Exiting your business is a multi-step process that requires strategic planning and the right team at the right time. This session breaks down the timeline of an exit, from assessing your firm’s worth and preparing marketing materials to managing buyer interest and creating competitive tension. Learn when to hire key advisors, what each phase entails, and how to make a strong first impression with potential buyers. By understanding the process and investing in top-tier expertise, you can navigate the complexities of an exit and maximize your outcome.
TRANSCRIPT
Greg Alexander: Hey, everybody. This is Greg Alexander with Collective 54. You’re listening to the Pro Serve Podcast. This is a show dedicated to helping those in the expertise business sell more, make more, scale easier, and maybe someday get to an exit. We talk about all of those things here. So if you’re in the expertise business, let’s say you’re a consulting firm, a law firm, an accounting firm, or maybe a marketing agency where you’re marketing your wares on some version of the billable hour, this is for you. Today, we’re going to talk about the exit category. So let’s say you’ve been running your firm for a while, you think you’ve converted a lifestyle business into something that somebody might want to buy, and you want to monetize all your work and create some liquidity. How do you do it? We’re going to talk about all kinds of things like is now the right time, how long does it take, what’s my firm worth, etc. To help me with that is a longstanding, well-respected, and well-liked Collective 54 member. His name is Frank Williamson. Frank, it’s good to see you. Would you introduce yourself to the audience, please?
Frank Williamson: Yes, Greg, it’s great to be here. Thanks for having me. I’m Frank Williamson. I’m the founder and CEO of an investment banking boutique called Oaklyn Consulting, and we specialize in hard-to-serve clients, which in our industry means smaller companies, sometimes founders of professional services firms, and deals with complex social issues like many decision-makers, people with good no-deal options, and high service expectations.
Greg Alexander: Okay, fantastic. Let me start with the first question. This is a question that I get asked by members all the time. So I’m going to ask it of you and would love to get your answer. The question is, is now the right time to sell my firm? If I own one of these small businesses and I’m asking that question, how do I answer it?
Frank Williamson: I think that’s a fantastic question. One of the things that makes it answerable is to think about what role you’re occupying when you go to answer it. In particular, are you the owner, or are you the operator? Because the answer is an owner’s question to answer, not the operator’s question. So if you say, “Okay, when then, as an owner, is it the right time?” Honestly, that’s pretty simple. It’s when a sale is a better option than not a sale, looking about one year in the future. That’s going to differ for the owner than it is for the operator. The owner might say, “Doing my own personal financial planning, I want to be diversified,” regardless of what the business is doing. Or the owner might say, “Given what’s going on in the business, we’re at a peak right now. I see through my owner’s eyes it’s time to change this thing.”
One of the things, Greg, that Collective 54 does so well, and this is a little bit different than the way you describe the stages of growth, scale, and exit, but if you lump some of those together, I think part of what Collective 54 is saying to founder CEOs and owner-operators is: build a great professional services firm, separate the roles of owner and operator, and enable each role to make the best decision it can. When you’ve done that, the owner can make that kind of decision about selling or not selling.
Greg Alexander: You know, that’s a great answer. I want to highlight a few things for members that are listening today. Your personal financial plan—if you don’t have one, you need one. Make this decision in the context of that plan. What I find sometimes with our members is that if I wear two hats, owner and operator, maybe 85% of the time I’ve got the operator hat on, and 15% of the time I’ve got the owner hat on. It needs to be just the opposite of that when trying to answer this question: is now the right time to sell my firm? Very, very good distinction.
Greg Alexander: Okay, let me get to question number two. Most of our members are first-time founders.
Greg Alexander: Most of our members are first-time founders, and they’ve never been through an exit before. We’ve seen a little over, I think, 52 exits right now in the 5 years that we’ve been doing this. We’ve seen somewhere in the order of 3 to 4 times that number of people try to sell that don’t. What mistakes do people who have never been through an exit before make?
Frank Williamson: Oh, there’s lots of opportunity for mistakes, so let me try for the biggest ones that we see people grapple with. The number one mistake is a fantasy buyer. The way that fantasy goes is there is someone who will buy my company, and that mythical someone doesn’t have a name, doesn’t have a specific business, doesn’t have a reason to need your company—it’s just out there. There is not someone out there. There is a specific person who needs your business combined with their business for a specific reason, or needs your customers or needs your employees, and it’s going to make a difference to their business. Getting from general to specific, or getting stuck in general thinking there’s an answer, is the mistake that people make more often than any other mistake.
