Mergers & Acquisitions Expert Shares Tips to Make Your Business More Valuable

Welcome to the Profitable Entrepreneur Lessons from the Best. And I cannot think of a better person to be on the show than Steve Denny. He is the, well, one of the founders and partners in innovative business advisors. And he's got a fantastic coaching program that I have actually been through called CEO to CEO. And I'll let him talk more about that as, as we go into the interview because I'm. That is very applicable to the kind of things we're going to talk about around being a profitable entrepreneur. So Steve, talk to me, you know, share your story, what, you know, your origin story, what do you want to share with the audience and then we'll dive into some, some good questions.

So I grew up in a, in a kind of middle class family, right At a time where my dad told me I could have anything in the world that I wanted as long as I went out and earned the money to acquire it. And, and you know, I started very young, so I started throwing newspapers when I was 10 years old. Brad had a paper route. That's when you could do those kind of things. But.

Exactly.

And when I think back on that, it was really something because you know, the thing I hated most about the paper route was collecting and doing the bookkeeping. Right. I didn't, I loved interacting with the customers. I, I loved the physical activity of it. I had a lot of apartments in my route, so there were very specific things you had to do within apartments. And, but you know, the, the, the collecting, we used to have to go around with a collection book and knock on doors. Right. And collect every month. And, and that part I didn't enjoy so much. But what I did learn is that, you know, that money is the language of business. And I think that's, that was one of the things that was embodied in me early. And you know, as I, as I became a teenager, actually started another business with a buddy of mine. We, which we eventually sold and we both went to college. We had a mentor at the time that said, you know, you boys are doing really well, but you don't know what you don't know, so you better, you better go get some learning and some knowledge, my friends. And, and we both took him up on that and sold the business and went to college. And then.

Was that the first time you heard that phrase, you don't know what you don't know?

I'm not sure he really said it that way, but he was, he was a regular recurring customer and he, he did impart that on us. That was always, you know, you guys are you guys are, are, you know, doing really well, but.

This, what you're doing, isn't it? You need to really get out there and get some knowledge. And he pushed us in that regard. So it was, it was quite a gift, and I've been blessed. I had a lot of really good mentors in my life in that regard.

I, I just want to point out, since we referenced that phrase, you don't know, which you don't know, is that you have a series of books titled that with different focuses around you don't know what you don't know and the financial aspects of. Of business, which I'm sure you're going to share more about those too, right?

Yeah, I wish I could credit it back to that guy, but I really credit it to Terry. Terry's the one that really said, yeah, you know, this is, this is all about, you know, teaching people that they don't know what they don't know. Right. So, yeah, yeah.

And Terry Lammers, for reference, is your business partner and friend. Super great guy. So I like to. I like to dive in a little bit and get to some of the. The juicy stuff, for lack of a better word. Because, you know, the, the show is called the Profitable Entrepreneur, because that's a place where, you know, my, my target audience were generally small business owners, and we just kind of stink at that part. And I just, you know, feel like sometimes when we face challenges in our business, we feel like we're alone. Now, you're a very successful businessman, and you are the most amazing human that I've ever seen, spoken with, and been, you know, coached by, as far as simplifying the financial things around business. But, you know, you had to have had some challenges yourself along the way. So can you share with us, you know, early or even maybe current challenges that, you know, you took away some lessons that, you know, maybe we don't need to learn the hard way ourselves.

Yeah. Constantly challenged and constantly learning new things and, and, and, you know, it still changes every day in that regard, but. Wow. What a. What, what an amazing. I'm so honored by your introduction. What an amazing introduction. It's. It's really funny. So a couple of fundamental beliefs. Right. So I love the fact that you're talking about the profitable entrepreneur because I got into a really interesting and fun discussion two weeks ago with a guy who teaches entrepreneurship at one of the leading business schools here in St. Louis, and I have a fundamental belief that you don't teach entrepreneurship. You either are an entrepreneur. You're not. You can Teach business leadership skills, and you can teach financial management skills, but, you know, entrepreneurship, I think that's one of those things that's, that God gives us. Right. That's one of the special characteristics that not everybody has. But, but frankly, the numbers are the language of business, and most entrepreneurs don't really understand the numbers. They are, they are magical at whatever it is they do. For example, and, you know, I, you know, I share your name and number widely. Anytime anybody says marketing, I said, you got to go talk to Sandy. And I believe you're, you know, an incredible guru at marketing. And thus, and thus we push everybody your way in that regard, because what you're doing is amazing. But unless you really understand that the numbers are the language of business, you know, you might be a, an expert in your field, but most experts in their field are not experts at running their business or what we find. And it's. I, I'm really excited about what you're launching here with the profitable entrepreneur because it's. There are some easy lessons. Easy lessons and easy practices to incorporate in your business, which can transform the performance of your business.

Yeah, definitely.

So when you talk about your. Well, you know what, let me back up a little bit because I don't think we actually got to the point where you actually talked what you do. We were, we were like how you got to where you are. But, you know, share a little bit about Innovative and the programs that you have, because that will set a foundation for. I know some of the answers you're going to have based on the question. So, yeah, share a little bit about your company first and kind of what your big vision is for it.

