Tag: Breakfast at Epiphany’s

Miller Restoration: 3rd Time’s a Charm

Legal matters, business strategy, and life perspectives from the mind of a non-attorney.

 

Built to Sell Radio is a weekly podcast for business owners. Each week, host John Warrillow asks a recently cashed out entrepreneur why they decided to sell, what they did right and what mistakes they made through the process of exiting their business.

As an Exit Planning Advisor, I was excited to discover this podcast based on its topic category alone.

I was thrilled when I listened to an episode to find that John Warrillow is an absolute gem as a host.

My jaw hit the floor when the podcast responded favorably to my request to write a monthly article based on their episodes.

It’s the thing we haven’t been able to give to our readers. That is, the perspective of business owners who have gone through the rigors of exiting a business.

After all, I can talk about Exit Planning until I’m blue in the face.

I can tell you the best practices for Transferring Ownership to Children.

I can even explain Private Equity like I was speaking to a 7 year old.

But when it comes right down to it, you don’t want to hear about this stuff from some hot-shot advisor. Nope. You want to hear it straight from the horse’s mouth.

Let’s do it.

EPISODE 128 (February 16th, 2018)

Episode Summary:

Scott Miller owned Miller Restoration – a company specializing in residential fire and water damage restoration – for 12 years before ultimately selling the $3 million-per-year-company for a 3.5x multiple in 2018.

On two previous occasions, Scott tried – and failed – to come to terms on a deal. The meat-and-potatoes of this episode comes from Scott’s dialogue as he reflects on those failed attempts.

Clip #1:

John Warrillow: “You shared earlier that you had gone through a couple of ‘false starts’ with potential acquirers. At what point did you start to think, ‘Hey, it’s time to sell.’? Was there a triggering event?”

Scott Miller: “There were a couple different phases of that. Earlier on, maybe about 5 years into the business – I listed it. I just didn’t like it anymore. I felt like I needed to do something else with my life. I had a 1 year listing agreement with this person and he didn’t bring one potential buyer.”

“For a few months I was angry that he wasn’t bringing me anyone. But then I thought to myself, ‘You know what? I have a good team, and I’m making a good income… This isn’t so bad.’ Maybe this is just for the best. And I didn’t relist it.”

“I never disengaged during that listing period. That was really important. I had kept growing it during that time and identified the things that I didn’t like to do and delegated and hired so that I didn’t have to do those things.”

Analysis:

 

Do you buy or sell that Scott Miller made a critical mistake when he delegated tasks that he didn’t like doing?

 

SELL.

 

In the last 2 weeks, I’ve heard 3 different business owners reflect on the reasons they began reorganizing the structure of the business, building systems and processes, and delegating tasks. All 3 identified a failed attempt to sell their business as the main reason. Somebody literally told them, ‘Hey, I’m not interested in the business unless you’re coming along with it.’

 

As an Exit Planning Advisor, listening to a business owner talk about delegating and hiring is music to my ears. It is easily one of the top 3 things that all business owners can do to increase business value.

 

In Scott Miller’s case, he didn’t do it because someone told him to, and he didn’t do it to create business value – he did it because he was plain sick of doing certain things every day. In the end, his reason for doing it doesn’t matter. The fact that he began delegating at this point was absolutely instrumental to the eventual sale of the company for a 3.5x multiple. 

 

Continue reading “Miller Restoration: 3rd Time’s a Charm”

Exit Planning: Make it Rain

Legal matters, business strategy, and life perspectives from the mind of a non-attorney.

 

First, a quick recap of where we’ve been on the Exit Planning parade:

What is Exit Planning?
How long does Exit Planning take?
Transfer a Business to Children
Private Equity
Due Diligence
Selling the Family Farm

Today, a new perspective: Making STACKS by participating in Exit Planning.

That’s right. I said it. Stacks.

AKA

Skrillas. Cheddar. Guacamole. Benjamins. Cabbage. Dough. Paper.

Whatever you want to call it. We’re talking about the same thing here: MONEY.

 

That beautiful, disgusting green parchment that people will die for and kill for.

 

What if I told you that you could make money by spending 40 hours in the next year focusing on Exit Planning?

The natural question is: How much?

What if I said $400? Probably not worth it, right? Most business owners probably value their time a little more highly than that.

What if I said $6,000? Maybe… $150 / hour isn’t TOO bad…

What if I got crazy on you and said $80,000? $2,000 / hour.

What if I said you could easily exceed that?

Fair. If I was in your shoes, I probably wouldn’t believe it either. There are too many frauds out there these days looking to make a quick buck.

But before you close the page, please hear me out.

This isn’t some magic pill that instantly helps “cut the fat” from your business. No, what I’m talking about is much more “pushups and situps” than it is “scientific breakthrough”.

