BIO: Laurie Barkman is a Certified Exit Planner, M&A Advisor, and founder of The Business Transition Sherpa®.
STORY: Laurie explains why it's important to start planning your exit plan five to seven years before and what you need to do during that period.
LEARNING: Don't wait until you're exiting to plan your exit.
"Don't wait to do exit planning when you're exiting, it will be too late. Start five to seven years out. This gives you time to make an impact for change, make the business more attractive and ready, and to also make yourself more ready."
Laurie Barkman
Guest profile
Laurie Barkman is a Certified Exit Planner, M&A Advisor, and founder of The Business Transition Sherpa®. As the former CEO who led a $100 million company through acquisition, she helps business owners build valuable, sellable companies and exit on their terms.
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Return visit: what's changed and what hasn't
Three years ago, Laurie joined Andrew on Ep727: Quit Often Quit Fast to share her own worst investment ever. This time, she's back with something arguably more valuable: a masterclass on the single most common mistake business owners make: waiting too long to plan their exit.
"I wish I knew this sooner." That phrase, Laurie says, is the number one thing she hears from business owners who've gone through a transition without proper planning. By the time they're ready to sell, it's already too late to improve the business, attract better buyers, or close the wealth gap they've been quietly ignoring.
If you haven't heard Episode 727, go back and listen to Laurie's personal story. In this episode, she brings that same honesty, this time pointed squarely at what you, as a business owner, need to be doing right now.
Exit planning is not an exit-day activity
The most important insight Laurie delivers in this episode is deceptively simple: exit planning needs to start long before you're planning to exit.
If a prospective client tells her they're thinking about selling their business in one to three years, her response is direct: "You're already behind." A well-structured exit takes five to seven years to execute properly. That's not because the paperwork is complicated. It's because building a more attractive, more valuable, more transferable business takes time. And so does getting you personally ready for what comes after.
Laurie works with two very different kinds of readiness:
Business readiness: Making the business more attractive, more operationally independent, and more valuable to a future buyer.
Personal readiness: Preparing the owner emotionally and financially for the life that comes after the company. Too many founders kick this can down the road, only to find the finish line overwhelming when it finally arrives.
The exit timeline exercise
One of Laurie's most practical tools is what she calls the Exit Timeline Exercise. She sits with clients and literally maps out, year by year, what needs to happen (both in the business and in their personal lives) to set them up for a successful transition.
This isn't a generic checklist. It's built around the owner's specific situation: their age, their family's ages, their life stage, and what they actually want their next chapter to look like.
Understanding the numbers: wealth gap vs. value gap
Laurie walks through two key calculations every business owner should understand:
The wealth gap
This is the difference between what you need for retirement and what you currently have. Many business owners have most of their net worth tied up in their company, which means selling the business isn't just an exit; it's a financial planning event. The net proceeds (after taxes, transaction fees, and other costs) need to be factored into the nest egg calculation. As Laurie reminds us, it's the net number that counts, not the headline price.
The value gap
Once you know your wealth gap, you can figure out what your business needs to be worth—and compare that to what it's actually worth today. The difference is the value gap. Closing that gap is the work of exit planning.
What buyers are actually buying
One of Laurie's most counterintuitive insights: when you're selling your business, stop thinking about your products and services. Start thinking about what problem your company solves for another company.
Buyers, particularly strategic buyers, are acquiring capabilities, not catalogs. They might want your customer list, your talent, your geographic footprint, your intellectual property, or your distribution network. A European acquirer once offered Andrew a revenue multiple (not EBITDA) because he didn't care about the coffee margins. He wanted the distribution infrastructure to pour his own volume through.
That's a strategic buyer making a strategic bet. Understanding who might want to buy you, and why, should shape how you build and present your business years before any transaction.
Transferable assets: do an inventory now
One of the most actionable practices Laurie recommends is a transferable assets audit. Go through every major asset in your business (contracts, customer relationships, intellectual property, talent, equipment) and rate each on a scale of 1 to 5 for how transferable it is to a new owner.
A score of 1 isn't a crisis. It's a to-do item—one you can now address if you start the process early enough.
A common example: contracts that aren't transferable. Many business owners have never thought about whether their agreements include a transferability clause. Without one, a sale can be significantly complicated. With a transferability clause added proactively at renewal, the problem simply goes away.
