ads. One, I've been selling heating and air companies and electric and plumbing companies for six years. So We've accumulated a huge buyer list. So our first step when we take on a listing is we'll email to those people and say, hey, got a heating and air company? Or I've got an electrical company in Dallas, Texas. Here's highlights, if you're interested, let us know. We have them sign a non disclosure agreement. Basically says if you tell somebody we're going to sue you don't say anything to anyone. It's all confidential. We also vet who the buyer is. Right. Do they have money? At the end of the day, there's a lot of people who dream about buying a business who don't have any money. And so we need to make sure that part's yeah. We also see. Is it a local competitor? If it's a local competitor, we're going to ask our seller, hey, Jim from Jim's Heating and Air down the street, requested information. Are you okay if we give it to them and they're going to say, hey, Jim's a crook. Absolutely.

Don't.

Yeah, yeah, hey, Jim's a great guy. I've known him for 30 years. He'd be a great buyer. Or I don't know, let's not say anything to Jim yet. So, so we're selective on who we release the information to. We also do direct mail campaigns, so we mail out to license holders. If we're doing, say the state of Florida, we'll get a listing in Florida. I'll mail out every heating and air. If it's a heating and air company, I'll mail out to every heating and air company in Florida, Georgia and Alabama. Say, hey, got a company like yours. If you're, you know, if you're interested in growing through acquisition, let us know. We'll also. I get 3000 hits on my website a month on my business for sale page. So people will go there and look for listings. There's also business for sale sites, BizQuest, Biz Buy Sell, other sites like that. So we'll list it on there. Once again, everything we do is kind of blind. So if it's in a small town like I'm in Madison, Florida, very small town. If I said Madison, Florida heating and air company for sale, even if I didn't say the name, there's three here. So they're going to know who it is. Yeah, Atlanta, Georgia, and there's 300 companies, I can say Atlanta, Georgia Heating and Air Company. So, so we depend on our wording on where it's located and how we're locating it. But we do blind ads and then we sift and sort, right. We they review, we give them a summary of the business when they're done, if they're still interested, we'll typically set up a phone call with the buyer and seller right away. Once again, the numbers are the easy part. And so I think making sure it's a good fit, I think a business sale should be a marriage, not a divorce. I don't believe somebody should lose. I think we need to get together right away and see is it a good fit. As me as the business owner, do I see you taking over my baby, taking over my legacy and am I comfortable with that? And now do you as a business buyer think that what I've built is worth for you? And so the fastest way to do that is to get us together on a zoom meeting or a phone call and see if it's a good fit. If it is, after that then we'll typically do a face to face meeting and let's sit down and make sure we all like each other and everything's okay. And then we work on getting it closed.

Yeah, that is a very detailed process. And I think people listening are like, oh my gosh, then I don't have to do any of that stuff. And there's actually a plan in place to figure out and find the right buyers because I think a lot of times there's this mystic, you know, selling my business, but then like who's going to buy it and who are these people that are going to magically come find me? And it's a lot of different. It's more like you have to go and make it known without making it known too much of like I'm selling my company, but you got to kind of get some suitors going in which I like that approach to it. One other question I want to ask you about was you mentioned selling the company to your son and daughter in law. I believe what, what about that process of like selling it to a current employee or family or something like that? How does that work?

Great point. And, and we, we've been doing more and more of that. So my belief is you should still get a valuation done.

Yeah.

And have somebody in the middle.

Yeah.

Because I, I've seen it two ways when that doesn't happen. One, mom and dad think it's way worth, way up here.

Yeah.

Son or daughter don't know. And so they say, okay, that's what I'm gonna pay you for it. And they get ripped off, maybe unintentionally, but they get ripped off. Or the opposite. Mom and dad think it's not worth anything. Son and daughter say it's not worth anything. And then they get ripped off going the other way. So we'll do evaluation first. And we do a lot of that where they'll just bring us in and say, hey, we're going to sell it to my main technician or my daughter or my son. And so we'll do evaluation first. We also work with a lot of SBA lenders. One specifically at Live Oak Bank. We do a ton of work with. They. They do a lot in the trades. And so we can. One of the biggest problems. And I did it, and I wouldn't advise, and I don't advise doing it. I held the note for my kids.

That's what I was going to ask you.

