Business owners looking to sell their businesses are definitely looking for the best offers. Here is where brokerages like Raincatcher come into the picture. Today, Bob Roark interviews associate broker from Raincatcher, Mark Halma, on the role of business brokerage and M & A firms in the industry. Mark shares how they’re setting the stage for owners by putting effort in marketing materials, finding the right target, and running through the marketing process to attract buyers to get their companies sold. Learn more about how Raincatcher deals with business owners and their businesses from emotional responses, saleability assessments, due diligence, and value enhancement.
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We have as a guest Mark Halma. Mark is an associate broker at Raincatcher. It\'s a business brokerage and M&A firm. Mark is passionate about helping business owners navigate the exit process, ensuring maximum value in return for all the hard work that they\'ve put in. He spent his time working for organizations across multiple industries and phases such as tech startups, Fortune 100 consulting companies and business brokerage firms. This array of experiences made Mark a savvy business-minded individual who enjoys working with organizations of all backgrounds and situations. He understands the value of a strong partnership and has a track record of delivering successful outcomes for entrepreneurs and business owners alike. Mark, welcome.
Thanks for having me, Bob. It\'s an honor. I appreciate you allowing me onto your show.
Thank you so much. Mark, give us a snapshot of your background and how you got from there to here.
I’ve been in sales all my life. I’ve always had that sales knack and interest in being involved as a sales professional and building my career around that. It\'s a struggle sometimes when you\'re getting into the sales world of where to start, what is the industry, what is the type of employment I\'m looking for. I ended up starting off in more of a service-based sales organization that was focused on project management and business analysis training. What I enjoyed about this is it gave me the confidence to talk to CTOs and CIOs at very large Fortune 1000 companies. If you would have asked a nineteen-year-old Mark if he would be confident ever being in front of somebody like that, I would say you\'re crazy.
That helped me gain the confidence required going forward as a sales professional to be able to talk to anyone without any intimidation or worry and be yourself and present what you have. I started in the service-based world and moved over to more of a product and widget space working for a company that focused on IT infrastructure. This was back when solid-state drives were starting to make the big push within storage systems and infrastructures. That was with a startup, which is exciting. I was the 99th employee to be hired by that company. I was there for about three years and when I left, there were over 500 employees and the business had been successfully sold for $875 million. I loved that experience working with a younger company in that startup phase where everybody\'s running around like a chicken with their head cut off, but it\'s truly controlled chaos with a common goal.
It’s about everybody having some skin in the game, whether that was equity or the drive to build this company created a positive and exciting environment. I enjoyed the work there, from a cultural perspective and having a product that was so innovative, new and different that you could get behind and feel passionate about when pitching to potential customers. I enjoyed that experience due to the sale and some of the uncertainty that comes. I\'m sure we\'ll talk about that a little bit more when there is an acquisition like this. I moved over to another company that focused more on the consulting service-based side of things. What I found there is that corporate type of life maybe wasn\'t the best fit for me personally. I wanted to get into a smaller size company once again, not a company that has 45,000 employees. I wanted to be involved in a smaller organization and that\'s when I got into the brokerage world. The next business that I joined focused on senior housing and skilled nursing facility space. I was brokering assisted living facilities, skilled nursing centers, anything involving residential healthcare types of residents.
That was fun to get my chops in brokerage and understand everything that goes into the brokerage world. I enjoyed the experience there, but I wanted to broaden my horizons a bit. I loved brokerage but didn\'t want to be pigeonholed into one industry or one type of sale. Certainly, when it comes to these businesses, there are so much regulation and change going into it every year because you are dealing with people\'s health. It\'s not like selling an apartment or those types of things, but there are a lot of layers and always regulatory changes that can be a little bit frustrating. Knowing where I want it to be in the future professionally and with aspirations of owning a business of my own someday, I wanted to work across different industries from a broker\'s perspective. That\'s where I found Raincatcher.
[bctt tweet=\"Being able to work across multiple industries can be incredibly enlightening and very exciting. \" username=\"\"]
I was thinking as you were talking about all the steps that you\'ve made in your career from smaller companies to larger companies to sales to a growth company and then watching it get sold. Working in a highly regulated environment and that\'s real estate-based, service-based, recurring revenue-based. I think about developing the fabric of your experience. Before we move off of that, how do you think that fabric of experience helps you when you\'re talking to business owners now?