Keep your financial records in order
Another practical piece of advice comes from Andrew's observations of businesses in Thailand, echoed by Laurie's US experience: messy financial records are a serious exit liability.
Buyers expect the last three full years of clean financials, current year data, and a credible forecast. If your monthly books aren't closed, your expense categories are inconsistent across years, or your numbers are tied up with personal expenses, you've created friction in the due diligence process. This friction costs you time, trust, and money.
Laurie recommends moving toward reviewed financials as an early milestone. For many businesses, it's not a high incremental cost, and it signals credibility to buyers.
Lessons learned
Don't wait to plan your exit until you're ready to exit. By that point, it's already too late to make meaningful improvements to the business. Start five to seven years out.
Personal readiness matters as much as business readiness. Too many owners focus entirely on the company and are blindsided by the emotional and lifestyle changes that come with stepping back.
Know your wealth gap and your value gap. These two numbers are the foundation of any honest exit plan.
Buyers buy on their timeline, not yours. When someone comes calling, they're ready. You may not be. The goal of exit planning is to close that readiness gap before the call comes.
Recurring revenue commands a premium, but know the difference between recurring and reoccurring. Contracted, predictable cash flows are what buyers pay top dollar for.
Take an inventory of your transferable assets. Find the gaps now, while you still have time to close them.
Clean, consistent financial records are non-negotiable. Start with reviewed financials and build from there.
Andrew's takeaways
Profitability and growth are both required. Profitability without growth isn't particularly valuable, and growth without profitability doesn't justify the premium either. It's the combination that drives multiple expansion.
The $25 million revenue threshold is a real inflection point in buyer perception. Businesses that cross it are seen as market-proven in a way that smaller companies, however promising, simply aren't.
When a strategic buyer sets a revenue multiple, they may not be interested in your margins at all. They're buying your footprint. Understanding which type of buyer is most interested in your business helps you position it effectively.
Always ask: a multiple of what? EBITDA, revenue, and seller discretionary earnings are not interchangeable, and misunderstanding that difference can lead to serious miscalculations of what your business is actually worth.
Actionable advice
Do the exit timeline exercise today. Sit down with a piece of paper and map out, year by year, what your business and your personal life need to look like over the next five to seven years for your exit to go the way you want.
Know your numbers. Calculate your wealth gap (what you need versus what you have) and get a realistic estimate of your business's current value. Then close the gap deliberately.
Audit your transferable assets. Rate each major asset in the business on transferability from 1 to 5. Address the 1s and 2s now, while time is on your side.
Get your books in order. Commit to monthly close, consistent expense categorization, and review financials at tax time. Don't wait for a buyer's due diligence request to discover the mess.
If you're a financial advisor working with business owner clients, check out builtbydesign.info and consider joining the founding cohort.
Laurie's recommendations
Laurie also recommends checking out her free guide for financial advisors if you're looking for a more consistent way to have conversations about business growth and transition.
No. 1 goal for the next 12 months
Laurie's number one goal for the next 12 months is to create a flywheel of partnerships and marketing efforts to grow her Built by Design toolkit.
Hello fellow risk takers, and welcome to my worst investment ever. Stories of loss to keep you winning. Today, we are going to have a return guest, and I want to welcome her back on to the show. Her name is Laurie Bachman, and she was episode seven to seven. Lori, how you doing? Welcome back.
Laurie Barkman:
Hey, Andrew. I'm doing awesome. Thanks for having me back. This is incredible, like, three years later, right? I
Andrew Stotz:
know it's just when you we were just talking about, you know, it's just time flies. And, you know, I also, I follow you on LinkedIn, so I've been kind of seeing the stuff that you've got going, and I feel like you've got a lot to offer to the audience. So I wanted to bring you back. Let me introduce you to the audience. For those that haven't listened and heard episode seven to seven, go back and listen to it so you can learn about Lori's worst investment ever. But Lori is a certified exit planner, M and A advisor and founder of the business transition, Sherpa, as the former CEO who led a $100 million company through acquisition, she helps business owners build valuable, sellable companies and exit on their terms. And that is so critical in this day and age. You know so many people, particularly here in Asia, that have family businesses, and they're facing some real demographic headwinds with their kids. Be having less kids, demographics are against them. And so the idea of being able to sell your business at some point is getting harder because there's less buyers to do that. And so it seems like it's even more important to get that right. So maybe you can tell us a little bit about, you know, more about what you're doing, and I'm interested to learn more, and I know the audience is too.