It requires sound business strategy, commitment, and a long-term focus.

 

Making Stacks

Exhibit A

If you are a business owner, one of two methods of valuation apply to your business:

  1. The business is worth the fair market value of the assets it owns
  2. The business is worth a multiple of the income it generates

 

1) Adjusted Book Value

If a business is completely dependent upon the business owner, that business will likely be valued based upon an adjusted book value of the assets on its balance sheet.

 

Example:

ASSETS

ASSETS (ADJUSTED)
      Current Assets      Current Assets
            Cash……………………………… $50,000            Cash……………………………… $50,000
            Accounts Receivable……… $200,000            Accounts Receivable……… $160,000
            Inventory………………………. $50,000            Inventory………………………. $30,000
      Fixed Assets      Fixed Assets
            Equipment…………………….. $400,000            Equipment…………………….. $300,000
            Land……………………………… $50,000            Land……………………………… $60,000
            Building……………………….. $200,000            Building……………………….. $220,000
TOTAL ASSETS……………………. $950,000 **TOTAL ASSETS……………………. $820,000**

Adjusted book value also applies if there are major risk factors that prevent the transfer of customers, revenue and ultimately the income stream to a new buyer.

 

2) Multiple of Income

If a business IS transferrable, a new valuation method applies:

EBITDA * Risk Multiple = Value

 

Example:

EBITDA………………………………………….. $300,000
Risk Multiple Range………………………….. 3x – 6x
Business Value…………………… $900,000 – $1,800,000
1) Adjusted Book Value vs 2) Multiple of Income

It doesn’t take a rocket scientist to understand that small business owners want to be on the green line.

Exit Planning does that.

It takes a business that would be on the white line, and – using sound business strategy – helps reorganize the business so a future buyer will see them as a “safer” investment.

In this case, simply moving from the white line to the lowest possible value on the green line means an increase of $80,000 in value.

 

Exhibit B

The next step in the Exit Planning process is taking a business that is situated on the green line and making calculated steps to move them up.

The average small business has a myriad of risk factors that – when seen by a potential investor – serve to constrain the value toward the bottom of the green line.

 

A good Exit Planner knows what those risks are and tells you to correct them so you can increase your value.

A great Exit Planner gives you tools, advice, and essentially becomes an active stakeholder in your business to help you get the job done.

 

Some examples of risk factors that we see in small businesses:

Weak culture

Poor communication

No long term strategy

High customer concentration

Weak management team

No contingency plan

 

Identifying when you have a risk and telling you to correct it is easy. Our process is literally built for that.

We also have tools and expertise to share that can help make change happen.

 

Conclusion

Exit Planning is THE way to maximize value as a business owner approaches retirement.

Obviously true potential depends on the facts involved, but you know that old adage “the sky is the limit”? Yeah, it applies here.

 

Cynical minds will say I “made up” numbers to serve my own agenda.

My response: Yes. You are correct. Those are fictional numbers. I did not think it a prudent idea to throw balance sheet and income figures from our actual clientele up on a public blog. However, I needed numbers to help you visualize and solidify the concept. In the end, this isn’t a submission to the Harvard Business Review. It’s a casual blog dedicated to teaching complex subjects in a way that people can easily understand. We accomplished that purpose today.

 

Last thing: what I did here – particularly as it relates to the art and science of business valuation – is EXTREMELY rudimentary in nature. Individuals who want to learn more should seek expert counsel.

 

Give us a call or shoot me an email if you have more specific questions!

Thanks for reading! To subscribe to our weekly content, you can enter your email on our homepage. You can also follow me on Instagram (@kelton.official), where I regularly post links to new blogs, as well as random pictures of my life.

Legalese Is the Worst

Legal matters, business strategy, and life perspectives from the mind of a non-attorney.

 

For the record, I am not an attorney.

I did not go to Law School. The extent of my legal experience is the handful of general “Business Law” courses that were required to graduate with a BS in Finance from my alma-mater UW-Green Bay. When I joined Epiphany Law, I honestly didn’t know the true difference between a TRUST and a WILL… Good thing they didn’t ask me to explain it in my interview… It begs the question though, if I have no legal background, what the hell am I doing working for one of the top law firms in the Fox Valley? No idea. The boss, Kevin Eismann, regularly introduces me to others as “a really smart guy”. I don’t think he even knows what I do here.

Just kidding.

I was hired on at Epiphany as a “Project Specialist”, helping to enhance a program called Exit Planning. Exit Planning is all about helping business owners transition out of their business on favorable terms. It has become a great passion of mine – but that’s a topic for another time. In addition to Exit Planning, I assist attorneys in drafting legal documents, help out with marketing projects, and generally find ways to make our company more efficient.