Because I have that fabric of experience and I’ve worked in many different industries and types of businesses, being able to relate to multiple business owners now based on what their industry may be or the problems that they\'re facing, I’ve encountered many problems and obstacles that business owners have ran into. That wealth of experience across different industries helps you have that empathy that is required when working for business owners in the role that I\'m in now. It lends itself well to say, “I’ve been through this with this company before,” or “We\'ve tackled that obstacle at this point in my career.”
Bringing that experience is very helpful as Raincatcher does work industry-wide, and we are industry agnostic, helps bring that experience to various industries and various times that a business may be. We\'re working with businesses that are getting started for the most part, maybe are looking for a valuation, a little bit of advising on how to build their business to be ready to sell down the road. Some have been around for 30, 40 years and are at the very end of their personal road with that business. We have to navigate some obstacles there. By taking the track of working across different businesses, organizations and industries continues to grow my knowledge base and not just be focused or hyper-specialized in one area, I find that to be an advantage.
With that being said, how did you and Raincatcher run across each other and what made you decide to work with Raincatcher?
Sometimes timing can be everything in this world. I was at that previous brokerage firm and starting to think in the back of my head. I love brokerage, I like working with business owners. I want to try this out in different industries. About that time, I had started to look around a little bit and have connected with Marla on LinkedIn. I had done a little bit of research into Raincatcher and saw that they were in terms of being industry agnostic, the size and types of deals that I was interested in working, not necessarily these giant M&A transactions, but more of your salt of the earth business owner people. That, in my opinion, is a part of what makes America great is the small business opportunity here.
Being able to engage with those types of business owners across multiple industries was a huge draw for me, as well as Marla in general. As the leader, she did a great job of not only giving me confidence in Raincatcher and where they were headed, but now that I\'m here at day-to-day, her ability to react quickly to changes or things that we as her brokerage team may be suggesting is amazing. She instills confidence in the team in a positive way. As a CEO, she\'s got to make sure that the business continues to be profitable and growing. That\'s what I’ve seen since I’ve been here, that steady growth in a pursuit to get into larger deals, bigger deals. The opportunity to grow with the business during this phase was something that\'s enticing.
I liked the idea of working with the company in the early stages of growth. Raincatcher has been around for a little while, but once Marla took over as CEO, she changed the vision a bit, changed the long-term goals of the business. That growth trajectory is something that excites me. I like the idea of being a part of that journey in achieving those goals. It\'s been a very exciting journey, a very fun one. Being able to work across multiple industries has been incredibly enlightening and very exciting. You\'re working on any given day on a concrete business, and then a couple of hours later, you\'re working on a cotton candy manufacturer. I\'m constantly fascinated by the different ways people can make money in this country. It\'s been an exciting journey so far.
I think about in the podcast space when you talk to various and sundry business owners and they have insight into their niche and you get tutored almost every time. I think about when you talk to all the business owners and the wealth of knowledge that comes from those discussions, the various industry groups, the more you see distinctions and commonalities between the business owners. Marla, in talking to her, was talking about their focus. She\'s a huge fan of the business owner. How do you see that played out within your organization?
I think we have a unique organization in that many of us work with previous business owners or have been working with business owners for quite a while. We are starting to understand the personality that is required to in fact be a business owner. I give anybody who\'s willing to start their own business tons of credit because it\'s a challenge. It takes a lot of time, it takes a lot of guts. The pressure and stress that they go through on the day-to-day is something that is very hard to deal with. I’ve got the ultimate respect for these business owners. You\'re exactly right, the opportunity to learn from their experience and get to know their industry the way that they\'ve tackled challenges and obstacles is fascinating to me.
[caption id=\"attachment_4493\" align=\"aligncenter\" width=\"600\"] Getting Your Companies Sold: The most important thing that can be done for a business owner is setting the stage.[/caption]
Some of my favorite parts of the process are the early stages when you are doing that due diligence on the business, finding out what\'s worked, talking through some of their ideas. Maybe they\'ve tried to implement that didn\'t go so well. Be able to bring the experience I have to the table and talk through some of the changes that I may suggest. It’s exciting when you have that successful sale and see a business owner who\'s put their blood, sweat and tears into something for so long. They get the reward at the end that they thoroughly deserve.
I was thinking about going back to the healthcare space where it was a service business and a real estate business. I think about many business owners and they have the business and they may also have the real estate component. How do you find that past experience helping people that have both the real estate and the business component when you\'re talking with them?
