A lot of small business owners don’t know what to do when selling their business. It’s important to note that business is a lifetime event, and selling is not just about the transaction but the people’s identity too. Vice President of Brokerage and Co-owner of Raincatcher, Jason Thomas, believes in that idea. In this episode, Jason talks about how you can sell your business the right way and reap the benefits of your hard work. He shares some of the things that affect selling your business and what you could do to improve its value. Understanding the other side, Jason then lets us in on the types of buyers out there, and what they are looking for that the sellers don’t recognize. Learn more about the business brokerage space and find ways to prepare yourself and your business when the time comes that you knock on their door.

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  Selling Your Business And Reaping The Benefits Of Your Hard Work With Jason Thomas Our guest is Jason Thomas. Jason is the Vice President of Brokerage and Co-owner of Raincatcher, a business brokerage and M&A firm, which partners with entrepreneurs and business owners to help source the best win-win deal for all parties. After spending nearly a decade in the real estate sales and development industry, Jason knows what it truly takes to get a large transaction through to the finish line, hard work, communication, and the ability to connect with your clients. Jason is a licensed business intermediary and real estate broker. As an owner in multiple businesses, Jason knows the challenges that small business owners face on the day-to-day and cherishes the ability to help them reap the benefits of all their hard work through the sale of their company. Jason, welcome to the show. Thanks, Bob. I appreciate you having me. Jason, give us a little background or a snapshot of how you got here. It's a long journey but I started my career in real estate. More importantly, I come from an entrepreneurial family. My dad was a small business owner, my mom was a small business owner and that's ingrained in my roots. I remember the first experience I had in small business was in Hilton Head, South Carolina as a young child. I sold golf balls back to golfers. I would go in the ponds and fish them out and set up a little table on the side of the golf course and sell these golf balls back to these guys for $0.50 apiece or $1 apiece. I remember that clearly and that's transported through my life to where I am now. I thought my career was going to be in real estate for a long time until I went back to get my Master's degree in Business Administration. During that process, I started to think about the opportunities that were out there for me and in my experience in sales and real estate and how I could help small business owners. During that same time, my dad was in the process of selling his insurance company to this investment bank. In that process, he realized that it wasn't the right fit and he ended up buying his business back from the bank a couple of years later. The world aligned at that point. That was right around the time that I was introduced to Raincatcher and decided that this was the career and path that I wanted to go down.   We're the fabric of our past and what we bring to the table. My first question is getting golf balls. There weren't gators from South Carolina at that time, were there? There were gators. That was a part of it. We would wait and dive into these ponds. We definitely had some encounters with some alligators, not too big ones but they were there for sure. That puts the risk premium on the golf ball price, I'm thinking. That's why it was one for $1 or three for $5. I think about that and I think there's a whole industry around that now getting the golf balls out. When you watched your dad and talked to your dad post-sale and he left that business and then he went on to whatever was next. What did you remember or note after that departure? He started the business many years ago. It's an insurance business in South Carolina. He was the CEO and founder of the company. He sold to this bank and part of the requirement of sale was for him to stay on post-closing which is similar to a lot of our business owners. He said it was the day that he needed staples. He asked the secretary, “I need some more staples. Can we order some more?” She's said, “I can't order staples. You have to fill out an expense report.” He’s been running this business for 30+ years and now he has to fill out an expense report. This is one small example. He has to fill out expense reports to justify why he needs to have staples. It's a need that a small business has. This was a successful insurance company. That was one example of the waterfall of expectations that he had that didn't come to fruition like he wanted and how they were driving the future of the business. For him, he wanted his company to go in a different direction and he lost that control once he sold. That was ultimately what drove him to buy it back. You've got this tapestry of experience in the entrepreneurial gene for lack of a better term. For you, when you were looking at it, how did you find Raincatcher? What was it in the Raincatcher culture that drew you in? [bctt tweet=" Selling businesses is not about getting the deal done, it’s figuring out when is the right time to sell a business. " via="no"] It's interesting how fate aligned sometimes. I thought that real estate development was my career path. This was shortly after I finished up my MBA. I was introduced to the original founder of Raincatcher and now my partner Marla DiCarlo through a fly-fishing expo. I'm an avid fly-fisherman. In my early twenties, I used to be a fly-fishing guide. Marla and the original founder of Raincatcher owned another business called Boulder Boat Works, which is a drift boat manufacturing company here in Colorado. I had been introduced to them through an associate, through a friend and he said, “You should go talk to these guys. They've got a great fishing company. It’d be great for you to learn more about it.” I went to this expo to talk about fishing which I can easily do. I started talking to them and this conversation quickly shifted to the other business that they were just launching, which was a business brokerage