Laurie Barkman:
Yeah, it's a big part of what I do is helping business owners. And if folks are listening, yes, I'm talking to you. You know, to say some key messages, which is consistently the number one thing I hear on whether it's my show or in workshops I'm doing, is people say the following, I wish I knew this sooner, right? And so if they've gone through an exit process, they haven't had any support, and then time is up, they don't have any more time to improve the business. So, yeah, business owner, I'm talking to you that the message is, look, don't wait to do Exit Planning when you're exiting, because it's too late. So for example, if I am talking to a prospective client on the mergers and acquisition side and they say, Yeah, I think I want to sell my business in one to three years. Translation, you're already behind the eight ball or the curve, you're already behind it because you would have needed to start planning in advance. So oftentimes it's like, Well, how long does it take? Okay, so it might take five seven years. And so that's the audience of folks that I'm working with, is they are five seven years out, because they have the time to make an impact for change, making the business more attractive, making the business more ready, making themselves more ready. Frankly, the other thing that I would say to you, if you're listening and you're again, you're a business owner, somebody is a founder or your next generation leader, don't kick the can on personal readiness. So from the business readiness, attractiveness standpoint, Andrew, and then the personal readiness, that's a big, big area of where I spend my time with clients.
Andrew Stotz:
And, you know, I think a lot of people in business will get to a point, you know, where they're like, they don't see the value in their business sometimes, you know, and they build it up over many years. They never thought about, I'm going to sell this. And, you know, this is going to be worth a lot of money. They just kind of build it up from scratch, and they are where they are. And I'm just curious, like, let's go through some of the kind of very basic thinking. Let's say someone's built something over 10 or 15 or 20 years, or maybe it's a new generations taken over from an older generation, and now, you know, they're, they're in a situation where they have enough time, right? Let's just take that for a moment. Let's go back like, what? What should they be thinking about? What should they be, you know, preparing for
Laurie Barkman:
it's a great exercise. I love doing it with my clients, to do what I call an exit timeline exercise so that we can jump forward in time and be very literal about let's say, if it's five years, 10 years out and year by year, we're mapping out what are some of the key things that we need to identify for them, personally and for the business. So what would be an example? Well, what's their age? What's their age today? What's their family's ages, their kids, their wife, their spouse, their husband, other key members in the organization that they want to consider age does matter, because it's and not only age, though it's age and life stage. I have a client who's in his 40s. Yeah, and he's planning to have a transition by the time he's like 54 and the reason why is because he wants to start to do other things. So he's got the luxury of time right now, and he's really actively building the business. Since we started working together. He's already doubled his revenues, and it's on a really strong trajectory. Another client of mine is in his 60s, and he's in a different position, because he's in his 60s versus in his 40s. But for him, it's really important, because he's starting to think in the knock on Woody's in good health, but he's really thinking about his next phase of life in the next, you know, again, whatever it is, five years or so. Then I have another client who's in his 70s, and for him, it's more immediate, and they are where they are, but wherever we are starting from, we have to think about, where do we want to be? What are some of our big picture goals, again, from a personal visioning standpoint, so that it doesn't feel like a cold water bath when we're not part of the organization the same way we are today. And what's really exciting about the process, I think Andrew is just really opening people's minds and hearts to what could be. You know, what's the positive thing about change? A lot of people fear change. They don't really embrace it. They don't think about it until kind of comes upon them, maybe, if someone calls that I'm interested in buying your business now, all of a sudden, they're thinking about it, as opposed to being more intentional about it. And so my work with my clients, is really having them be intentional. And so this exit timeline exercise helps us do that, and we can what I call reverse engineer or exit so let's say we're envisioning an exit in five, seven years. Well, we can start to have conversations about who might be the right buyer for you. When we met three years ago on air, I think I told you I was writing a book and I was publishing a book. Well, here we are three years later, and that chapter that I wrote, which is who should own your business after you, the business transition handbook, by the way, is called, the book is called the business transition handbook. So one of the chapters is called, who should own your business after you? And it does remain one of my favorite chapters, because it really starts to open our mind when we match up what our goals are, personal, financial and for the business. And then we can think about, well, given those goals, what the might, what might our exit options be, and then back to my timeline point. The more time we have to explore those, the better off we will be, because hopefully we can find the right fit. That's what it's all about. Finding the right fit buyer for your company, which is going to have, hopefully a premium price if we're doing all the good stuff, and then help you exit without regrets. And that's a big part of the mission that I'm working on.