When it came to senior housing and the healthcare component, a lot of the value does sit in the real estate. Some business owners had taken the opportunity to sell the real estate and operate the business so that they wouldn\'t have to worry about that or get some cashflow to pump into the business through the sale of the real estate. What I would say in general being in that industry is that complexities are involved in making those transactions. In my opinion, it’s about as complex as you can get in this world. If you can navigate those muddy waters and get through there, I\'m under the impression that there are most industries that you can get through once you\'ve done a skilled nursing facility, for example. There’s just a couple that is changing every other week.
You\'re working with the business owner. If you were to distill down, what\'s the most important thing that you do that helps that business owner when they\'re beginning to look to sell?
It\'s simple and basic, but getting a business owner to wrap their mind around the process of what is involved. There are a lot of business owners out there who maybe aren\'t that forward-thinking. When they\'re ready to sell, it\'s something that maybe they thought of that day, they want to get started tomorrow and they don\'t understand everything that is truly involved. The most important thing that we can do for a business owner is set the stage. Doing the valuation for them, letting them know exactly what their business is worth in the market now through our opinion, the timing that is involved. There are some business owners, they go, “I\'m ready to sell. Maybe in a month I\'ll be out of here.”
They don\'t realize that this a very long-winded transaction. It\'s not something that happens overnight. Due to the robust nature of Raincatcher services, it takes some time. We put a lot of effort into the marketing materials, finding the right targeted buyers and running through the marketing process to bring buyers to the table. From the start, it’s helping a business owner wrap their mind around what is involved in the sale of their business because there\'s a lot. Certainly, some of the challenges that get involved with this include the emotional aspect of things. Business owners have put everything into the business a lot of the time. They\'ve been through it all. They have a very keen self-awareness of everything that they have put into the business. When that happens, a lot of times, valuations can be a little bit inflated in terms of what the business owner may think their business is worth. Perhaps they think they are ready until you get close to being able to sell. They start thinking, “What am I going to do with my life now? What is my identity? My identity has always been so attached to this business.” Helping them with emotional response is also an important thing during this process.
I think about the potential buyer telling the business owner that their business is ugly. This is probably a criticism that\'s unwelcome.
It\'s not fun when we get a lowball offer. Part of our obligation is we\'re going to share every offer with you to let you know what the market is saying. It\'s not fun to share those ones and say, “This guy thinks your business is worth about half of what we’re thinking.”
Let\'s say you have a business owner that\'s ready to sell and you had the opportunity to roll the clock back 3 to 5 years. What advice would you offer to that business owner that\'s trying to come to market now 3 to 5 years ago?
[bctt tweet=\"Sometimes it\'s hard to cut through the noise and realize what it is you have in front of you. \" username=\"\"]
That’s a great question that every business owner should think about. Even on day-one of them starting a business, they should already be in the back of their mind thinking a little bit of structuring the business in such a way that a potential buyer down the road would be interested in it. One thing that I run into a lot and one thing I would definitely recommend it for any owner is to start to relinquish some of their day-to-day responsibilities and relinquish the dependence that their business may have on them. One of the first questions I always get from a buyer is why are they selling and what is their role? What is their influence on the business? Oftentimes business owners are the number one connection to their biggest client base and they\'re responsible for those relationships.
That can be with clients, with suppliers and different vendors that they\'re using. One of the most common problems that I run into is there’s so much owner dependence. It\'s a fairly simple one to solve on paper perspective. The challenge is the emotional aspect of a business owner being able to relinquish those responsibilities and have the confidence and faith to say, “I trust this person to be able to handle what I was previously handling,” or “I trust this new process that we have implemented to take care of that same work that I was previously handling.” That\'s one of those things that\'s a little bit easier said than done, but you\'re talking about something as simple as hiring a general manager or some management layer below you that gets to know everything that you know about the business.
As a business owner, nobody knows or cares more about the business than you do. By trying to pass as much of that along as you can, not just from a knowledge base but from an emotional base and caring and being passionate about it is hugely important as well. We\'ve been through this situation many times where we\'ve told the business owner, “Maybe let\'s wait one year to sell your business. Within this year, let\'s hire another management layer. Let\'s hire somebody below you that you can train up and be able to do everything that you\'re doing now. Maybe let\'s bring on some software that can assist in this process that you\'re doing manually right now.” That makes it easier for a business owner to come in and already have that process done. That\'s not one other thing that they need to relearn. All of those things can take time. We\'ve talked about it before, but as soon as a business owner gets started or at least has the smallest thought in the back of their mind that one day they may want to sell, start thinking about the different ways to structure your business to make it more attractive to a buyer.