All of that backstory helps me to arrive at this point: When our Marketing Director asked me to start a weekly blog, it was only natural for me to want to do it with a twist; “I’ll do the blogs if I can speak ‘normal person’ language.”

Why? 1) I think readers will appreciate it 2) It’s honestly a way for me to vent thoughts that I don’t get to during the course of the week (a bunch of people with legal backgrounds don’t exactly share my sentiments.)

Example: When I figured out the difference between a will and a trust, I was like, “That’s it? Wow, I thought it was going to be way more complicated.” As I’ve come to find out, such is the nature of much of the legal system: Out-dated vocabulary, over-description, and run-on sentences. Check out this “short” excerpt from a basic Buy-Sell agreement:

“In the absence of written consent and if the Transferor still desires to Transfer all or any portion of his or her Ownership Interest, the Transferor shall offer in writing to sell the Ownership Interest to the Company at the lesser of the price set forth in the Request or the price determined in accordance with the purchase price provisions of this Agreement (the “Lesser Price”).”

Want to know what this means in “normal person” language? If one owner wants to sell his portion of the company, he can ask the other owners to buy it, but they don’t have to pay more than whatever price is listed in the buy-sell agreement.

To be fair, many professions overcomplicate things with industry jargon that nobody understands. Doctors, Financial Advisors, Accountants, and many others are all guilty at times.

I want to make this abundantly clear: The purpose of this or any future post does not serve to discredit the work of the many brilliant legal minds around the world. Their contribution to society is absolutely vital. This blog humbly serves to help the rest of us understand what the hell you people are talking about.

Here’s the deal: I’m committed to writing content that is relevant, light-hearted, and accurate without being… how do you say it… DRY AF. In exchange, you agree to do (2) things for me: 1) Like and Share the post if it was worth your time to read (mostly because it makes me feel good inside); 2) Give one of our attorneys a shout the next time you need some sage legal advice. If you want, tell them Kelton sent you in, maybe they’ll give you the ‘ole “friends and family discount” that doesn’t actually exist. It’s worth a shot.

ON TO THE CONTENT!

Here are a handful of common legal terms, defined:

Power of Attorney: It’s a document that allows someone else to legally make decisions on your behalf. It’s not just for woefully indecisive people who need someone else to tell them what to do – although maybe we should start marketing it that way… … … I digress. POA’s are generally valuable in the event that you literally cannot make decisions for yourself anymore – you could be in a coma or other mentally absent state. You could get a general POA if you trust the same person to handle all of your affairs, OR several – more specific – POA’s if you want to choose different people to handle different things (your health, your business, your assets, etc.)

Estate: Simple. It’s everything that you own. For you: Your house, your car, your money, your family cottage, your land, etc. For me…. Eh. Let’s not go there.

Will: It’s a document that directs who your assets go to once you die. If I may be so bold, it’s instructions to the court for distributing your estate. Some people write them on napkins (not recommended). Most people avoid them because they don’t want to think about dying (also not recommended). As an ode to my favorite fantasy football analyst, Matthew Berry, only (3) things are guaranteed: Death, Taxes, and Aaron Rodgers at home (#GoPackGo). My point: Death is undefeated, people, and a will is the basic equivalent of wearing underwear to your funeral. If you don’t do it, you just look like an ass.

Trust: Think of it like a special basket. This basket is created by an attorney for you to put assets in. When you die, the basket will be delivered directly to whoever you said it should go to. You might think, “Well that’s pointless, I can do the same thing with a will, can’t I?” Not exactly. (2) Things to know: 1) The legitimacy of a will must be verified by a court of law (which costs money and can be stressful) 2) When a will is verified by a court of law, everything in your estate becomes public record. Trusts are more private, more efficient, and honestly make things so much easier on the people you leave behind.

Billable Hours: Over the course of history, law firms have made money by selling the time of their employees. The more educated and experienced employees (Attorneys) cost more than the less educated and less experienced (Paralegals and other Staff). DUH! Here’s how the traditional client engagement works: A client comes in with a need, maybe it’s for the creation of a trust to hold the family cottage. Attorney says, “Ok, we can do that. I expect that it will take us 8 hours to draft it for you. 2 of those hours will be my time ($400), and 6 will be my assistant’s time ($600). Total estimated cost is $1,000.” Suppose the attorney truly does work for 2 hours, but the assistant is incredibly efficient and finishes in 3 hours. By the billable hour system, a firm with integrity will only charge you for the $700 worth of time that was put into the project. Question: How often do you think firms finish projects in less time than what is quoted? Answer: Never. More on this concept and an alternative in next week’s post.