Thank goodness they made all the payments. Right. Because Christmas dinner is a little different when your kids aren't paying you and retirement is. Is getting jeopardized because they're not paying you. So we use financing, SBA financing to get that done so mom and dad can get paid, kids can own the business. I was in the office watching my money. Right. So hear me. So part of it was being nice. Part of it was saying, hey, you need to get up, go to work. You run that service call. You need to go do this. I want to get paid. So. So it's a cleaner separation if it's done through the bank.

That's right.

So it just. To me, it's a better way to do it. And so. And most. Most of my sellers, their business is the biggest asset they own. Yeah. And most of my sellers have never sold anything before.

Yeah.

So they don't know what to ask, what to do, what happens. So they just assume it's okay because Junior and I shook hands and everything's going to be okay. Yeah. And that really is what opens it up to family turmoil, is one side thinks the other side ripped them off. Or we didn't talk about this. Or we didn't include this. Excuse me. Or we should have done this. And so. And often not intentionally. Right. Because nobody knew what they're doing a business. Mom and dad have never sold a business. Now we've got two people potentially talking about millions of dollars.

That's right.

Nobody had a clue what they're doing and just assume the other person took care of them. So. So it's a bad spot to be in. So we believe in coming in, whether it's me or somebody else, and addressing all those issues. What about maintenance agreements? How are Those handled. What about warranty work? How is that going to be handled? Fallbacks. What about non competes? Right. We don't. Dad thought he could still just run service calls whenever he wanted to. We can't because that's taking money out of the business pocket. You know, little things like that and addressing all those issues. So either it's a good deal that everybody moves forward with and is comfort with, or they just don't do it. You know, instead of ruining the family over a business, let's address where the issues are. And if, if it's not a good fit for everybody, then don't buy it.

Yeah. So if I'm hearing you right, it's like you got an employee or a son or daughter that wants to buy the company, get a third party to come in to give you a neutral valuation of what this actually is. So that way everyone's like, okay, cool, I buy into this, then potentially get an SBA loan or something, and then pay the SBA loan out of the profits of the business as long as it's continued to be run. So then everyone gets paid out in accordance and everyone has the same risk exposure and is working towards the same thing.

Absolutely. Yeah.

Okay, cool. Yeah. I mean, all that makes sense as far as someone's timeline. So, you know, let's say someone's like in their 30s or 40s and they're like, yeah, I want to sell my business at some point. When should someone start really thinking about planning for this? Is it like, you know, six months out, a year out? It usually takes two years if you want to do it the right way. Is there any timeframes that people should.

Be looking at the day they open the business?

The day they open the business. Okay.

Yeah. It's the reality. I, I think there's, there's two reasons to own a business. One is to make a profit, and two is to sell it at some point.

Yeah.

And so sometimes people treat profit as a bad word and, and never think about selling. And next thing you know, it's time to sell and they didn't plan anything. And so running, running a business to save taxes on, which many people do, and running a business to sell is two different business. I can tell you if you build a business that is increasing the value of the business to sell to somebody, it's going to be an easier business to run. It's going to be more profitable for you, and the chances are you may never want to sell it, but if it ever happens and you need to sell, it's Already positioned, it's ready to go, there's no getting ready. And if somebody calls you and says they want to buy it, you can hand them a tax return and say, there's my business, here's what I want. You already have a value. I recommend getting a valuation done every year. So that way you know where you're starting from and you can track the progress of where it's growing. So when the time's right, once you hit that magic figure of where it needs to be for you to walk away, then you're going to work because you want to or you like what you do. And if somebody buys it, great. And if not, you still know where that value is. So I really think building a business to sell, many people never think about that.

That's right.

And, and many people, especially in the early years, I'd say, how much would you pay for your business? Well, nothing. You don't have anything in place. You don't have any systems, you don't, you don't have any of that stuff going on. So starting from day one with that approach changes the way you grow the business.

Yeah. I had John Warlow on our show, he wrote Build to Sell and I asked him and he was like, even if you never want to sell your business, just building it to be sold is literally running a good business. And it's going to allow you to scale. If you just have that mindset of if I was going to sell this, I needed to be sellable. Right, Yeah, I agree.

And then you're not running, you know, service calls 14 hours a day. Right. Because you know, it's not going to add any value. So you, you focus on getting yourself out of the way, you know, and those other little things.

That's right. So last question here, but what, let's say someone's around like you know, one to two million dollar mark, what are some of the things that they should be focused on to get to 5, 10 million? Is it, is it. A lot of times it's like the, the GM or removing them from different key pillars or is there a common thing that you usually see in those that size?