I think about that as a broad commentary. All these things that we talk about in the exit space or when you build your business to sell is good business. If you get injured somewhere during your career, somebody can pick up the ball, the policies and procedures and making sure the business is not dependent on one person, whether it\'s you or your lead salesman. All of those things are good business principles.
Sometimes a business owner may be worried about the cashflow involved with making a new hire or changing your process a bit. What\'s important to think about is you may be taking a small hit on your yearly P&L. Two years down the road when you sell your business for 20% more because all the structure is there for a new buyer to come in, that\'s where the payoff comes. It may not be right away, but the payoff will come down the road.
The focus on value creation, absolutely. As we talk about that, there are a number of challenges in getting businesses sold. I think that within the industry, there\'s a fair amount of angst or complaining about advisors and brokers. They run like every other industry a gamut from good to less than good. Let\'s chat about that for a little bit of what a seller should take into consideration when selecting someone to help them.
If I\'m a business owner looking to sell, I\'m putting tons of work into the due diligence of any brokerage firm or any broker that I want to partner with. There is a wide gamut of options out there both from low-fee options that you\'re probably going to get what you pay for in those scenarios. Higher fee and more robust options where maybe you aren\'t getting a full brokerage firm or team behind you as opposed to an individual broker. It\'s very important for anybody looking to this to do their due diligence, find referrals and find people who have had a positive experience with whatever group you decide to move forward with on the sale of your business. Do the work beforehand. It\'s one of those things that it\'s a pretty simple concept, but a lot of people failed to do it.
Maybe they don\'t think they have the time. It\'s important to put a lot of work into researching who you plan to partner with. Part of that is this is a long process, typically about 6 to 9 months or so. In a way, it\'s a long-term relationship that you\'re entering into and you want to have confidence and trust in that person or that group that they\'re going to do everything required to make sure you get to a proper sale. It’s something that we see a lot in our brokers that are a very low fee, high volume is how I like to describe them. They\'re looking to get as many listings as they possibly can and flood their own listing page with volume. They\'ll offer very low-fees to a business owner on the sale of their business.
They aren\'t putting in the effort of the work that is generally required to get something sold. It\'s like you get it listed, cross your fingers, and hope somebody comes to you that is interested and seeks you out but isn\'t proactive in finding those buyers. Here at Raincatcher, we\'re pretty well in line with industry standards on our fees, but you are getting that robust service that I mentioned. It\'s not just one individual broker who\'s throwing some info on a website and hoping for the best. We\'ve got a full marketing team. We\'ve got a full brokerage team that for every deal we take on, you essentially have three different team members working on that deal in conjunction together. Any broker would mention this, things get busy sometimes and you need somebody to pick up the slack if you may be focused on another deal for that period of time. Having that team approach is important for any business owner who\'s looking for a brokerage firm to help them with the sale.
[caption id=\"attachment_4494\" align=\"aligncenter\" width=\"600\"] Getting Your Companies Sold: Anybody looking for a brokerage should do their due diligence and find referrals and people who have had a positive experience with the firm.[/caption]
I\'ll speak for myself and that people are very happy once they get down the road with Raincatcher. Sometimes, it’s the business owner who hasn\'t thought too much about selling their business and it\'s notified with a fee and maybe they get a little bit of sticker shock because they haven\'t thought too hard about this process yet or everything that\'s involved in it. Something else that happens a lot is there\'s a lot of noise out there in the industry. There are many different opinions, many different advisors. As a business owner, you\'re catching info from many different directions and it can be challenging to know which is the best path for me and my situation. I would push hard on any business owner to do your diligence, do your homework and make sure the group that you\'re going to partner with during this long and strenuous transaction is one that you\'re comfortable and confident that’s going to be working as hard as they can for you.
One of the things that maybe a seller is not focused on is the inventory or database of potential buyers that you maintain.
I think that\'s huge. We have something over 10,000 different buyers within our database. Not everybody is looking for the same thing. Over time, we\'ve been able to build this great database based on key parameters of what our buyer may be looking for. Geographically speaking, purchase price, different EBITDAs that they may be interested in, and industries as well. Being able to create that database as we have over the years, we have great strategic buyer lists that we\'re able to take deals to with confidence knowing, “This is what you are looking for. You have told us this is a fit for you. Let\'s talk through this deal.” I would say about 70% of our buyers end up coming from that database. It\'s been very fruitful for us. It is something that we\'re able to pass along for our sellers and say, “We\'ve got this great buyer database here. I can come up with a good 100 names in here that from a high level are a good fit for your business.”