So Terry and I came together to form Innovative, and our goal was really to help people exit their business at maximum value and then help folks acquire businesses and grow by acquisition, because growth by acquisition is one of the most profitable and productive things you can do as a business owner. So that was our founding principles. And as we started working together, he and I were both solopreneurs out there, and we started working together, we started having this, you know, collaborative discussions every day. And we were seeing the same things. Our clients really didn't. Didn't know what they didn't know. And they didn't understand that the value of their business was not necessarily their client relationships, although that's a piece of it. It was really how their business is performing. That's the cornerstone of business value, how their business is performing. And most of them had never been told that the, the fair market value of your Business is largely dependent upon the financial performance of your business. So thus, if you're planning to retire from your business at some point in the future, you shouldn't take your foot off the gas and kind of coast into retirement. You should put your foot hard down on the gas and accelerate into retirement. So that really builds.

The additional value that you can take with you when you retire and get paid for your efforts. So as Terry and I started working through that and we were looking for various coaching platforms, and we were a licensee of a very large and prominent coaching platform. And they were really good about philosophy, but they were really terrible about tactics. And we, we told them for a couple of years, you know, you've got to get, you got to get the tactics side of this thing bolstered up. And we were teaching a lot of those things and we were sharing them with the company we licensed from, and we never could get them to do it. So finally we just, you know, and in frustration of working with them and this incredible desire and need from our clients, we created what we call CEO to CEO, which is an acronym for a journey of transforming from the Chief Everything officer in your business to truly becoming the chief Executive officer in your business and really directing the future growth and trajectory of your company. And we do that by teaching people how to achieve the financial strengths that are resident in their company. And it's, as you well know, you've been through the program. It's a, you know, it's a pretty intense monthly program that goes for a year and then you convert over to a quarterly program to help, you know, monitor and manage your, your growth as you're learning and incorporating the lessons that you've picked up in 12 months.

Yeah, yeah, that. CEO to CEO. And by the way, I'll, I'll put the, the link to the website down below, but CEO to CEO Coach is the website. And Steve, I, you know, I honestly, I hate spreadsheets. I don't think I'm alone. And this was kind of a running joke, you know, because, you know, you guys are the spreadsheet gods. I'm convinced of this. But, you know, the, I had so many takeaways from that program, but one of the big ones was your optimal month or, you know, where you, you look at your expenses and pick, you know, where you had the optimal or lowest incursion of those expenses. But for each expense category and if you could perform at that level, that, for that one month, you should be able to perform at that level for all the months. But we Don't. So maybe you can expound on that a little bit because that is a simple exercise that people could do right now without question.

So that comes from.

Probably almost every customer that we talk with said, you know, want to sell my business? And it's, and this is what my financials have been. But, you know, there's so much more capability here. I just know this business is capable of so much more. And they all had this deep, deep feeling in the pit of their stomach that they knew it was there, they just didn't know how to realize it. And what we created was some very simple things. And both Terry and I were, Terry's a finance major and a numbers guy by training in college, and I was a history major who had to learn finance to run my business. So, you know, it was a blending of his book knowledge and my practical knowledge. We put some things together. What you're talking about, Sandy, is really understanding that what you want to do as a business owner is manage and control your expenses. Right. And you, and you have the ability to do that. And if you operate like most public companies do, and keep in mind a public company that has their stock traded on the stock exchange, they have to publish their financial documents every 90 days, every quarter. Right. And demonstrate to the world how well they did. And when you begin to study those, what you realize is that their expenses don't fluctuate month for month for month. Right. They're relatively constant over time. But when you look at most small business owners financial statements, their expenses go up and down. It looks like we call it a sawtooth. Right. They'll, they'll fall for this. And I say fall for, they'll buy this $5,000 solution that they think is going to deliver, you know, immediate roi. And it might be a great product, but it might take 12 months to deliver an ROI. So what they've got is this, this expense ledger that just bounces all around. And clearly that, you know, if you, if you sit down and study your business a little bit, it will show you what its optimal performance looks like. And all you got to do is understand if I keep the expenses within certain ranges over time, my business will produce its maximum profitability, which, which is the number that a lot of business owners know is there somewhere they just don't know how to get to it. And we just teach them how to, how to see it so they can get to it.

Yeah, yeah, yeah. It, it was so eye opening to me. And you know, I'm, I'm still not great at It, I'm not, you know, I'm certain.

Takes practice.

It does, it does.

Yeah.

It takes practice, but once, you know, you know, then you can work to improve it. And so, you know, I feel like I am not unique in that I prefer, you know, my natural inclination is to put my head in the sand around the numbers because I just love what I do and I'm creative and you know, it's just looking at the numbers just drives me crazy and can frankly be a little depressing sometimes because we work so hard as entrepreneurs, right?

Yep, yep. Yeah, well, but it's all, it's, it's all about kind of plugging the holes in the profit bucket. Right. So it's.

Yeah.