It’s not the only mistake, though. The number of people who come to us, and they’ve begun a conversation about selling their business, and someone has said to them, “Yes, I’m interested in talking about it. Send me your financials.” That is mistake number two. The idea that financial statements, especially of a closely held business, by themselves tell the story of the business is just a myth. What people are buying when they want to buy the business is the future, like to have some kind of return on investment like we all want. What they want to know is, what’s the story of this business in the future? The financial statements support that story. They help validate it after someone understands the story, but they do not tell the story. When someone has said, “Hey, send me your financials, and then we’ll talk,” that’s the wrong way around, and you’re going down a bad path already.
Greg Alexander: Yeah, I see that all the time. And you’re right. That’s part of the story, but it’s not the whole story, and it’s not the sexy part of the story that drives valuation.
Frank Williamson: Right, or that drives a decision. It’s the appendix and not the actual story.
Greg Alexander: Okay, I lost you there for a quick moment. But I think our Internet is restored. So let’s keep going. I’m going to ask you a question, the third question here, which is, how does a founder know if their firm is, quote unquote, ready to sell?
Frank Williamson: You’re right. We did have an Internet glitch. I think I heard, how does the founder know if their business is, quote unquote, ready to sell?
Greg Alexander: Correct. Yes.
Frank Williamson: So I’m going to answer the way we see it in our firm, and then I’m going to put it back to you for what you see through the lens of coaching people in office hours at Collective 54. We get to know business owners at Oaklyn Consulting when it’s the time to sell, whether it’s a good time or a bad time. Something has catalyzed a need to call an investment banker. The way that our clients know is because something has hit them in the face with, “This is the time. You’ve got to do this.” It might be a great thing that came along and got their attention—hey, this is the opportunity to join with someone else and supercharge scale on the business. Or it might be a bad thing—something happened to one of the principals from a health perspective, and you’ve got to change. And so the way that you learned was something happened.
My guess, Greg, is you see people in a more proactive stance than we often do, and they can say, “Hey, I’ve got my business to a place that it is perhaps capped out with me as a leader, and I need to go be an owner. I’ve got all the leadership set, and there’s a transaction that results from that.” I’d be interested in your take on it. Ours is a little bit more reactive.
Greg Alexander: Yeah. So the question is, how does the founder know if the firm is, quote unquote, ready to sell? So there’s a few things that I look at.
Greg Alexander: And that is, can you get through due diligence, right? So what gets somebody through due diligence? There’s a certain amount of profit, a certain amount of EBITDA that has to be there. Professional services firms are risky assets because there’s not a lot of assets. The way that the risk is reduced for many buyers, anyway, is just some basic amount of EBITDA. That would be number one.
Greg Alexander: Number two, if you have a lot of client concentration, that’s a thing that I see prevents deals from happening all the time. To the point where you can diversify your revenue stream, you might not get rid of all of the client concentration, but if 80% of your business is coming from one client, you’re not going to be able to sell that business.
Greg Alexander: The third thing is growth. Are you selling the business? Our members are small firms, which means the law of big numbers does not prevent them from showing good growth rates. If the business is growing 25%, 30%, 35%, that would suggest that maybe you could find a buyer and your business is ready to sell.
Greg Alexander: Next would be dependency on the founder. People don’t want to buy a business where it’s really not a business—it’s a brilliant founder with a bunch of helpers. Then, you write the founder a big check, and he or she disappears, and there’s nothing there. So founder dependency is a big one.
Greg Alexander: Lastly, just the basic hygiene factors with the legal and financial stuff. Is that in order? Or are you running Cousin Susie’s Caribbean cruise through the business? If that’s happening, it’s going to be really hard to sell the business. So those would be some of the basics I think people should pay attention to.
Greg Alexander: The mistake that I would advise everybody to watch out for is when they say, “Hey, somebody’s made me an offer to sell my business.” I hear this all the time in office hours. I’m like, “Can you send me the LOI?” and there isn’t one. That’s not an offer to buy your business. That’s somebody kicking the tires.
Greg Alexander: In that scenario, unfortunately, they make the mistake that you mentioned earlier, which is, they send over financials, and they get in a process, and it’s not real. So just be careful of that. Being ready to sell is a very complicated thing, but there’s a lot more to it than most people think.
Greg Alexander: Okay, two more questions. Number four, I get this all the time. How long is it gonna take to sell my business?