company. Not that they just wanted to sell businesses, it was around the fabric of why they had chosen to be in the business brokerage space and why they were trying to be there. I started to fall in love with the concept and what that was to them was that truly at the heart of the culture of the business, they want to help small business owners. They believe that small business owners deserve better representation with the industry as a whole, lacks professionalism. There's a good opportunity to bring nice processes and best practices to this market and you leverage that through digital technology. I heard this and this light went off in my head and literally within 30 days, I quit my current job. I was doing real estate in Denver and joined Raincatcher. From there, it's history. It's been a great ride so far. I do have a really interesting question. You're from South Carolina. How is it that you're not a bass fisherman? How did you get wrapped around fly fishing as opposed to bass fishing? I am a bass fisherman. I learned how to fly fish for bass in Hilton Head, South Carolina. It's grown to trout and to permit tarpon and saltwater species as well. If it swims, I'll fish for it. I'm not a purist but I do love fly fishing. I grew up in the Deep South bass fishing. In fact, I got off the Rodman and palmed it down in Florida. I fly fish down in the south of Cancun as well. I'm much more dangerous. As the guy says, you're a good monkey hunter. Fly fishing is not something I think I could make a living doing. As you look at Raincatcher and their culture, you had the original nucleus of you and Marla. The business starts to grow. You guys have six brokers and associate brokers. Did it grow to eight? We're at eight brokers now including me. I think about the culture of a smaller firm. As you start to expand the firm, how do you guys take in, teach in or transfer the culture that you envision because you have a distributed group of folks? How do you transmit that culture? One of the first things we ask the people that we're bringing onto our team is, “Why do you want to join Raincatcher? Why do you want to be a business broker? Why do you want to be in this industry?” There are all sorts of answers, “I want to make money. I want to have flexibility.” At the core of what we're looking for is for someone to say, “I want to help small business owners.” That is fundamentally what we do. Everything else falls into place. I would say there are a lot of hard work and process and stuff that's put behind it. If you have that core mission that you want to help a small business owner and it's not just about the transaction, that's why we bring people into our team. That's what Marla and I stress over and over again. It shows with our messaging, it shows the way that we interact with clients. You can see it as the business grows that people are receptive to that message. I think out in the space of the small business owner. For me, I serve a lot of business owners in the business I have and I'm also a small business owner outside of this current business. All small business owners don't know what they don't know when it comes to selling their business. When you think about your past experience with your dad not only selling his company but going in, buying it back and then being in the commercial real estate. Do you think that gives you a particular insight that you bring forward when you're working with other business owners? It does not only in my past experience but my current experience as an owner of Raincatcher and the previous businesses that I've owned. I understand what it means to try to figure out how to pay payroll. The stress that the actual people that you're paying payroll to don't understand, where's that next check going to come from? Those are real challenges that unless you're in the trenches as a business owner, you don't quite understand. I can relate in that way. I've been through what it means to try and build and grow a business. I've made a lot of sacrifices and I've seen a lot of sacrifices from my parents as they've grown their businesses. Those are challenging decisions that you have to make. I can relate to a lot of business owners because of that. I think about empathy and the emotional response in talking to a business owner that's getting ready like your father. He probably spent more time with his business than he did with his family. [caption id="attachment_4624" align="aligncenter" width="600"] Selling Businesses: One of the largest responsibilities of a broker is to be empathetic enough to respect a person’s identity and understand what they’re going through.[/caption] Yes, unfortunately. That was definitely the case. You're selling one of your children effectively. He did want to do that at one time or another with me. It's true. What's important to know for us at Raincatcher, 95% of the businesses that we work with are original owners, original founders, first-time business sellers and this is a lifetime event. It's not just a business transaction, not like you're going out and selling a house, this is people's identity in a lot of regards. This is their life. Respecting that, being empathetic to that and understanding what they're going through is one of our largest responsibilities as a broker. For us, it's not just about getting the deal done. It's figuring out, "Is now the right time to sell it?" Realistically, I know you want to sell and I know you want to exit, but is now the right time? What are your goals afterward? What are you going to do once you do get that check and once you are out of business? Are you ready for that? You can only play so much golf. People say that but I could fish for the rest of my life. I hear a lot of people that in post-sale, you can only do so many hobbies and you need something to be involved in. That's genuine. I think people, especially successful entrepreneurs, need that next thing or need to be involved in something. There's also an emotional side post-sale that people struggle with. For us, that's navigating those waters and trying to provide guidance, put in the right team together to help them be successful prior to sale and also post-sale. When you're working with a business owner, what do you think is the most important thing that you do that helps that business owner