In the seller space as a business owner, can you draw the distinction between a financial buyer and a strategic buyer?
There are a lot of different industries that we work with. What we would say is a good strategic buyer as opposed to a financial buyer, I\'m picking through some examples here. I talked about the cotton candy business before. It\'s a cotton candy manufacturer. We\'ve been speaking to a lot of confectionaries, different food manufacturing businesses that are close in proximity to this specific seller or even certain suppliers or other groups that are involved in the industry that this could be a good bolt-on or save them some money by bringing that service in-house. Those that are in good strategic fit are oftentimes within the industry or have a business that is closely related enough that this would be a good synergy between the two. We often deal with financial players as well who they bring a lot of money to the table, but do plan on hiring either an operator that is experienced in that business or in that industry. What they\'re really looking for is putting their money together and using that business owner or somebody within that industry using their knowledge base to grow that money, maybe make it a little quicker of an exit in five or six years as opposed to purchasing the business for long-term ownership.
As we think about the business owner\'s mindset, do you get a lot of pushback from the business sellers on fees?
I feel like there are two very distinct groups on that. There is the group that maybe they\'ve tried to sell on their own or they have been through the process on their own and they have a little bit of experience in realizing that there\'s a lot that goes into it. It requires a lot of time. It\'s a challenge to continue to run the business and keep the performance going where it needs to be while also devoting so much time to the potential sale of the business. There\'s certainly that group. That group sees our fees and sees what we put into it. They\'re like, “Thank you. Please take this off my plate. Find me a buyer. I’ve been through this process. It\'s a huge challenge. It’s not one that I\'m ready to undertake right now.”
The second group is that group that\'s getting started and wrapping their heads around, “Maybe we do want to sell. What else is involved? What are the fees involved and who am I going to have to pay?” There can be some sticker shock to that. Part of our job when explaining our services is to show them all the different successes that we\'ve had, show them the level of detail we\'re willing to put into our information memorandums, our marketing materials, all of those types of things. Something that helps us quite a bit is when we share some samples of the marketing materials and people say, “This is very legit. You are putting a lot of effort.”
You are storytellers, you tell the story.
[bctt tweet=\"As a business owner, nobody knows or cares more about the business than you do. \" username=\"\"]
With all the noise that\'s out there, sometimes it\'s hard to cut through the noise and realize what it is you have in front of you. With some of these other brokers that are maybe charging very low fees, but throwing up a listing on a website, that can plant a seed in the mind of a business owner that it shouldn\'t cost as much. You\'ll see a direct correlation to the success that we have. Our success rate versus somebody who perhaps was coming in with a very low fee but isn\'t putting in the time and effort required to have a successful exit.
I think about your comment. Let\'s say we\'re talking to the business owner and you go, “If you would push off the sale time frame twelve months out, hire a manager and do a number of steps, that would take and remove some of the doubt or angst from a potential buyer’s eyes.” When you look at the value creation from that process, I would imagine that\'s a rare case where the sale price less fee is now taken care of. That’s a good investment to do that thing.
I would say nine times out of ten, what you invested by partnering with a good, strong broker, assuming you\'ve done your homework, that\'s going to come back at the purchase price. You\'re going to get that and more in the overall purchase price. It does end up being a very good investment. I had mentioned this a little bit before, but the time that is required to sell a business when a business owner maybe decides, “I\'m going to try to take that on myself.” They get through the process, things are going good. All of a sudden, a buyer says, “Can I see these last two months of financials? How have you been doing most recently?” It\'s great to see this yearly. They start to see a downward trajectory because this business owner has taken his eye off the ball or is no longer devoting the required amount of time day-to-day on the business.
The business performance starts to drop, the buyer starts to get a little bit shaky and a little bit uneasy as to what they\'re seeing and wondering if things are going in the wrong direction. All of a sudden, you\'ve put all this time into it, the buyer gets scared away and you\'re back at square one. It\'s very important to be able to handle both. To be able to put in the time that\'s required to sell the business by partnering with a good group that\'s going to help you and support you along the way, but also still maintaining the day-to-day business maintenance to continue increasing performance.
You’ve got to keep that trajectory going. For Raincatcher they don\'t specialize, as far as I can tell, in any specific industry. Are there some industries right now that are more attractive to buyers now?