Frank Williamson: Oh, we are next week going to do a great session on this. The answer is, prepare for a year. Number one, you got to keep running the business, or someone has to keep running the business. If owner and operator roles aren’t separated into different people, someone needs to keep this thing going because what’s being bought is the future of the business, not the past. You can’t only have the past; you’ve got to have a going concern. Number two, every interaction you have over that year with a potential buyer is part of a negotiation. One step leads to the next step, and each interaction sets the tone for every other interaction.
Frank Williamson: You mentioned the basic hygiene factors. We’ve got a lower threshold than you do for what counts as a saleable business because we help lots of people who aren’t ready for a good deal get a deal done. As long as you don’t surprise people, you can get a lot of deals done. Now, it won’t be the premium deal that a Collective 54 member aspires to, but it might be the necessary deal. Still, it takes a year. You really can’t cut it short.
Frank Williamson: For listeners, think about it as three parts. You’ve got to get ready and get all the stuff together. That’s not your day job, and it’s going to take the better part of three months. You have to reach out to people and qualify interest. That involves setting meetings, back and forth communication, and many people. That takes about three months. Once you’ve negotiated a letter of intent, you have legal documents to do, and that takes about three months. I just described nine months, but there’s extra slop time that takes it up to about 12 months. If you’re crazy efficient, you could take out slop time and maybe cut those other steps by two weeks each. It’s still the better part of your year.
Greg Alexander: Yeah.
Greg Alexander: I agree with you. That’s what I see. In fact, I think sloppy time is more prevalent than we realize. We try to go fast, and then there are all these things outside of your control, like holidays happening. July 4th comes around, and next thing you know, you wake up and it’s a year. The other thing is, why rush? This is about doing it right, not doing it fast. You want to pick the right advisors, run the right sequence, and ensure the deliverables are high quality. To your point, Frank Williamson:, every single conversation matters. If you’re rushing and jump on a call on your cell phone on the way to the airport, it’s probably not a good idea. You might say the wrong thing at the wrong time, which could end up costing you a month because you have to undo the damage and take your foot out of your mouth. Timing is a tricky thing, but you’re right. I think the guidance of saying it’s going to take a year is good advice. I know when we have a private member Q&A, we’re going to walk through your visuals that discuss the method, process, and timeline in much greater detail. Let me end with this last question because we try to keep these podcasts short, and we’ll get into much more depth during the member Q&A. I’m going to use the words of the member, which are funny: how do I make sure I don’t get screwed? I get asked that question in private all the time. So, how do you make sure you don’t get screwed in the process?
Frank Williamson: First, that is the number one thing someone’s factor ought to be up about through this process. Sadly, the norm in this business is that people throw out an optimistic offer based on the assumption that everything they have seen turns out to be true, plus some things they haven’t seen but are assuming are rosy. Then they will pay this. The rest of the conversation is about trying to find something that isn’t what they assumed. I learned early in my career from a lawyer who said the best price a seller ever sees is when they sign a negotiated LOI, and it’s all downhill from there. You negotiate up to the LOI and down to the closed document.
Frank Williamson: The number one answer to “how do I make sure I don’t get screwed” is to be prepared to think that someone is going to try to screw you. That sounds harsh and punitive, but what’s that saying? Fortune favors the prepared. Be really, really tight in your preparation. Be wary that you’re not blowing smoke at somebody. Sell them what you’ve got to sell them. Remember that if not you, your team has to have a relationship on the other side of the deal for the business to keep going in a productive way, in combination with somebody else, with a new owner, with new colleagues, or something. Put everybody on a good foundation for the day after the deal closes. Then you won’t get screwed.
Greg Alexander: Yeah, good advice. And I would add, as an augmentation to Frank’s answer to the question of how do you make sure you don’t get screwed, hire somebody like Frank, the right advisor, a professional who does this for a living, and they know all the tricks of the trade that you may not know, especially if you’ve never been through an exit before. It’s so important to do that. All right, my man, we got to end it here because we try to keep these things 15 minutes. We’re a little over the schedule right now. But thank you for coming on the podcast and sharing your wisdom with the membership. I very much look forward to the Member Q&A, and we’ll see you next week for that, okay.
Frank Williamson: Honored to be with you, Greg, and honored to be part of the collective.
Greg Alexander: All right. Very good. A couple of calls to action for listeners. If you are a member and you want to attend this session, look for the invite and prepare your questions for Frank. You’ll have some time with him to ask your specific questions. If you’re not a member and you want to become one because you like content like this, go to Collective54.com and fill out an application, and one of my team will get in contact with you. But that’s it for today’s show. So until next time, I wish you the best of luck as you try to grow, scale, and someday exit your firm.
Note: This transcript was generated by Zoom.