Andrew Stotz:
I mean, I can't help think about myself in this situation, because I have a coffee business, a factory, roasting factory. It's 30 years old, run by my best friend Dale, and we own it equally, and we own the majority of it. And, you know, let's say this year, maybe we'll do $7 million in revenue, and it's strongly profitable. You know, the question is, for us, you know, we're both 6061, this year. So, you know, the five, five to 10 year timeline is kind of what we see from a perspective. From Dale's perspective, as he said to me, like I would do this till the day I die. You know, I love our business. We build something great. And you know, which we both agree, you know, that's that's a great you know, that's a great feeling. But we also are pragmatic. So when I think about it, a five to 10 year timeline makes sense for us. And the other thing that you realize is that, you know, if you want to grow, you got it. You got to think about, you know, where, where you're going to grow. So recently, we were approached by a firm that is representing a coffee business in Thailand that is interested in selling and so we began some, you know, conversations, nothing, nothing serious so far. But it just sparked the idea that, you know, yeah, if we grow at let's just say, like my calculation of every listed company in the world, which I've calculated this over 30 years, literally bottom up, looking at every company, I've calculated the average revenue growth of the average company in the world is 6% if you're growing at 10% you know you're doing extremely well consistently, right? So it helps put a frame in kind of like, what to expect. Okay? I would say, for my clients and people that I talk to, I basically say you gotta, you gotta aim for 10 plus percent. But aiming for 30 or 40% is just unrealistic, unless, okay, something's just absolutely on fire in your business. And if you're going to grow at 10% over the next, let's say five years, you know you're not going to grow. You know it. Yes, you're going to double basically, in those five, you know, five or six years or whatever. And so the first thing that I'm thinking about is growth, like, okay, and when you add, when you think about who would buy, you know, I can see different coffee businesses, different beverage businesses that would like to get access to what we've got, and we've had some foreign coffee businesses outside in Europe, for instance, that came and said, you know, we'd be happy to take a stake or buy it, because it would give us an immediate access to the Thai market. So we can see some different buyers, and we can see some timeline and we can also see that at a 10% revenue growth, it's not going to really give us what we really want at the end of that, you know, period. So that's some of my thinking. Maybe we use me as a representation of some of the audience out there that's, you know, going through something similar.
Laurie Barkman:
Yeah, it's interesting, right? So it starts with the goal setting. So for you and your partner, you said you're 5050, and so both of you have to be part of the planning conversation. And we start with goals. And if you say we are, we're 7 million in revenue, and you know, we think we're going to have an exit in seven to 10 years, or whatever. If it sounds like you've, you've also done some financial planning. We talked off air, so I'm guessing that you might know what these numbers are. You wouldn't want to share them on air, of course. On Air, of course. Or you could make up a number, but we would do a couple of different triangulations. So one number is, well, if you plan to retire at some point and you need to, it's always morbid to think about, but like our life expectancy and so what kind of income do we need? Or nest egg? I should say, what nest egg do size nest egg do we need to live the life and comfort that we'd that we'd like to have? And so we calculate that, and then we can say, Okay, well, what nest egg do we have today? So the gap, if there is one, we call the wealth gap. Now we say, well, how might we close the wealth gap? Well, for many business owners, especially in like in your case, your business has been growing, it's not a startup, right? It's a mature company. So it may, for many companies, for many business owners, the business is their largest asset. So I don't know if it is for you, but we, let's just say it's a significant piece of the total net worth pie,
Andrew Stotz:
yep,
Laurie Barkman:
and it, it's kind of a misnomer, you know, people think, oh, I need to sell my business for, you know, whatever the number is, it's actually the net number that matters. So, of course, different countries have different tax structures, and I'm in the US, and, you know, you're in Thailand. So we could chat a little bit about that, but at the end of the day, there's the tax man cometh, right? We can't there's two truisms, death and taxes, right? So it's not necessarily about avoiding, it's about minimizing or deferring as much as possible, and those tax strategies are important. So anyway, it's the net number that counts. And that net number, after all transaction fees and taxes and things, then that's the other number that goes into the nest egg. So let's say we need that net proceeds number to look like 10 million, but we're actually tracking the five. Wow. So we have a $5 million gap on the business from what we need to close our gap in wealth. Ah, okay, well, what does that mean for the business? What value do we have today, and what value might we have? What would we need to do differently to really boost that value? And so that's the value gap. So we had a wealth gap and a value gap. So as we measure the value gap, well, just like any other business valuation we would, we can do an estimate on that, and then we look at best in class. And so for the industry, for the size of the business, and different value driver characteristics, we can understand a little bit more about what's best in class valuation, and then that sets the higher bar for where our business could be valued. Okay, so today and where it could be, and that's let me