Yes, certainly. Any industry or business that has some recurring revenue component is going to be very highly sought after out in the market. People like the assurances that come with that recurring revenue. If you put yourself in the seat of a buyer, you want to purchase or acquire a business with pretty low risk. You don\'t want to come in and be nervous about what next month\'s revenues are going to be like or the following month. When you find these businesses that have that strong recurring revenue, it’s easy to think of Software as a Service type of business. Property management is big with this as well, because you get that recurring revenue element to it. Those are the ones that we\'re seeing are popular. We see a bit of a jump in restaurants as well, which is interesting. Anything eCommerce is going to be fairly strong as long as you\'re showing the growth and trajectory that the buyer is going to be looking for.
Something that I’ve been spoken about or had been talked to quite frequently with buyers now, one of the first questions we get is, “How does this business handle an economic downturn? What happens during the next recession?” There are a lot of businesses that you don\'t have a great answer for it because the proof is there. You can look at the P&L and say, “That was a tough time for them,” as it was for a lot of people. The fact that we\'ve been in this bullish economy for such a long time now, this is in the back of the minds of a lot of buyers now.
Some industries that become popular during these times are things that are a little bit more recession-proof. Repair and maintenance type of businesses are big. During those times, consumers are not looking to buy something brand new but say, “Maybe we\'ll fix this up and do some maintenance and keep it running.” Any business related to auto repair is a good example. Anything related to those kinds of maintenance types of stuff usually does pretty well right now as we approach what a lot of people think is a pending recession. Property management is popular as well because a lot of people will continue to rent as opposed to purchasing new homes during those economic downturns.
It’s having a rental property or finding anybody to come in and help maintain a rental property. The companies that do that with some reputation frequency, I can understand the revenue stream. With many of the business owners, there\'s a disconnect between what they think their business is worth. When they get ready to sell, they go, “These two don\'t match up, what I thought it was going to sell and what you\'re bringing to the table.” Let\'s dig into that a little bit.
[caption id=\"attachment_4495\" align=\"aligncenter\" width=\"600\"] Getting Your Companies Sold: Any industry or business that has some recurring revenue component is going to be very highly sought after out in the market.[/caption]
It\'s a hard thing to navigate. There\'s so much personal pride into a business that somebody has put so much work into, but it can be a bit of a punch to the gut when maybe you get a valuation that isn\'t quite what you thought it would be. Maybe we\'re on the same page and think that we have a good business here, but the market is telling us maybe it\'s not worth what we had come up with as evaluation. There are many different elements, variables and factors going into evaluation as well as the perspective. We\'ve got to try to put ourselves in the buyer\'s shoes as well. As a business owner, you\'re hyper self-aware of what you\'ve built everything that has gone into building that business from a time and hard work perspective, a financial perspective that a lot of times you can inflate in your head the quality of your business. Sometimes we need to be realistic and say, “This is what the market is telling us. I think we overvalued this a little bit. Either we go down this road at the value that the market is telling us or let\'s talk some different changes you can make to your business to increase value.”
Some of those things we touched on before. “Maybe we\'re a little bit early to the market. If you have some time before you have to sell or there isn\'t that sense of urgency that says you have to do it now, let\'s start looking at some of these different value drivers. Find out which ones are low and let\'s start pushing the value up.” It’s certainly a challenging conversation when we’re dealing with that, especially if you\'re already on the market. At that point, you contemplate, “Do we take this off the market and go for another bite of the cherry down the road? What does that say to potential buyers? Are they worrying?” There are a lot of things that go into it. Try to find those key areas of where value can be added and start working on those as soon as you can.
To formalize the saleability or the valuation, you have some pretty unique tools that you bring to the table.
The saleability assessment is something that we have any of our partners go through prior to even giving that valuation. What goes into that saleability assessment? There\'s a certain financial portion of it that looks at the numbers and says, “What is your revenue? What are your profits?” Some of those more basic things. What\'s important about it is it touches on those key value drivers that we had mentioned before. One of the big ones is concentration issues. We\'ll definitely ask some questions and try to get some more information related to customer concentration, a supplier concentration. Those are two big ones that will bring your value down quite a bit. For example, we were able to sell a software business where they have one client. Their one client was a specific state doing government work. They worked with multiple different divisions within the state, but they were getting a check from one entity that was their client.