So getting above 1 million is getting out of the van. That's typically you start getting to million and a half, they have to be out of the van. Right. Because now there's parts that they didn't have before. So that's that first understanding their pricing. So many people, you know the name the Chuck in a truck, you know, everybody talks about it one day and truck doing the work well, those businesses are typically super profitable because they don't have any overhead.

That's right.

And so many people hire people and keep their same pricing and never think about, well now I've got all this overhead and I've got insurance and other vehicles and gas and blah, blah, blah. So they don't raise their pricing enough to, to keep that going. So I think first part is getting out of the way. Second part is understanding your numbers and making sure you're tracking those numbers, learning about numbers. And I think the person you, the person who runs a million dollar business and the person who runs a five million dollar business is a different person because it's a learning curve to go through. Right. You learn a little bit at a time replacing yourself. And then you have to learn how to train people and you have to learn how to deal with people and you have to learn, you know, recruiting and retraining and then you have to learn about the marketing side of business and making sure the phone rings because now you've got other people that, that, that you are responsible for. So, so each one of those steps is a learning curve. Doing those four things we talked about at the beginning along the way is what's going to increase that value. It's not wave of magic wanted. Just do this. The reality is Most companies under $3 million in sales, the sale, the owner is the salesman. That's right. Salesperson. They don't have a sales system. They don't. It's just I go and talk to Mrs. Smith because I've known her for 30 years. I tell her what the price is, she buys it and we go on to the next one. And so that's not really a system that can be duplicated.

That's right. So a million, you obviously got to get out of the truck and replace, you know, the technician side of things. 1.5 to like 3 million. You have to have a profitable price book. That's making sense. 3 million. You usually have to have other salespeople. You can't be the only salesperson or the sales God for your company. And you have to really. The hustler has to die. The leader has to be born and you have to start delegating and building systems and processes. KPIs in your business. Sounds like that's kind of the trajectory.

Absolutely. And I see stumbling blocks. Right. Million to 1.2 million people normally get stuck. Right. I see a lot of companies that are 30 years old have never gotten above that threshold. Then the next one I see is 3 million because typically at 3 million, it becomes a sales component. You have to bring in salespeople and you have to. Now you've got to find leads for those salespeople and you have to train your technicians how to flip leads and do other things there. And then 5 million. Now it's purely management, bringing management, more management people in. And the downside is that a million or a million and a half. At 3 million, at 5 million to get over those humps, you typically go backwards financially.

That's right.

Right. Because you're, you're doing it all yourself. You're super profitable. You don't have a life, but you're making a bunch of money. Well, now you've got to take some of that money and pay another technician. Will you drop down now when they build back up? Now you grow up through that, you get to 3 million. Similar thing. And so each of those steps is a stumbling block from a profitability standpoint. And most people, that's where they get stuck. Right. If I'm, if I'm making, if I'm doing it, same thing from 5 to 10 million. You know, most companies at 10 million are netting around 10 to 11%. Most companies at 5 million are 15 to 20%.

That's right.

So they're making a million dollars at 5 or making a million dollars at 10. Why am I worrying about doing 10 million? Make the same amount of money. And so, you know, they get caught up in that as opposed to just looking at scaling and building a business. And so you're 100% accurate at putting those steps and systems and understanding that, hey, I'm going to go backwards short term because I'm investing in the people and the systems to go long term.

That's right. You're buying back your time and building a business, not just owning a job, which is what it's all about. So thanks so much, Patrick. This has been great. You mentioned that people could go to your website and get a basic valuation for free.

Yeah, absolutely.

Yeah. So can you tell them where to go, what they should do?

Yep. Business modification group.com right on the center of the page there's like a red button that says, client, find out what your business is worth. I'd also feel free to connect me at you. And I obviously connected to LinkedIn. I believe I try to be pretty active on LinkedIn on Facebook, so if we're not connected on one of those social media channels, certainly connect. I try to put a lot of information out there about business and selling and that type of stuff. And reach out. If I can help out in any way, I'd certainly love an opportunity. And I really appreciate you having on. I had a great time and hopefully your viewers or listeners got value out of it.

Yeah. Awesome. Thanks so much, man. Appreciate it. Look forward to keeping in touch.

Yeah, definitely. Thank you so much.

Yep.