You know, many times and, and listen, I'm as guilty of this as my clients are. We do this, we do the same thing, we fall into the same traps from time to time. You know, we'll go, we'll go buy a couple of solutions and expect an immediate return on investments and we'll spike our expenses month to month and all of a sudden our cash flow gets a little constrained and we're like, where'd all the money go? Oh yeah, we bought these things.

Yeah, yeah, yeah. Well, and you know, I, I'll just add in because it, it follows that in the marketing space, you know, it, it's not a one off thing but then, you know, people will stop at the cusp of success and you know, but I so appreciate you guys because you.

Your philosophy and the way that you help businesses because IBA has evolved so you, you guys are, you know, innovative business advisors and you help people exit, but you are doing other things now that really help people at kind of all cycles of business. Right. It's not just on exit. And you know, people a lot of times will wait to look at all this stuff when they're thinking that they might be exiting, but it's bigger than that and you have really moved with CEO to CEO and some other things. But I want to invite you to talk about, to, you know, get into the headspace of entrepreneurs and business owners much earlier and help them be successful. So talk about that a little bit.

It really was for us a bit of a journey that we're still on. So you know, when we started, when Terry and I first started, you know, our thought process was we'll just combine what we're doing together and get the synergies of, you know, instead of both of us paying for ads in various places, we'll, we'll, we'll combine our efforts and put those together. So we came together with the original idea of this is going to save us both a little bit of money and we'll have the opportunity of, instead of working by ourselves, we'll get to talk to each other a little bit. We, we had worked together for a long time and had, had developed this friendship, I think in mutual respect before we put our businesses together. So that kind of created, you know, CEO to CEO kind of came out of that because we were, Terry and I saw the same thing from our clients. They all knew the business was capable or they didn't know how to get it. They couldn't see it because they were too close to their business. And it's, you know, it's just like if you really want to improve your performance, it's incredibly difficult to do it by yourself. As a matter of fact, you go talk to the people that are the top of their field. And I don't care what field. You know, the Michael Jordans and sports, the Tiger woods in sports, you know, the Warren Buffetts in business.

No matter who you talk with, they all will tell you, listen. We've got mentors and coaches that show us, show us the way so you know, you, you achieve your potential by working with, with other folks and taking advantage. Get gathering in the things you don't know, you don't know what you don't know. Right. Get getting that, that knowledge in house so that you can really convert it into wisdom. So CEO to CEO was our first iteration, came out of that, helping folks dramatically improve the financial performance of the business. One of the, one of the chief things that happens is a lot of our clients profitability improves, you know, within the first, I would say 120 days. Usually after they get through lesson four, they really begin to get confident in their experimentation and begin to improve the profitability of their bottom line. So that's know that's the first thing. And as they improve their profitability, then it improves, you know, what their business is worth in the marketplace. And that was, that was their goal. You know, I know the business is capable of more. I just don't know how to get it. Well, we teach them how to get it. And then from that.

Terry and I both started writing books and we've now got three published in the marketplace. We've got two other that are in the process of being editing and we've got an outline of several more we want to write in the future. But we started this process of you don't know what you don't know, so with your help, you know, we, we trademark that and we use a book coach to help us write those books and get them, get them, you know, consolidated into a central message. And then we use those books in our practice to share, share a lot of things that, that, you know, actually happen if you want to maximize the value of your company and be able to pass it on to someone in the future. So, you know, Terry and I both know that the, the research is conclusive. Now. 100% of business owners are going to leave their business at some point in the future. Right. So, yeah, we want to help them do so at maximum value.

It's a given. It's a given. Now, you know, full disclosure here. Steve and Terry are clients of mine and I have also been clients of theirs. And there are not too kinder and more caring men on the planet, in my opinion. I mean, they care so much about their clients and their client success. It's just evident in the way that you're so hands on, like when you were working with me and CEO to CEO beyond the class, that you're like, send me your stuff, I'll help you figure this out. And I so appreciated that, you know, because when you, when you're not comfortable with financials and you know, I definitely struggled with that, as you saw.

It can be embarrassing. I mean, do you experience that with other business owners? Like they're embarrassed to show and talk about it?

Every business owner is like that. It's, you know, we all think we're unique in that regard. And, and you saw it, you were in a small group. I mean, it takes a while to kind of build trust too. And the, and there comes a time when you're, if you're in a small group with other business owners that you finally let your guard down and begin to begin to show your card, so to speak. And it's amazing that really, that really kind of energizes the room and really accelerates the learning, I think. So, yeah. Thanks, thanks for your kind words in that regard. But that's, I mean, we're, Terry and I are exactly the same way too. And you know, we have to, we have to reach out and make sure that we're benchmarking and looking at all the various aspects of our business just like everybody else. We're not any different. It's just that we failed several times before. Right. So we know what works and what doesn't work. And we've got a little bit of experience here that allows us to help our clients be Able to see down the road, see what's coming and be able to see how to make adjustments. It's, it's not rocket science. It's simple. You know, it's simple elementary school addition, subtraction, multiplication and division. It's really not, you know.

Complicated algorithm, so to speak.