That made it a big challenge to figure out how do we value this and how do we get this on the market and explain it in such a way that doesn\'t scare people away when they say, “What happens if that one client has gone?” The fact that we identified that right away and used that saleability assessment to appropriately value the business, it probably took them down a good 30%, 40% overall because there\'s so much risk involved. Those are the things that we\'re trying to figure out during that saleability assessment. Any red flag or obstacle that may spook a buyer a bit, let\'s address it. Let\'s make sure we know how to properly tell that story so that when we are sharing with buyers, they understand what exactly they\'re getting themselves into. I love the saleability assessment for that reason. It gets to touch on many different things that drive value outside of what the books look like.
Let\'s say I\'m the business owner out there right now. Based on your experience, what are a few of the things that I can focus on that may help improve the value of my business or drive the value up? What would you tell them?
Get rid of that owner dependency. Make sure you have a business that can run if you went on vacation for a month or if you got sick, the business can run without you. That\'s a huge one. Have backups when it comes to vendors and your supply chain. Sometimes a business is completely predicated on an amazing supplier contract that you were able to put together. If that supplier goes away, all of a sudden you lose 5% on your margins and value is going the wrong direction. Certainly, putting that strong management in place and allowing a buyer to connect with that management is something that I see is important as well. There could be a fear of letting any employees know, even if it\'s your right-hand man, that you\'re looking to sell the business potentially and there may be a new owner coming in.
If you can create a sense of loyalty with that management layer, maybe let a few of them know and allow them to get in front of a buyer as well and show that this business runs with us and we don\'t necessarily need this business owner. That\'s something that drives value so much. Any business that can get away from that owner dependence, it\'s very attractive. I can\'t tell you how many buyers come to the table to us saying, “I\'m looking for something that\'s owner absentee.” I don\'t think anything is 100% owner absentee. I don\'t think that exists. If it does, maybe you are not running the business that well, but that\'s something that constantly gets brought up by buyers. “I\'d like something that\'s semi-owner absentee or owner absentee.” You have to have a strong management layer in place for that.
I think that\'s an urban myth, “I want some passive income. I don\'t have to do anything for it.\"
[bctt tweet=\"Happiness can be derived from a clear conscience. \" username=\"\"]
It\'s a unicorn to me but it comes up all the time.
For that business owner, we\'ve talked about some of the things that they can do to try to enhance the value. What are some of the mistakes that you see them make that maybe they should avoid?
It\'s important to keep that trajectory going. Some people have ten years of great numbers. Maybe the last couple ones are going in the wrong direction and they want to sell based on those previous numbers when things were going well. A lot of people want to sell based on potential. Every buyer is going to want to buy on historical performance. It\'s important to continue trying to grow. Even if it\'s small growth, it\'s 3%, something like that, it\'s still very important to show that the business is heading in the right direction if you want to get a strong value on your business. The other one as well in terms of what\'s going to bring it down is the opposite of what we talked about. Having that strong management layer in place. When somebody comes in and says, “Mr. Owner, talk to me about your day-to-day.” They say, “I\'m putting in twelve hours every day, six days a week. Our business is doing amazing.”
They think because the numbers are so great and the profit is up 25% over the previous year, if they\'re not willing to put in a lot of time on a transition effort, no buyer is going to be interested in that because they realize those numbers are 100% dependent on that owner. Without his presence there, those numbers wouldn\'t be there. When they come in, they know the first couple of years are going to be a big struggle and that\'s going to bring your value down quite a bit. I can\'t harp on it enough that having no dependence on yourself as a business owner and no dependence on one vendor supplier or one customer, that\'s going to be the biggest killers in terms of deal value.
What are the tricks you\'ve learned along the way? What might they be to help get a business sold?
It goes both ways. I\'ll tell a trick on each side. One, don\'t be afraid to cut bait. There are times where maybe we\'re spending so much time on this one buyer and they\'re giving us indications that there\'s some interest but you catch yourself being in the one that\'s doing all the motivating and selling. It’s very hard to get them interested. If the buyer isn\'t that interested in over a couple of week’s time, they aren\'t showing much motivation, you should be spending your time going for another buyer or focusing your efforts on bringing more buyers to the table. On the other side of that coin, it\'s important to not give up easily either on potential buyers. Being very relentless in trying to come up with creative structures or ways that the deal can get done can be all the difference.
