How To Sell Your Business With Gary Wofford
9th December 2021 • Business Leaders Podcast • Bob Roark
00:00:00
00:41:26
Shownotes
For many business owners and entrepreneurs, the time comes when they have to move on. When this happens selling your business becomes a priority. What can you do to ensure that you get the most out of it? In this episode, Bob Roark discusses business exit strategies with senior business broker Gary Wofford of Raincatcher LLC. Gary helps businesses buy and sell their companies and here, he gives you what you need to know with how to sell your company. Curious? Then learn more by tuning in to Bob and Gary.
Sell Your Business: Let's give our customers a reason to want to come back. That's really what it's all about.[/caption]
That led me to Colorado where I became affiliated with a company headquartered up in Wyoming. That being Taco John's International. It's a quick-service Mexican chain. I was their VP of Operations and Franchise Support from ‘88 to ‘96, at which time I left the company and went to work for a different segment in franchising. That being Grease Monkey International. Quick lube and preventative maintenance all change people. It's based in Denver. I started there facilitating a strategic plan with the preferred shareholders. They wanted to position the company to sell quite honestly. We were ultimately able to do that.
They brought me on board as Senior VP of Operations and Franchise Development to help implement the plan that we had developed. We did find a buyer after about three years and that opened up an opportunity then to either stay with the company in a different capacity or leave with a little bit of a parachute. That was a chance at that time to establish my own business. My wife and I looked at each other and said, “What are we going to do?” The kids are all grown and gone so we said, “Let's look at our backgrounds and start our own business.” That's when Wofford Management Services was born. We started doing franchise-consulting work because that was my background.
I got an exciting telephone call one day from the Taco John's Franchisees Association saying they were needing some management and help in organizing their company. I was flattered having been the corporate guy. I met all these great franchise owners and they asked if we would take them as a client. That was a flattering opportunity that I jumped on. I became the Executive Director of the Franchisees Association. That led to another piece of our business that lasted for about twenty years where we started doing their annual convention and trade show as a revenue generator.
My wife, Cindy, spearheaded that particular part of Wofford Management Services. I would be in more of the big picture overarching negotiator with the properties, vendors and that kind of thing. She was the one that made it happen and did a wonderful job. We had that franchise experience in putting on a franchise event for franchisees. That led me to the third part of our company, which was franchise brokerage. Having owned them myself and learned from that, having been a franchise owner and developing franchise brands, I started doing franchise brokerage work to help individuals and groups of people who wanted to own their own business.
I was being their guide and consultant. I let them share in my own experiences to help them avoid potentially costly mistakes. A lot of times people don't know what specifically they want to do. I was able to get into their heads a little bit to find out where their passion was and what they enjoyed doing. I could do research and introduce them to franchise models that would be a good fit for them and their unique criteria. I didn't look for people to fit a particular franchise. I looked for the right franchise to fit with a particular client. I did a number of those deals over about a 7 or 8-year period.
I started working on the other end of it because through referrals, people wanted to exit their business after several years. I started doing the brokerage on the other side of the table by finding a successor to take that business over both sides of it. Ultimately, once the pandemic hit us in 2020, which we all relate to, it took away the event business that had been very good for our company. The last event we did was in March of 2019. Although we were planning another event for this same client in March of 2020, like a lot of people, “All of this will be over in a couple of weeks. We can postpone it for a few weeks.” Here we sit and still experiencing the same difficulties with meetings and trade shows.
Cindy decided it was time for her to retire. To your original question, “How did I get here?” I said, “Business brokerage makes the most sense.” That's when I decided. Number one, here in Colorado, you have to have a real estate license to be a business broker so I got that done in February of ‘21. I made a list of about 10 or 11 brokerage firms I was going to talk to. Raincatcher was one that I had become familiar with primarily through LinkedIn. I had seen a little bit of activity that they had posted there. They were number one on the list. After talking with the ownership at Raincatcher, one of the managing directors, Aaron and then Marla and Jason, the owners, I did not have to go to the numbers 2 to 11.