Yeah, yeah. I mean, it's not rocket science. I, I know it's not, but I am, I'm one of those people that I would rather make a difficult phone call then dive into my numbers. I mean, it's just, and you have helped change my mindset, but it is still a challenge. Like, I'm like, okay, I have got to stop. I put it on the calendar and I'm going to go in and I'm going to do this and I've got to look at it. And you know, I, I kind of want to come back to the embarrassment because I'm just trying to keep this real because the target audience for the show is small business owners. You know, I, it's.

It'S almost freeing when you have the opportunity to talk with someone like Steve and Terry and this CEO to CEO program. I keep going back to being in the room with other business owners because, and you're sharing and you're open and you're honest because I know people tend to think when they're looking from the outside in as a successful business, you know, you've got hundreds or thousands of clients, you're working hard, they see you, your face in the marketing. But in reality, most of us entrepreneurs, business owners, have just created jobs for ourselves and our team members and there is not a lot of money beyond that.

Yep. So very true. You know, most, most business owners are working 60 plus hours a week and most are earning 60,000 or less a year. So that's, that's the reality of it. But you know, this, this program, as I said, it's simple stuff. You've been through it. And basically what we do is we teach you some simple formats. We, we help you kind of demystify your numbers, put them in a format you can easily understand and help you just develop the habit of looking at them on a regular, recurring basis and look at specific trends and, and painting your numbers in a, in a specific format allows the numbers to talk to you a little bit. So, you know, the numbers should be able to tell you what's going on without you having to, you know, look at a bunch of spreadsheets every day and try and figure it out. So we, we've got some simple techniques and it's, and it really is just doing a little bit of reformatting, showing folks how to read them, teaching them the, the techniques to read them, and then, you know, helping them set habits of, look at this on a regular recurring basis and make small adjustments here and there to achieve the desired outcome.

Yeah, I remember that from the program. I mean, they were very small adjustments. And the other thing that I really remember, that was eye opening to me because I had no idea. Now, in. Granted, I was a math major.

You taught math at some point.

I know, I know. And I taught math. I taught calculus and Turing, all that stuff would think this would not be hard for me. And the math isn't hard, but understanding what it's saying.

Was just challenging for me. But you, you really got us to focus on percentages. Why did that matter? Can you share a little bit about that?

Yes. Percentages. Percentages matter because that's, that's really where you can see.

The, the big changes in your business, right? I mean, when you get a dollar from your customer, a dollar's worth a hundred cents. So if you think about all of your expenses as subtracting from that dollar, right? And most businesses at the end of the day end up with three or four pennies, right? So if, if we teach you how to pay attention to it from a percentage basis and you think in terms of, you know, numbers of 0 to 100, it's, it just makes it much easier and it makes it much easier to control because as the numbers change, so, you know, if you're, if you're doing most businesses, small businesses in the United States are doing half a million dollars or less, right? So if you're doing $10,000 a week, it's really no different than a company that's doing $10 million a week. And the $10 million a week companies have learned that they manage to the lowest common denominator, which is the percentages. So as long as you keep the percentages in check, the profits will always, you know, deliver what you're looking for. So if you're in an industry due to competition and other things that you know that keep you in a 3 to 5% profit margin, then all you got to do is just manage that other 95 cents, right? Make sure you don't spend more than 95 cents in those other areas, and your, and your 5% profit will always be there. A key, a key kind of mindset change that we bring about is once we teach folks to really understand the percentages and how the numbers work. Then we flip, we flip the script a little bit and we say, look, don't think about your business as sales minus expense equals profit. Let's think about your business as sales minus your anticipated profit equals allowable expenses in your business. So if you start with your keep your profit first kind of to take Stephen Covey's, you know, thing and, and, and twist it a little bit and let's say put your profit first.

He wrote that whole book on that.

Yeah, he did. Profit first. Yeah, yeah, yeah, yeah.

So I remember you saying that in the class and that, that is really, it, it changes, it flips the script a little bit. I can't spend this until, you know, I've, I've taken the profit out because that's why we're in business. We're not in business to not make a profit, but we don't think that way. It's not natural.

It's funny. One of the, one of the first questions we always ask our students is tell us, you know, tell us how often you review your financials. And most of them say, you know, I review monthly when the accountant sends them to me. Okay, what's the first thing you look at? And nine out of 10 of them will say, well, I always look at the bottom line. We say, well, why do you look at the bottom line? Well, I want to know whether we made money last month. Right. Well, wait a minute. You didn't know whether you made money or not. Right. That's, that, that's that whole profit first mentality. If you start with that, flip that script, you should assume that I'm going to make money from, from the, from the input of my efforts, of my time and my expertise to do this. You should assume you're going to make some money. And then it's just a matter of controlling everything to make sure that you don't overspend. You know, what, what, what you had anticipated to make in profit.

Yeah. So you, you know, this is called the profitable entrepreneur. If I remember right, you had these things called profit thieves. Did I get that language right?

Yeah, the profit thieves. Yes.

Can you talk about that a little bit?