Andrew Stotz:
try to fill in some of the points that you're making, and then, and then, let me get your advice as we continue through this. So let's say our number, from our perspective, is at the end of at this, at the sale, at some point, $10 million and let's just be, you know, be realistic. There's taxes, there's fees, there's other things. So let's say we need $15 million in, you know, gross value. And let's just say it's 5050, so 5050, that means that we've got to sell it for 30 million now, right now, let's say that we're at roughly 7 million, and let's think about what the valuation of the business could be. Let's do it the simplest way. Let's just say, you know, price to revenue. And if we did that, we could say that it's going to range between one and three. You know, three would be if we're super profitable, strong growth, great systems and all that, maybe we could get three times. So right now. If we got three times, that would be three times 720, 1 million in top end. And if it's one times, it's 7 million value. So neither of those are at our point where we want to be. And so part of what I've tried to do is make sure two things, number one, that our profitability is very strong, because I've done some research where I've correlated profitability and multiples, and there's just a clear relationship. And so the second thing is that profitability without growth is not valuable. It's got to be profitability, strong profitability with good growth. And so I would say that, given my knowledge and experience and what I what I know, I think that we could, let's just say, Be conservative, we could get a two times multiple on revenue. So let's say, right now, we're worth 14 million, and we've got to get that to 30 million. And let's say that's five, you know, five to seven years. So that's kind of the hope that fills in some of the numbers, as far as as far as the wealth gap. Well, that's kind of resolved. If the 10 million is there, we have, can
Andrew Stotz:
we? Can
Laurie Barkman:
we, can we go to the can we actually go back to this? Because as someone who does valuations, I'm struggling with the top line valuation on revenue, because many companies don't get that. And so I don't want the audience to hear, Oh, they're gonna, you know, I can get a I can get a multiple of revenue. Many, many companies cannot. You will get a multiple on EBITDA or seller discretionary earnings, yeah. So in this conversation, maybe we should say, what would be the characteristics of the business in order to get a multiple of revenue. Let's have that conversation.
Andrew Stotz:
Yeah, so I just use that to simplify things, and I've
Laurie Barkman:
done no but a lot of people who aren't familiar, I just don't want them to walk away from this conversation thinking I'm going to get a multiple revenue too.
Andrew Stotz:
Yep,
Laurie Barkman:
because I'm just saying many, many times you will not.
Andrew Stotz:
So if we look at, let's look at EBITDA as an example. We could look at prop just profit. You know, what would be the best way, from your perspective? It
Andrew Stotz:
would be
Laurie Barkman:
EBITDA, or be seller discretionary earnings. So a company of the size of 7 million is probably an EBITDA number, yep. And so it's a multiple of EBITDA after add backs. We could have a conversation about, what are add backs, but let's just say, you know, so it's a roasting it's a coffee roasting business. So is it also doing any retail or distribution,
Andrew Stotz:
it's B to B. So right, right now it's hotels, restaurants, coffee shops, and it's contracted revenue with leasing agreements on machines in many cases. But at some point, there may be some retail at supermarkets, but it probably wouldn't be coffee shops, because that would be competing with our competitor or with our customers.
Laurie Barkman:
Yeah. So I had a feeling there was more to this story. So this is exactly why I wanted to have the conversation. So you're describing some key characteristics of the business, which is contracted revenue. So you have contracts, yep. Are these contracts, auto renew. It auto renewed.
Andrew Stotz:
They're not multi
Andrew Stotz:
year. They're
Andrew Stotz:
three to five year, depending on, you know, how we can negotiate them. And I would say you can't avoid a probably 20% you know, turnover at that point that, and we're going to pick up 20 from our competitor, and they're going to pick out 20 from us. So you know, there's definitely,
Laurie Barkman:
let's just say the majority of your revenue, if not all your revenue, is contracted three to five year contracts, and you have leasing agreements on the equipment.