It was a good fit. I was excited that it was mutual. I came on board in March of ‘21 as a Senior Broker. I work on a national basis and many diverse-type deals. It has been a wonderful experience for me to be able to talk to business owners that I have the highest regard for to help them achieve their objectives. I look at it this way. It's one deal at a time. You don't look at multiple deals. Every deal is unique and different. You have to give it your full time and attention. It's like when I ran for 150 restaurants. It was 1 restaurant for 150 times. That's the philosophy that makes a lot of sense. That's how I got here, Bob. It's an exciting time for Raincatcher and me.
I talked to a guy that's the CEO of a family office. His comment was, “If you have seen one family office, you have seen one.” I was excited to talk to you because your depth of experience is from entry-level to corporate, selling out and buying. It sounds like there's not much you haven't done as a franchise business owner. I'm sure there's nothing you haven't done inside of your business like shoveling snow, you name it. As a business owner, that's what you get to do.
[bctt tweet="When it's snowing outside and you got a payroll on Monday and the businesses down, you learn what you have to do as a business owner to take care of that." via="no"]
It's making sure that landscaping is right. It's very detailed. I always looked at it this way too and I have tried to teach my managers the same philosophy. It's like putting on a dinner party at your house. You're going to make sure the lawn is done, the sidewalk is swept and the doors and restrooms are clean so that when people come to your home, they're going to have a good experience. I also tried to put the philosophy in everyone's head, “Let's give our customers a reason to want to come back.” That's what it's all about. That may sound simple but that's the distinction that sets one business apart from another. I always wanted to stand out and not stand-in.
All of that sounds simple. Simple and easy are two different things. For the business owner that's reading, one of the things I wanted to do is try to capture some of the wisdom that you have earned all these years and what you see. What struck me as you were talking is if you're a business owner that's considering selling a business, there are many questions you typically get asked from your experience in the past. What is it that the business owner typically asks you when they're first starting to consider selling?
People want to know what is my business worth. There's another adage, “It's worth what someone's willing to pay for it.” However, there's also a way to control that. For example, here at Raincatcher, we've got a very detailed process for determining the valuation of a business. We look at the financials. Having clean records and quality of earnings is very important when someone is considering selling their business. We also have some programs here for people that aren't quite ready to go to the market where we can help them get prepared to go to market.
There are some value-building programs that we can put into it because our overarching mission, as I see it here at Raincatcher is to maximize that value. Sometimes in talking with business owners, we have to be very candid and counsel them about the timing of when they go to market and what's best for them so we can maximize it. We do a lot of coaching in that regard. We're not here for the thrill of the deal. We're here for the long-term and service before, during and after the sale. A lot of our business is tied to referrals. That's the best way to build a business.
They want to know, “What is it worth?” We can answer that question. They want to know, “Who are we going to sell it to? Who are the buyers?” We also can educate them in that particular regard because the buyers, depending on the scope of the deal, could be an individual buyer, a corporate type of buyer or a competitor and how they go out and find those strategic buyers, people in a similar business or somebody that's competing with them. If it's a larger scale thing, we have a lot of connections with private equity groups, search groups and we can put larger plans together. We're not limited by the scope of the deal because we have different strategies depending on the particular deal.
From your experience in the franchise space, there are a lot of things that the franchise system brings to a business owner versus the business owner that built it on his own. What do you think is the chief framework difference between a franchise system on business and an individually owned business?
A lot of people enter a franchise because they do recognize the value proposition and the value in terms of the marketing clout that they're going to have that they would not necessarily have on their own. They're paying for that. They're paying their fair share as part of the system. At the same time, they're going to be able to get more regional and even national advertising that they would not be able to get as an independent. Another big value part of the equation is the purchasing power.
If you're buying product or merchandise, whatever your business model is, you're buying on a larger scale and you're going to get a better price value. That's going to keep the costs down and keep your prices more manageable to the consumer. There are some pluses there. Also, there's a proven-to-work business model. That's what a franchise system is selling to its franchisees. It's proven. Most of them have what's called an earnings claim in their franchise disclosure document.