I’ve been on both sides where I think I maybe have left the deals too soon or didn\'t quite work out all the different ways that maybe we could have created a win-win situation and made both parties happy when we\'re at the end of the road here. There are other times where we did exactly that. We kept putting our heads together and saying, “What if we had this seller note or created an earnout structure or had some standby on windows loan payments are due for you so that their cashflow was good at the start?” It\'s important to have that positive mindset that there\'s always a solution. Because a lot of times, there is. If you have that feeling that this buyer isn\'t your buyer and they\'re not putting the same amount of effort into getting that deal done as you, it’s time to cut bait and find another buyer.
What’s the best piece of advice that either you\'ve received or you might offer?
Something that I was told to by my dad a long time ago is happiness is a clear conscience. That\'s something that can go across your personal life or your professional life. Certainly, in a role like this, there is a lot of responsibility. When a business owner who has put so much time, money and effort to build what they\'ve been able to build comes to you and says, “We want to partner with you to sell this business. We want to partner with you to ensure my retirement is as nice and cushy as I\'d like it to be,” or “We want to hire you on for the responsibility of getting us the fruits of our labor over these past twenty years.” It\'s a big responsibility. Having a clear conscience in this role is turning over every rock, making sure that we\'ve thought of every single solution to get it sold. You\'ve reached out to every buyer that could possibly be interested in this deal. Knowing inside that you\'ve done everything that you can think of to help push a deal along brings you that clear conscience. I think that\'s where happiness is derived.
[caption id=\"attachment_4496\" align=\"aligncenter\" width=\"600\"] Getting Your Companies Sold: It\'s important to put a lot of work into researching who you plan to partner with.[/caption]
For the people out there and the potential business owners that are considering selling, how do they find you on social media?
You can find me, Mark Halma on LinkedIn. That’s a great way to find me. Another way is email. That\'s probably the quickest and fastest way to get ahold of me. I\'m in my email all day. That address is Mark@Raincatcher.com.
For me, I\'m involved with business owners. I\'m a business owner myself. I own a number of small businesses. If you\'re that business owner there saying, “It\'s coming,” or “I\'m thinking about it,” the best thing that they can do is to reach out to you. The worst thing they can do is wait until an event takes them out, whether industry change, disruption or a health event, because we\'re all going to exit our businesses one way or another at some point. I would urge them to take in, reach out and have a conversation with you.
I think that\'s great. Even if you don\'t think you\'re quite ready, we\'re not the type of group that\'s going to push anyone to sell that isn\'t ready because that\'s not advantageous to us for some of those reasons we touched on. We can start to plant some seeds in your mind to have some small changes or things to start thinking about as that date approaches, even if it\'s five years away. We\'ll be here when you\'re ready. We\'re happy to lend some advice and do a little consulting for you to put you on the right path, so that down the road when you are ready, we\'ve built that trusted relationship and you know where to turn.
You have the tools that they can use as well to see where they are.
There are multiple offerings that we\'re happy to provide for business owners free of charge, without charging high consulting rates or anything like that. For us, it\'s all about the relationship. We want to build that trusted relationship with business owners knowing that they may not be ready to sell, but it maybe three years down the road that they\'re ready. If they know that, “We can come to Raincatcher. They are going to give us honest advice and put in the effort now that we\'re ready to sell. That\'s a group that I want to partner with.” That\'s the ultimate goal for us.
Mark, I can\'t tell you how much I appreciate you taking time out of your day with us and appreciate all your insights into the process.
I definitely appreciate it, Bob. It was a pleasure and I hope we can do this again sometime.
Mark Halma has been a deal maker since he began his professional career. He has spent time working for organizations across multiple industries and phases such as tech start-ups, Fortune 100 consulting companies, and business brokerage firms. This array of experience has made Mark a savvy business- minded individual who enjoys working with organizations of all backgrounds and situations. As an Associate Broker at Raincatcher, Mark is passionate about helping business owners navigate the exit process, ensuring maximum value and return for all the hard work they’ve put in. He understands the value of a strong partnership, and has a track record of delivering successful outcomes for entrepreneurs and business owners alike.
Mark studied at Loyola University of Chicago where he earned a Bachelor’s degree in Economics from the Quinlan School of Business. During this time, Mark graduated with honors and was an All-Conference player for the Rambler soccer team. As someone who truly believes in giving back, Mark is an active volunteer with Denver Kids Inc, and works with the elderly through Volunteers of America. When Mark isn’t closing deals, Mark can be found in the outdoors outside exploring the Rocky Mountains of Colorado, or enjoying the many activities found around Denver where he resides with his wife, Sophie, and dog, Gnocchi.
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