Andrew Stotz:
Yep.
Laurie Barkman:
Okay, so the distinguishing factor is how predictable is. There are the future revenue streams, and it sounds like they're pretty predictable, which we could go back to this example, then that would justify a multiple of revenue. So that's the key thing. If we don't have contracts and we have handshake deals, or we have a project fee, business model where we do projects and revenue maybe, you know, maybe the client comes back, maybe they don't. It's, it could be reoccurring as opposed to recurring. So the key thing here is subscription revenue, recurring revenue, reoccurring with an O in the middle. There no so thank you for the explanation. I had a feeling there was more to it. So hopefully that's a good example of the distinction of which multiple do we use? Because when I do workshops, one of the first things I talk to people about is, look, I want everybody to leave this workshop and say, in the future when you talk. To someone, and they say, I sold my business for a multiple of whatever, 5x I want you to say, multiple of what is it? A multiple of revenue? Is it a multiple seller discretionary earnings, which is basically kind of a kind of a profit number, and or is it, is it adjusted? EBITDA,
Andrew Stotz:
yep, and it's a good point. Let's go through a few of the things that you've just mentioned. Let's imagine a company that has 10 million in revenue. My calculation of EBIT margin is about average. EBIT margin is about 10% and a EBITDA. EBITDA would be a higher number because you're adding back depreciation, but therefore, if we just use the EBIT number, we're being a little bit more conservative. So let's just say a $10 million company has an EBIT margin of 10% which means it has an EBIT of $1 million now the next question is, what type, you know? Let's just talk about a business like mine, or something similar to that, what type? What's the range of EBITDA multiples that are being used these days? I have no idea what's going on, particularly in the US.
Laurie Barkman:
The answer to the question has to be based on more questions. So it'd be like, what industry are we talking about? You can't just take industry like a construction building company, general contractor, and compare it to an accounting firm. You just can't so when we look at multiples, we have to understand, well, what industry is it in? The other thing that we look at is geography, right? So I'm in the US, we would look at us comparables,
Andrew Stotz:
right?
Laurie Barkman:
And also we would look at private company comps. Typically, we can also look at public company we have to discount them, right? So that's part of it, but, but let's say it's private companies. And to the extent we can get, we can get some data on past recent sales, like within the last six years of roughly the say, you know, the industry in the US, we have these categorization codes that we can look up in different databases. And so we try to find, we try to find apples and apples. And then the other thing that's really interesting is the size of the revenue, and the data does show an inflection point on the multiple at a 25 million,
Andrew Stotz:
right?
Laurie Barkman:
It's really kind of amazing. So there's some unlocks. I think the first unlock is 5 million in revenue. So let's say, you know, you got to get to a threshold where the buyer doesn't perceive the business to be. So owner dependent, founder dependent, and if it's a Main Street business which is in the US kind of under a million in revenue, then the one to five is really critical. How do we get to the five? Because then that shows more owner, dependent, independence, and then the next inflection, of course, 10, and then 25 and so the multiple sort of track the not necessarily flat. They start to increase. But then at 25 million, there's a spike.
Andrew Stotz:
Interesting. If the multiple was, let's say I don't know five and at a at some industry that you've got at 10 million, what type of increase would you have you seen at 25 oh, it
Laurie Barkman:
could be, it could be double,
Andrew Stotz:
okay,
Laurie Barkman:
it could be more.
Andrew Stotz:
And that's,
Laurie Barkman:
and so here's the, here's the thing to remember, size does matter.
Andrew Stotz:
Yeah,
Laurie Barkman:
That's the takeaway. It's true. Because if you go to the lower end, what did I say? Well, buyers perceive risk be in the smaller company. Why? Because there's some person dependence, probably the founder most likely.
Andrew Stotz:
Well, there's also a
Laurie Barkman:
larger company. It's presumed that it can certainly thrive and grow without the founder involvement.
Andrew Stotz:
Yeah. I mean, there's also just proof of market. You know what's beautiful about 25 million. It's like,
Laurie Barkman:
correct,
Andrew Stotz:
we have 25 million worth of revenue. That means that, you know, people want this product, but at 5 million, we can say we want to have 25 but there's not proof of that yet. Correct,
Laurie Barkman:
yes, and what, and so and so. If we unpack that, it's basically what, what do the buyers want?