Keep in mind that a franchise system is highly regulated, which is a good thing for the consumer and owner. The Federal Trade Commission is high on that. There are a dozen or so states within the country that also have their state regulations in addition to the Federal. The fact that it's highly regulated is a very good thing for its franchise owners. They also have some assurances with their franchise agreement. It's either a 10 typically and sometimes a 15 or 20-year agreement with options to renew. That gives them a little bit of an opportunity to do long-term succession planning and things of that nature as well.
[caption id="attachment_5961" align="aligncenter" width="600"]
Sell Your Business: Sometimes in talking with business owners, we have to be very candid and counsel them about the timing of when they go to market, what's best for you so we can maximize it.[/caption]
There's the value also of it being a brand. Usually, if it comes to a time where they want to sell their business, they're going to find a little bit higher multiple of their earnings with a branded business than an independent. There are several items I tried to mention there off the top of my head that would distinguish a franchise business from an independent business. That doesn't mean that entrepreneurs who start their own thing can't be highly successful because they surely can. We see a lot of those people in our work here at Raincatcher to people who have built a strong business. Maybe they're ready to retire and don't have a family member to succeed.
That's where we can come in, help them find a successor to their legacy business and make sure that it's continued in the way that the owner had created it. Both avenues make a lot of sense. Some people maybe prefer entrepreneurial independence versus the restrictions to some extent. I'm a franchise but I have also found it interesting that some of the best franchise owners if you're doing a 1 to 5 store deal and 5 locations, it's retired schoolteachers and retired military because they're accustomed to protocols and procedures.
At the same time, I have seen a lot of highly successful entrepreneurs go into it on a larger scale where they may develop their franchise businesses over a seven-year period with an idea from day one what their exit strategy is going to be. Often, they would sell it to another franchise owner in their geography or they may come to someone like Raincatcher for us to find the right party to purchase that. For example, a friend of mine sold 268 Burger Kings. That's a big deal as you can imagine. Those deals are out there and there are also the 1s, 2s, 3s, 4s and 5s out there.
Let's say you have the ABC franchise system and you've got Owner A and Owner B. Is it possible based on their business practices and execution that one could have a significantly higher multiple than the other? If so, what are the factors that contribute to that?
It sure is. If you look at the top-line revenues, that's number one. Look at their operating costs, all through their financial statement and their EBITDA or Earnings Before Interest, Taxes, Depreciation and Amortization. You look at the financial statement. This is something that we do at Raincatcher. We have a certified financial analyst who goes through that and works with the broker team to make sure everything is identified. Sometimes there are discretionary items within that financial statement and some lifestyle items that we pull out of it. That's called add-backs.
We get down after the EBITDA plus those add-backs, which could be that they're paying for an automobile or their cellphone for personal use out of the business and...