Sure. Yeah. And that's, and that's part of it. So if you think about this for a minute, this, you know, so many entrepreneurs are kind of in this cycle, Right. And you, you probably were in this space as well. If, if you go back to those questions that we just asked the entrepreneur, and you think about that a minute. Well, when do you get the reports from your accountant? Well, usually I get Them, you know, a couple of weeks after the month end. Okay, well what can you do then? Well, really nothing. Those are now, it's a history record we're looking at. Right. It's nothing talking about the future. It's solely just history. And you can't change it. It just is what it is at that point in time. So what happens is the profit thieves are really these little things, these little, little expenses that creep into your business that come in from your, from all aspects. They come in from your employees, they may come in from your customers taking advantage of early purchase discounts. You know, they might come in from, from you adding additional expenses to your business. They might come in from your suppliers, adding additional expenses to your business that you may or may not be aware of. Most of the time it's just an awareness scenario. You, the owner assumes that things are clicking along at the certain rate, but these little profit thieves come in and take away those pennies. They steal your pennies.

And that's what we do is.

When you're looking at your numbers and you establish those allowable ranges, then you let the numbers tell you anytime they get outside of that range, and now when they get outside of that range, that's one of those little profit thieves coming in there to take a little more than you expected. That much. And it leads, leads you to go ask why, what happened?

Yeah. And to tie it back, when you say ranges, that, that goes back to the percentages. Right. Am I thinking correctly on that?

Yep, yep. It's fascinating too. So one of the things that.

We just finished a study on this and for another book we're writing, and what happens in slow economic times, people tend to pull back. Right.

Market share growth is largely built in slow economic times. So one of the most amazing things we saw is that why is slow economic times so challenging for small business owners? Because typically they begin to pull back and rein in their expenses and they look at discretionary expenses low like marketing expense, you know, and they pull back on their marketing expense. And you know, you helped us see this in our business last year and, and said, you know, you guys got to invest a little bit more to, to get where you want to get. And when you do that, sure, you might save a few pennies now, but you're, you're, you know, kind of quit feeding the golden goose, right. That, that produces the, produces the revenue and leads for you. So, you know, if you have to do that for whatever reason, just do so for a short period of time.

Yeah, yeah. I mean, you're Absolutely right. People tend to pull back but a lot of competition in the marketplace is eliminated in those times too. And you really see more leverage on whatever, whether it be marketing or whatever. But when you hit the accelerator, when everybody else is pulling back and the biggest returns can happen then in my.

Mind anyway, for the first time ever, small business market share dropped during COVID and it's continued to drop. Small business market share, percentage of US GDP dropped and the only correlation we can see in looking at the numbers is small business pulled back significantly on marketing expense. Most of them eliminated marketing expense. Most small businesses spend less than 1% of their revenue on marketing expense. And if you look at medium size and large businesses, companies of 100 million or more, their marketing expense is typically 8 to 15% of revenue. So as small business pulled back.

Medium and larger sized businesses were accelerating and that, you know, that drove market share change. So you know, I would invite business owners. Look at that. Make sure you're spending enough to, to maintain your market share.

Yeah. And grow it. Absolutely. Yeah. Yeah. True words. You're preaching to the choir now.

Well that's what the numbers again once you know the, the numbers are the language of the business and I hope, I hope if there's a couple of things you're, your listeners take from this is know the language of business. If you're, if you're a small business owner and you're getting into business, learn the language of business under, understand that how the numbers work in your business. And the most important thing is understand gross margin and cash flow, the two big buzzwords we talk about. Understand gross margin. That's different than your personal budgets. So you know, people think, well I know how to, I know how to handle money at home. I'll be good handling money in business. Well, you have this little thing called gross margin that comes into play in business. It's different than your, your personal finances. So understand the impact of that and then understand cash flow which involves really understanding what is the, what's the journey of a dollar through your business. What's you know, in, in finance terms? What's the working capital requirements of my business and what are the working capital specifics within my business at any given time?

Yeah, you know, it's fascinating Steve and I'll be, I'll just be transparent here. So we had a long time employee who was my director of business operations. So she basically ran the business, you know, the day to day stuff and she's great and she was very much on top of collections from the standpoint that when things were, you know, 30 days, she was just picking up the phone and making a call. Well, we had a transition where we're, you know, then we're training someone. So, you know, Rebecca left in August, and then we're, you know, we're onboarding. We. We brought in Cheryl, who's now my business manager, picking up those roles. But you don't. You don't get that all at one time. And it never really occurred to me in the training that I really needed to kind of reverse how we were training her. We were. We were training her on, you know, data entry and lead flow and. And getting the invoices out. And. But what I. An unexpected consequence of that was a cash flow challenge, because the very first thing that I probably should have trained her on was collections, so that there was not that interruption in cash flow. And, you know, I'm 25 years in this thing now, and it didn't occur to me. So, yeah, just. It was kind of a hard lesson learned. I mean, we really had a compression on the books. It didn't look any different. We were growing, but the cash in hand, and most of us small businesses operate, you know, with, you know, cash constraints.

Yeah. What's. What's your checkbook balance?