Andrew Stotz:
One of the things
Laurie Barkman:
we noted, we noted earlier, is they want Predictable Revenue. Yeah, they want, they want predictable future cash flows. Okay, cool. What else do they want? They want to capitalize on the growth that's been demonstrated. It's not guessing, it's not wishing. You know, we can all put together a business plan and say, Here's my growth plan, but then they're going to say, Oh, well, what have you actually done that gives me the confidence that this growth will actually happen. How can I capitalize on what you've built on. So it's a little bit, a little bit of that give and take, where we have to paint the picture of growth. We have to justify it based on our historicals, which is a point you made earlier. That isn't about a flat, you know, a flat line business. We have to continue to show growth, if that's the we want to see higher multiples.
Andrew Stotz:
Yeah. So. So then in that case, we want to be able to say, well, just look at the last five years, we've grown at 10% or whatever. And then, therefore, there we are. We haven't some evidence that we've been able to grow this business at 10% the next question is, okay, well, we're going to buy it. Can we grow it at 10% can we grow it at 15% Well, in some ways, as a seller, I'd say, well, that's up to your distribution network. That's up to, you know, what you bring to it, but I can bring 10% growth to it. So how does that growth conversation go
Laurie Barkman:
with the buyers or with the sellers?
Andrew Stotz:
Well, I'm assuming that the buyers are going to come in skeptical. Now, we're not going to be able to grow this and, you know, it's going to be hard, and the seller is going to come in optimistic, oh no, with your money and your brand and your this and your that you're going to be able to grow this really fast. So I'm assuming that they're both going to be kind of coming from a different direction.
Laurie Barkman:
They do, they do. I think a lot of times they sort of are pragmatic, because it many times they the buyers are going to request the last three full years, right? And so that certainly tells a story.
Andrew Stotz:
And
Laurie Barkman:
then it's also the current year data and a forecast. Where do we think we're going to
Andrew Stotz:
be right? So
Laurie Barkman:
forecasting is kind of an art and a science, as we know, but nonetheless, then the sort of the data tells the story. So that's where it starts to be less about guessing. You know, it's in all let's have a conversation also about the buyer. So if it's a strategic buyer, and I think in this, in the situation you were just describing, in that case, the the strategic buyer is is definitely looking for synergies, and the growth might come from cross cross selling in other parts of the company, you know, other divisions, the growth might come from launching new products and services that are truly incremental. So those are probably legitimate ways to discuss growth for a strategic for a, let's say, a financial buyer, like a private equity firm, it depends if the if the deal is going to be a tuck in, you know, in a larger platform, then it would kind of look similar to to a strategic right, because they're going to find synergies. But if it is the platform itself, then that's a different story. And it's in that industry a kind of a Buy low, sell high, kind of a thing where they want to, they want to grow it and fix it up, you know, they want to not pay the premium multiples, because they intend to put, you know, five, six years of effort into it to really grow the value of themselves,
Andrew Stotz:
yep. So let's review a few things. The first thing you've just worn is, don't, don't use a multiple of revenue or get overly optimistic with that. Focus on a, let's say, keep it simple and EBITDA multiple from, from my followers that have businesses. They may be looking at EBITDA. You could also look at EBIT as a substitute for that, at least preliminarily, and then look at some sort of multiple. And that multiple is going to be a function of you've just explained that once you hit 25 million, that multiple gets more real, you know. And there's, it could, in fact, as you've said, it could as much as double, but let's just say it goes up, you know, substantially from, let's say, 10 to 25 million, because there's proof of concept that's grown out of just being a one man or one woman show, let's say, and all that. And then, of course, there's the profitability level, you know, if your profitability is not that great, you know, you're not, you're not a super operator, you know, it's harder to get, you know, a higher value, and the buyer may be fine with that. I remember I had, we had, we had a guy come to basically tour our factory, and we went out to dinner with him that night. He was from Europe. He had a huge business that acquired many, many coffee businesses. And he just sat down, he said, I'm willing to buy your business today. And here's the multiple that I would pay. And he gave us that multiple, and he gave us a multiple on revenue. And Dale, my business partner, asked me afterwards, like, why did he say revenue, as opposed to EBITDA? I said because he doesn't care about our profit, you know, like, we're tiny for him, and what he needs is a distribution channel to get his products in, and then he's going to bring in a huge volume of products and services, in addition to ours, into this beginning distribution network, and he's going to scale that up 10x and so the level of profit wasn't such a factor for him. It was that we had the footprint, we had the infrastructure. And so, you know, I can, I can see, in his case, why he just had a kind of a rule of thumb that he came to us with, and it wasn't focused on profit. Ability, but I don't think many deals will end up happening like that. They're going to be focused on some multiple So,