---
Watch the episode here:
How To Sell Your Business With Gary Wofford
The big questions are how do business owners like us spend our own money, time and effort? How do we grow our businesses and jump the line? That lets us accelerate the delivery of our products and services in our community while being smart about our growth and profit culture and still creating lasting value in our business. Those are the questions in this show and we will share some of those answers. Our guest is Gary Wofford. He's the Senior Business Broker at Raincatcher. Welcome to the show.---
Gary Wofford, thank you so much for taking your time to be a guest on the show. Welcome. Thank you, Bob. I'm glad to be here with you. I have been looking forward to this. You started talking about your experience in the franchise space. It seems like there isn't anything you haven't done. If you would tell us a little bit about how you got here. I have been reflecting on my background and experiences. I do cover a lot of bases. I first was on the corporate side of the franchising world. It was with a company based down in Dallas that decided to franchise all of their company-owned restaurants. That was Bonanza International. I was VP of Operations over about 250 stores. They allowed me to become a franchise owner as a little bit of a stay bonus. My franchise fee was waived and I was able to pick 1 of 2 or 3 stores that would be mine. That's when I first got involved in the ownership side of franchising. It was a wonderful experience. I was able to develop two additional Bonanza Family Steakhouses as a franchise owner in North Texas and Southern Oklahoma. I go back to that as a grassroots learning experience because with the adage, “You learn where the buck stops.” When it's snowing outside, you got a payroll on Monday and the business is down, you learn what you have to do as a business owner to take care of that. From that very early beginning, I started gaining a strong appreciation for business owners, knowing their world and what they were faced with on a day-to-day basis. That later led to an opportunity to sell those stores to a larger franchise owner after about 6 or 7 years because the town that I was in built another highway. The cows cut the traffic patterns down quite a bit. I could see the handwriting on the wall that it was time to consider moving on to something else. I did sell those three locations to another franchise owner and that system. I got affiliated with another franchise as the operating partner back in the Dallas-Fort Worth area of Luther's BBQ. We built over 6 or 10 years of AAA locations. This was back in the day. We were selling barbecue sandwiches for $1.99 but we had $2 million on average with a lot of drive-throughs, takeouts and catering. Each of these restaurants would sit 200 people. We were very successful in the Dallas-Fort Worth market despite some failures of the franchise company. That led to having a little bit of a dispute. We ended up, long story short, settling with those folks. We had to change the name from Luther's to Colter's. I still have the little writing pad that I use to come up with that name because we did a little marketing thing and didn't want to confuse customers. Luther was the uncle of Colter. Colter was the nephew that took over because Luther retired. The thing I liked about it most is it saved me a lot of money because all the letters and the name were the same numbers of letters. There were canned letters on the building so it was very economical to change the name. Luther's became Colter's and that was a wonderful experience as well. That was about another eight-year segment. My partner ultimately bought me out at that point. [caption id="attachment_5960" align="aligncenter" width="600"] Sell Your Business: Let's give our customers a reason to want to come back. That's really what it's all about.[/caption]
That led me to Colorado where I became affiliated with a company headquartered up in Wyoming. That being Taco John's International. It's a quick-service Mexican chain. I was their VP of Operations and Franchise Support from ‘88 to ‘96, at which time I left the company and went to work for a different segment in franchising. That being Grease Monkey International. Quick lube and preventative maintenance all change people. It's based in Denver. I started there facilitating a strategic plan with the preferred shareholders. They wanted to position the company to sell quite honestly. We were ultimately able to do that.
They brought me on board as Senior VP of Operations and Franchise Development to help implement the plan that we had developed. We did find a buyer after about three years and that opened up an opportunity then to either stay with the company in a different capacity or leave with a little bit of a parachute. That was a chance at that time to establish my own business. My wife and I looked at each other and said, “What are we going to do?” The kids are all grown and gone so we said, “Let's look at our backgrounds and start our own business.” That's when Wofford Management Services was born. We started doing franchise-consulting work because that was my background.
I got an exciting telephone call one day from the Taco John's Franchisees Association saying they were needing some management and help in organizing their company. I was flattered having been the corporate guy. I met all these great franchise owners and they asked if we would take them as a client. That was a flattering opportunity that I jumped on. I became the Executive Director of the Franchisees Association. That led to another piece of our business that lasted for about twenty years where we started doing their annual convention and trade show as a revenue generator.
My wife, Cindy, spearheaded that particular part of Wofford Management Services. I would be in more of the big picture overarching negotiator with the properties, vendors and that kind of thing. She was the one that made it happen and did a wonderful job. We had that franchise experience in putting on a franchise event for franchisees. That led me to the third part of our company, which was franchise brokerage. Having owned them myself and learned from that, having been a franchise owner and developing franchise brands, I started doing franchise brokerage work to help individuals and groups of people who wanted to own their own business.
I was being their guide and consultant. I let them share in my own experiences to help them avoid potentially costly mistakes. A lot of times people don't know what specifically they want to do. I was able to get into their heads a little bit to find out where their passion was and what they enjoyed doing. I could do research and introduce them to franchise models that would be a good fit for them and their unique criteria. I didn't look for people to fit a particular franchise. I looked for the right franchise to fit with a particular client. I did a number of those deals over about a 7 or 8-year period.