Yeah, yeah, exactly, exactly. I just didn't. Didn't think about it. So, anyway, I want to, you know, since I got you and I've got your time, and I really appreciate that because there's really no one smarter at this. You know, I've got some questions that I have just in talking with people as an example, Terry offered to come in and talk to a mastermind group that I run here, CEOs, business owners. And so I brought it to the group for them to, you know, say, would they like to have Terry come in? And so I, you know, I said, well, you know, innovative business advisors and, you know, they do valuations and help you prepare for exit in your business. And most were very excited about it, but some of the comments around the table were, well, I'm not. I don't really exit my business, and I'm so far from that, but I don't know that that would be relevant for me at the time. But everything in me is like, that's not true.

So can you talk about that a little bit and just sort of educate the listeners on why what you guys do is important at every stage of business?

Yeah.

Whether you're gonna plan to exit or not.

Yeah, absolutely. So, you know, the. As it relates to the. To the finances side of it. Look, the big thing is I think a lot of, a lot of business owners, as I said, just know in their pit of their stomach that their business is capable of so much more. They just don't know how to realize it. So we help them, we help them realize that. And when they see the unrealized profits that they have missed just because they haven't paid attention to doing a couple of these little things, that tends to be a major motive, motivator to, you know, keep them on task of doing that stuff. But it, as we said earlier, 100% of business owners are going to leave their business at some point. I'll tell you. You know, more than, and we just were in the process of looking at some research on this. More than three out of four business owners never plan to leave their business. Okay, what happens, what, what we see all the time is somebody got sick, either the business owner or their spouse or someone very close to them.

Someone in their family or some major calamity happened in their business.

You know, they lost a customer. The, one of their, one of their products started malfunctioning in the field, which caused a huge recall and a huge expense that they didn't have anticipated. Unexpected things happen. And if you're not, if you're not fully aware and maximizing the potential of your business, all of these things will come, come at a surprise. And most business owners, you know, are caught by surprise. And what, what we say is with CEO to CEO, understand what's going on your business and be continually working to improve your business so that when the surprises of life happen, first off, you're well prepared because you've, you know, you've, you've taken good stock of your business. And if you do have to convey your business quickly or if somebody writes you a letter, you might. Right now, with private equity and private investment so prevalent and growing so quickly, and now this new thing called search funders, you know, it's, it's very common for business owners to get a letter or an email weekly at this point saying, hey, I've been studying your business from afar. I'd love to buy it. Right?

And, and the, the insider secret is they're looking for you to name a price because they're, those are people that understand your industry and understand what fair market value is for your industry. And if you name a price that's significantly less than your business is worth. And by the way, two thirds of the business owners that we do business valuations for undervalue their business, not overvalue their business. The common perception is everybody thinks their, you know, business is worth more than it is. But the practical reality is most business owners undervalue their business, not overvalue it. So be, yeah, be prepared. Know what your business is worth in the marketplace. And I think from a personal standpoint, the most important part of it is when you, when you begin to really understand the numbers of your business and understand how value is computed in your business and keep yourself.

Aware of, of that knowledge. What happens is, particularly for Americans, we are so competitive that we want to see that number grow over time. So we begin to hold ourselves accountable to, okay, my business was worth a million dollars last year. It should be worth a million one this year or a million two this year, million three this year. I should be holding myself accountable to growing my business. And the better you grow your business, the more healthy your business becomes and, you know, the better your business operation is, the more it's going to be worth in the marketplace for you or your heirs. And now we got, I, I just tell you, on Friday, Thursday afternoon, I got approached by a trusted advisor, friend and said, hey, I want to introduce you to a friend of mine who lost his father in law over the holidays and his father in law had run his own business for the last 40 years and there was no planning done. They had no, his, you know, surviving spouse had no idea what to do with the business. The kids were not involved in the business. The family had very little understanding of the business and what their options were. And you know, now all of a sudden they got to just reach out and figure out what to do. Well, you know, if this person had been aware of these things moving forward, they would have at least put some things in play that would have made, would have made that journey for their family much easier. And now, you know, we do, sometimes we feel like, you know, the SWAT team, you know, we get, we get a couple of our people to, to jump involved real quick and begin to look at all the aspects of their business and evaluate assets and be able to assemble, you know, what are their available options and then put together a plan. And frankly, that's, we're in the midst of that with this particular business right now.

Yeah. Wow. Yeah. I'm sure you see some heartbreaking stories too with things like that.

Yeah. Yeah. I'll give you another one. We had a, we had a guy and this is, this is one of the favorite stories. I think it's maybe Terry's favorite story to tell. But had a guy come in who had a great business, was producing about a million dollars a year in free cash flow that he and his family, you know, got to enjoy every year and wanted to get his business valued and was beginning to think about at some point in the future he wants to slow down and go, go do some other things and enjoy the fruits of his labor, so to speak, and, and finished the business valuation and said, look, basically you got a nice business, but your business has zero underlying value. And he was, he couldn't believe it. He said, you know, I take more than a million dollars a year out of this business. How can it have no value? Well, the truth of the matter is he had one customer and that one particular customer was in financial trouble. And you know, regularly in the newspaper talking about their financial Troubles. And literally 30 days later, that financial, that customer filed bankruptcy in the dark of night. And the vast majority of his assets were now behind somebody else's gate, locked up under lock and key that he couldn't access. His employees, couldn't go to work anymore, and he was virtually bankrupt and out of business, you know.