looking to sell? Our role is to help them be level-headed. It's one, to help them prepare and two, to be level-headed about the transaction. Help them understand what to expect and understand what their expectations are. There's a lot of misinformation out there and sometimes the expectations are set that may not be realistic. We have to work hard with the sellers to give them a clear roadmap of what this process looks like from A to Z and guide them along the way and ground them in that process so that they don't get distracted and/or disappointed when they have an expectation that may not be delivered in the process. I think about that entire sales process and pre-framing the challenges. You can say the buyer's going to either one type or another buyer and the buyer could be coming in and going like, “Your kid is not nearly as attractive as you think your kid is.” The business owner in many cases would be highly offended if you call their business in the slightest bit ugly.  Everyone's baby is the prettiest for sure. Having seen some, they'll grow into it. As you drill down and look at the challenges and you have a number of sellers out there that have talked about the process that goes less than fun. Some of the advisors and brokers were not exactly helpful. What are some of the things that affect the track record of selling or your reputation as a business broker and a business owner? One of the most important things that a business owner can do is prepare. Business owners have spent so much time growing their business and they don't spend a lot of time preparing to exit their business. Oftentimes, we'll get a seller that will come to us and say, “I'm ready to sell. I want to sell now.” We're like, “Okay.” They have certain expectations and it's not always the best time right now to sell. There are a lot of things that business owners can do to prepare their company for sale. That's one of the biggest risks is to go rushing the process. One of the things that a lot of sellers don't think about and don't do. They think that they're ready and now's the time, where a business owner can prepare their business or make their business more presentable is doing some work ahead of time. That can be all sorts of things and that's one of the things that we do as a company is we analyze a company when they come to us and we start having those initial conversations. Fundamentally is now the best time or are there other items that we can work on to help improve the likelihood of your business selling or the likelihood of a buyer saying, “This is a great business.” Instead of trying to beat it up or telling you that it's not pretty. When you rush the process, sometimes those red flags become a little bit more prevalent because you didn't think through it, prepare and get it ready. It's like staging a home before you go to the market. Even putting a fresh coat of paint on the walls goes a long way. One of the questions I always think, if I could have talked to you a few years ago before you got to here now, were you ready to sell the company? If you had the opportunity to offer advice to the business owner five years before they arrive at your door, what are the top 1 or 2 things you would suggest to them that they might do to improve the value? [bctt tweet=" Business owners have spent so much time growing their business, they don't spend a lot of time preparing to exit their business." via="no"] One of the biggest things that a small business owner can do is to separate themselves from the business. The natural inclination for small business owners is they need to have their hands in everything and that they're important to the vitality of the business, that without them it would fail. That's the truth. If you're that entrenched in the business, it's difficult to pass that on to the buyer. Working hard to separate yourself, put key management and key processes in place to where you're not important. That's hard for a business owner to accept that they're not in control anymore. Strategically, you can be in control and you can guide the direction of the business but you don't need to be in the trenches and you don't need to be on the day-to-day involvement in the decision-making of a company. That's one of the biggest things that I could recommend. Secondly, your finances have to be clean. You need to spend the time and to have clean and reconciled financials. We have a saying, “The way that you put financials in the system or input data, garbage in, garbage out.” You want to make sure that the financials are clean and the numbers that you're representing and you're selling your business are true and verifiable. Sometimes, small business owners get a little sloppy on how books are done. That's something that can be detrimental in the sale process.  I'm the business owner sitting out there and going like, “What do you mean not clean financials?” What are some of the more egregious things that you see in financials that would raise a flag for a buyer?  Part of what we do on business transactions is we look at what we call the seller's discretionary income. What is the true income of the business when you look at add-backs? Add backs are typically personal or discretionary expenses that are run through the company. We understand that small business owners run a lot of discretionary expenses through their business but that would be one area where a business owner could clean that up, stop running your personal expenses through your company. Most people do it to shelter tax obligations. To make your business more sellable, that’s something that you want to limit. Another area where we see that there are challenges both on reconciliations, not reconciling your books every month. Maybe they do it once a year, maybe they don't do it at all. That can be hard to sell a company that doesn't have reconciled financials. Sometimes you get a mass discrepancy between say your QuickBooks accounts and your tax returns. People always say, “I beat up my tax returns so I don't have to pay money to Uncle Sam.” That's great but it limits your ability for the buyer to get financing. It limits what the true financials for the business are. That would be another area that I would add caution or let it as clean as possible. As you have dealt with in Raincatcher...