I started working on the other end of it because through referrals, people wanted to exit their business after several years. I started doing the brokerage on the other side of the table by finding a successor to take that business over both sides of it. Ultimately, once the pandemic hit us in 2020, which we all relate to, it took away the event business that had been very good for our company. The last event we did was in March of 2019. Although we were planning another event for this same client in March of 2020, like a lot of people, “All of this will be over in a couple of weeks. We can postpone it for a few weeks.” Here we sit and still experiencing the same difficulties with meetings and trade shows.
Cindy decided it was time for her to retire. To your original question, “How did I get here?” I said, “Business brokerage makes the most sense.” That's when I decided. Number one, here in Colorado, you have to have a real estate license to be a business broker so I got that done in February of ‘21. I made a list of about 10 or 11 brokerage firms I was going to talk to. Raincatcher was one that I had become familiar with primarily through LinkedIn. I had seen a little bit of activity that they had posted there. They were number one on the list. After talking with the ownership at Raincatcher, one of the managing directors, Aaron and then Marla and Jason, the owners, I did not have to go to the numbers 2 to 11.
It was a good fit. I was excited that it was mutual. I came on board in March of ‘21 as a Senior Broker. I work on a national basis and many diverse-type deals. It has been a wonderful experience for me to be able to talk to business owners that I have the highest regard for to help them achieve their objectives. I look at it this way. It's one deal at a time. You don't look at multiple deals. Every deal is unique and different. You have to give it your full time and attention. It's like when I ran for 150 restaurants. It was 1 restaurant for 150 times. That's the philosophy that makes a lot of sense. That's how I got here, Bob. It's an exciting time for Raincatcher and me.
I talked to a guy that's the CEO of a family office. His comment was, “If you have seen one family office, you have seen one.” I was excited to talk to you because your depth of experience is from entry-level to corporate, selling out and buying. It sounds like there's not much you haven't done as a franchise business owner. I'm sure there's nothing you haven't done inside of your business like shoveling snow, you name it. As a business owner, that's what you get to do.
[bctt tweet="When it's snowing outside and you got a payroll on Monday and the businesses down, you learn what you have to do as a business owner to take care of that." via="no"]
It's making sure that landscaping is right. It's very detailed. I always looked at it this way too and I have tried to teach my managers the same philosophy. It's like putting on a dinner party at your house. You're going to make sure the lawn is done, the sidewalk is swept and the doors and restrooms are clean so that when people come to your home, they're going to have a good experience. I also tried to put the philosophy in everyone's head, “Let's give our customers a reason to want to come back.” That's what it's all about. That may sound simple but that's the distinction that sets one business apart from another. I always wanted to stand out and not stand-in.
All of that sounds simple. Simple and easy are two different things. For the business owner that's reading, one of the things I wanted to do is try to capture some of the wisdom that you have earned all these years and what you see. What struck me as you were talking is if you're a business owner that's considering selling a business, there are many questions you typically get asked from your experience in the past. What is it that the business owner typically asks you when they're first starting to consider selling?
People want to know what is my business worth. There's another adage, “It's worth what someone's willing to pay for it.” However, there's also a way to control that. For example, here at Raincatcher, we've got a very detailed process for determining the valuation of a business. We look at the financials. Having clean records and quality of earnings is very important when someone is considering selling their business. We also have some programs here for people that aren't quite ready to go to the market where we can help them get prepared to go to market.
There are some value-building programs that we can put into it because our overarching mission, as I see it here at Raincatcher is to maximize that value. Sometimes in talking with business owners, we have to be very candid and counsel them about the timing of when they go to market and what's best for them so we can maximize it. We do a lot of coaching in that regard. We're not here for the thrill of the deal. We're here for the long-term and service before, during and after the sale. A lot of our business is tied to referrals. That's the best way to build a business.