Wow. Yeah, that's really sad.

Yeah, but that's, that's the point. I mean, stuff happens. So be prepared when stuff happens because there's, there are a lot of options that are available to.

Yeah, yeah. So question for you then. You know, should someone wait until they're thinking about exiting their business to get evaluation? Because my understanding is, and I, I learned this from you, I think that you should get one often. Like, yeah, we preach a little bit.

We, we preach that you should get your business valued every other year. So. Every other year, Right.

Whether or not you are planning to exit anytime soon or not. Right?

Yeah. Well, think about this, Sandy. You, you've got, you probably have a financial advisor you work with, right? Like most business owners do. Okay.

Yeah.

And when you sit down with your financial advisor, you probably own some real estate, you might own some stocks, you might, you might have a 401k program, you might have an IRA over here, you might have some, you might have some CDs. Right? Those are all what's called investable assets. That's things you could turn into a cash in a relatively short period of time, literally within typically a matter of minutes, hours or days. Right. And then as a business owner, we have this other thing that's called un. Investable asset, which is basically the net worth of our business. And most business owners, you know, their biggest, their biggest asset is the, Is the business that they own, but they know they never really have any idea what it's worth? Right? So, so you hold your financial advisor accountable, okay, I'm going to let you invest these assets for me. You know, you tell me what stocks to invest in, what CDs to buy you, you tell me all that and I'm going to hold you accountable to growing my nest egg. But nobody ever holds them accountable to growing the nest egg of their business. And if they don't even measure it, they really have no idea what the value is. So, you know, here this guy who is generating $1 million a year from his business thought, well, I get a million dollars a year out of my business, it's got to be worth some multiple of that, right? It's this huge, impressive business. And yeah, that business is probably worth a lot of money. I'll bet he probably told his financial advisor, you know, I don't know, write down 10 million. That business probably worth 10 million, right? Some big number. And he was planning his future based on that, and all of a sudden circumstances intervened and he was now had to spend an awful lot of money just to try and recover his fixed assets, just to try and get his equipment back so he could try and, you know, press on in business. So, you know, that was a huge awakening. So what we say is measure it first off, get, get, get a fair market value so you really understand what it is. And most business owners don't know how to grow it, so they don't know what the ingredients are that, that are mixed together to come up with the value of your business. So part of that valuation process is we teach them your, about. Your valuation's built on these eight things, right? And here's where, here's where you measure really well and here's where you're really missing the mark. So, you know, the bad things, let's go fix some of those bad things and, and then let's keep doing all the good things really, really well, right? And keep focusing on those activities so that you can accelerate the growth of your business over time. And the whole process of doing it every other year is measure yourself every other year just to hold yourself accountable. Am I really growing this? Don't fool yourself. Hold yourself accountable. Are you really growing it? And business value, you can't necessarily change business value overnight. It takes time. When financial people, people in the mergers and acquisition marketplace, when they look at a business to acquire, they're typically looking back three to five years, right? And the financial part of your business valuation is based on the prior three to five years of performance so you know, if I got just one year of good performance out of that three to five, that doesn't make a trend. But if, but if I've got three to five years of positive trends, that does, you know, add some real value to the company and you want to keep yourself on that ever increasing trend line so that you're always.

Building value into the future.

Yeah.

Does that help?

I mean if, yeah, it does. If, if someone has never had evaluation done, I mean it sounds time consuming and expensive, but don't you guys have a program now where you people can like a subscription related to valuation?

Yep.

Why don't you talk about that a little bit? Because I think that that is just a fantastic idea and more people should take advantage of that. It's just huge.

Yeah, it's, it's, it is actually pretty easy to do. So we, we send you a list of things that we need, list of documents from your business, and then we give you an online data folder, secure data link, where you can upload your business documents into a secure data link. And then we go pull the data we need from those documents, put together your reports, and then schedule time to go over your reports within details. So for the typical business owner, it's relatively easy for them to pull it. It's all common business reports, but it's things that they wouldn't normally think of. So we give them a short list of things that we need, they get us the data. Takes us a couple of weeks to go through and analyze all the data and compile their report and then we schedule a presentation. So we don't just send them a report, we schedule a sit down presentation with them. And nowadays most of them happen over zoom, probably 2/3 of them happen over zoom, but it's usually about a two hour meeting. It gives them an opportunity to ask a lot of questions and make sure they've got a really good understanding of it. And then from that point, moving forward, every couple of years it's just updating some of those data points and then we just very simply update all their calculations and analysis and then, and then again deliver the new report. So the first time the report's done it's 3, $500 and then every time thereafter it's $1500. So on a subscription basis? Yeah, yeah.

And I mean with that consultation you do with them, you actually talk to them and guide them about how to improve in some of these areas, don't you?