They want to know, “What is it worth?” We can answer that question. They want to know, “Who are we going to sell it to? Who are the buyers?” We also can educate them in that particular regard because the buyers, depending on the scope of the deal, could be an individual buyer, a corporate type of buyer or a competitor and how they go out and find those strategic buyers, people in a similar business or somebody that's competing with them. If it's a larger scale thing, we have a lot of connections with private equity groups, search groups and we can put larger plans together. We're not limited by the scope of the deal because we have different strategies depending on the particular deal.
From your experience in the franchise space, there are a lot of things that the franchise system brings to a business owner versus the business owner that built it on his own. What do you think is the chief framework difference between a franchise system on business and an individually owned business?
A lot of people enter a franchise because they do recognize the value proposition and the value in terms of the marketing clout that they're going to have that they would not necessarily have on their own. They're paying for that. They're paying their fair share as part of the system. At the same time, they're going to be able to get more regional and even national advertising that they would not be able to get as an independent. Another big value part of the equation is the purchasing power.
If you're buying product or merchandise, whatever your business model is, you're buying on a larger scale and you're going to get a better price value. That's going to keep the costs down and keep your prices more manageable to the consumer. There are some pluses there. Also, there's a proven-to-work business model. That's what a franchise system is selling to its franchisees. It's proven. Most of them have what's called an earnings claim in their franchise disclosure document.
Keep in mind that a franchise system is highly regulated, which is a good thing for the consumer and owner. The Federal Trade Commission is high on that. There are a dozen or so states within the country that also have their state regulations in addition to the Federal. The fact that it's highly regulated is a very good thing for its franchise owners. They also have some assurances with their franchise agreement. It's either a 10 typically and sometimes a 15 or 20-year agreement with options to renew. That gives them a little bit of an opportunity to do long-term succession planning and things of that nature as well.
[caption id="attachment_5961" align="aligncenter" width="600"] Sell Your Business: Sometimes in talking with business owners, we have to be very candid and counsel them about the timing of when they go to market, what's best for you so we can maximize it.[/caption]
There's the value also of it being a brand. Usually, if it comes to a time where they want to sell their business, they're going to find a little bit higher multiple of their earnings with a branded business than an independent. There are several items I tried to mention there off the top of my head that would distinguish a franchise business from an independent business. That doesn't mean that entrepreneurs who start their own thing can't be highly successful because they surely can. We see a lot of those people in our work here at Raincatcher to people who have built a strong business. Maybe they're ready to retire and don't have a family member to succeed.
That's where we can come in, help them find a successor to their legacy business and make sure that it's continued in the way that the owner had created it. Both avenues make a lot of sense. Some people maybe prefer entrepreneurial independence versus the restrictions to some extent. I'm a franchise but I have also found it interesting that some of the best franchise owners if you're doing a 1 to 5 store deal and 5 locations, it's retired schoolteachers and retired military because they're accustomed to protocols and procedures.
At the same time, I have seen a lot of highly successful entrepreneurs go into it on a larger scale where they may develop their franchise businesses over a seven-year period with an idea from day one what their exit strategy is going to be. Often, they would sell it to another franchise owner in their geography or they may come to someone like Raincatcher for us to find the right party to purchase that. For example, a friend of mine sold 268 Burger Kings. That's a big deal as you can imagine. Those deals are out there and there are also the 1s, 2s, 3s, 4s and 5s out there.
Let's say you have the ABC franchise system and you've got Owner A and Owner B. Is it possible based on their business practices and execution that one could have a significantly higher multiple than the other? If so, what are the factors that contribute to that?
It sure is. If you look at the top-line revenues, that's number one. Look at their operating costs, all through their financial statement and their EBITDA or Earnings Before Interest, Taxes, Depreciation and Amortization. You look at the financial statement. This is something that we do at Raincatcher. We have a certified financial analyst who goes through that and works with the broker team to make sure everything is identified. Sometimes there are discretionary items within that financial statement and some lifestyle items that we pull out of it. That's called add-backs.
We get down after the EBITDA plus those add-backs, which could be that they're paying for an automobile or their cellphone for personal use out of the business and...