Yeah, we give them very specific guidance and you know, that's one of the things that's really fun to watch is who was really paying attention. You know, when you look two years out, right. And we've seen people that have done really, really well, and we've seen people that tends to take them a couple of cycles before we say, remember we talked about this before? You know, if you work on these things, this will have a big impact. And, you know, some people takes two or three times, and some people get it right off the bat.

Yeah, well, you know, I. We're coming up on an hour, Steve and I. I just want to encourage people to reach out to you, so we'll share your contact information in just a second. But, you know, if you could share one or two things, like if everything we talked about or maybe some things we didn't talk about for the audience, like just big takeaways and things that are so important to the profitability and success of your business, what would they be?

So I would say, first and foremost, learn the language. Right? Understand. And that's. That's code for know your numbers, right? Really know what your numbers are. And once you know your numbers, the two and two specific numbers you want to focus on on a regular recurring basis is know what your gross margin is and know what your free cash flow is from the business. You got to know those two numbers, and you should know them off the top of your head. They ought to become second nature to you in that regard. The next thing is really understand your working capital, right? Really understand how does a dollar flow through your business. And once you begin to understand that, you want to, you know, speed up the time that a dollar flows through your business so that it can land in your bank accounts as quickly as possible. Right? That. That's what I would say. Embrace. Embrace the knowledge. And I, I believe the, the overwhelming experience we've seen is that business owners that do go through this dramatically improve the profitability of their business. They sleep better at night, they've got more peace of mind about their business. They can see things coming. So, you know, as you said, you know, I wish I had focused a little bit more on cash flow. But now you. Now you know what to look at, right? So you can see those things, and they're really not a surprise. And now you know what to do to change. You know, okay, all right, maybe I wasn't paying close enough attention to this, and my cash flow got a little bit of squeeze, but now I know what to go do to make it. Make it better and to correct the problem. So there's a lot more Confidence that comes in place with that. And then finally remember, you know, the research is in. 100% of us are going to exit. We're going to either do it, you know, under our own terms or under somebody else's terms. And I would invite you to always think about doing it under your own terms. They're generally going to be things that are going to be much more, more, much more palatable to you and, you know, and ones that you're much happier about.

Yeah, yeah, yeah. And I just want to close the, the loop a little bit on the coaches and the mentors because I, I waited personally far too long. I think I went through your CEO to CEO program five years ago. Does that sound about right to you? Maybe four, but five is what I'm thinking.

But I think, I think you're right.

Yeah, yeah. And, you know, don't wait. I mean, I, my business is 25 years old, so doing it at 20 years in business was way too long. And it was, you know, part of the, the cap on my growth because I didn't know what I didn't know. And had I done it earlier in the process, I'd be so much further ahead from a profitability standpoint, a value standpoint, all the stuff, you know that. But that's okay now. I know. And now since I've been through it, I'm making the steps to do it. But don't wait. You know, coaches and mentors are so important and, you know, some of the best investments that you can make is in your own learning and your own growth when it comes to your business.

And, and think about. Right. You made me think about this as well. You've got, you've got a new person in your business now that runs outside. Right. You might want to consider investing in them, put them through the training and let, let them do it for you so you don't have to do it now. They can come to you with the reports and help you see around the corner. So now you've got an internal coach as well.

This is why I love you. And yes, I am going to do that. Thank you. Yeah, yeah, you're absolutely right. I will talk to her about that this week. So, Cheryl, if you're watching this, get ready.

Yeah. So businesses of your size should do that. Right. Train your staff in that regard. Yeah, yeah. And an investment in them, you know, makes them.

Much, a much stronger team member for you and really solidifies that, that connection that they have with your company. Right. Because you want them long term.

Yeah, absolutely, absolutely. Okay, Steve, so how can people get a hold of you? Because they are going to call. I know it well.

Thanks to the fabulous team at msw, we're relatively easy to find, but CEO to CEO coach. So CEO, the number two CEO coach is where they can learn a lot more about our CEO to CEO program. And then innovativeba.com is innovative business Advisors where they'll learn more about buying and selling businesses, learn more about the valuation side of the businesses. And then the CEO coaching and some of the other performance coaching that we do for business owners is, is under that site. And they'll both have links to our social media accounts and our email addresses and our phone numbers. But I'll give you mine. My email address is S. Denny S--E-N-N ynovativeba.com and again, those are pretty prominent on our websites. And then you can reach us by picking up the phone and dialing 1-800-767-2465. So any of those three ways should work.

Now, you are located in Lake St. Louis area, but you serve clients all over the country, right?

That's correct. We've got.

Through the COVID experience, we literally ended up with clients in every state and territory in the US So it was really pretty cool. Yeah, it was a lot of fun.

Yeah. That's exciting. That's great.

Yeah. And our CEO to CEO is a virtual program too. So even if you're in another state someplace, you can join up via one of our small groups on Zoom and do it that way.

Okay, perfect. And I, I do want to put a plug in too for experts for entrepreneurs that meets in Chesterfield. So if you are in the St. Louis area or in Missouri and you don't mind a little bit of a drive, it's once a month. I want to talk really quick about that. And.