Laurie Barkman:
and that may be true, and I think there's another key message in that, in that story, which is the following, buyers buy on their time, not not ours, right? So he came a calling, and he was ready to give you an offer because it was, it suited him. So that's one observation. The other one is, when we have products and services in our business, we get really good at sales and marketing, and that's sort of how we see the world. What does our company do? Well, we do this and we do that. Oh, okay. Well, when you're putting your company on the market and you're intending to sell, it's a completely different mindset. You have to think about, what problem does my company solve for another company, not my products or services, my company at large, it could be my talent. Maybe my talent has a unique knowledge set. Maybe, as you were saying, you know, there's certain markets and certain expertise areas, maybe a certain intellectual property. It could be any number of things,
Andrew Stotz:
customer list,
Laurie Barkman:
exactly. I was just going to say that your customer list. So one of the things I always encourage my clients to do is, let's take an inventory of our transferable assets, and we rate them on one to five, low one, low five, high. And so this is some an exercise in any, you know, anyone can do. And if we identify a low, it doesn't mean it's impossible, it just means we've identified it, which is a good news, because, again, if you have more time to make changes, then that's fine. One example would be, let's say your contracts are not transferable. Ah, wait a minute. What does a buyer want? Buyer wants the contracts but they're not transferable. Does that mean they can't benefit? Not necessarily, it'll influence the type of deal we do. And that can take us down a different rabbit hole. Or we say, well, next time I do a contract, or next time we update our contracts, we're going to put a transferability clause. So it just opens our eyes to, where are we today if our business was going to be packaged up with a little bow on it and sold?
Andrew Stotz:
Yeah, that's such a great point, because, as you say, when the seller wants to sell, they're in a rush. Oh, that's time I got to sell. Yeah. Well, implementing transferability clauses throughout all your contracts is going to be one to three years probably, you know, and whatever time that takes. The other thing that I see a lot of here in Thailand, I don't know about the US, is that many business owners, their accounting is a mess, and the result of that is that they don't have, like, monthly books closing. They have their revenues, they have their expenses, but they don't have their balance sheet, you know, and all of that. And so I always tell them, get on time and accurate monthly financial statements that, like, solves a lot of the finance problems. But I wonder in the US in particular, is that not a problem, like everybody's got their accounting and finance in order of a, let's say, a 510, $20 million business. I
Laurie Barkman:
think it really depends. I think again, some of the smaller companies that are founder led, bootstrapped main street businesses, and maybe the type of business influences as well if there's a lot of cash. So maybe landscaping, not to pick on landscapers, but that sometimes is an example where there's, you know, cash transactions for whatever reason, right? And so that can be messy, right? Because we can't track everything. So I don't think it's as common in larger companies, especially in the US, we have accounting standards. And so when companies do their taxes and when the company is large enough, one of my encouragements is, I think there's three or four different standards for review, the most expensive and the most time would be a full audit, like audited financials.
Andrew Stotz:
And
Laurie Barkman:
then there's some other standards. And I think the again, third or fourth on the downward is called reviewed financials. And so for a company to get reviewed financials at tax time is really just a, probably not a big incremental cost. And it is a third party, you know, it is a third party review of some sort. So I do encourage my clients, when they're ready to do something like that, and then eventually, you know, audited financials might be required, depending on the industry and that kind of thing. So, long story short, I think I haven't seen the mess, which is good. I'm sure it's out there. But the clients that I'm working with are largely pretty good. I would say this, though I think it's not I have one client. He was I'm in the manufacturing space. Race. And his mess did come from a transition of bookkeepers constantly, like a rotation of bookkeepers. And so there was a lot of inconsistencies. And so when I was trying to do year over year reports, especially on expense categories, it was a total mess. So yeah, I have seen that example, and they had good intentions. It just wasn't a good, buttoned up process.
Andrew Stotz:
And do companies like the size that we're talking about? Do they look in the US to list in the stock market? I mean, I see the number of listings has gone down by half over the last 10 or 15 years in America. Part of that's private equity buying them out, but it's also much less IPOs over the years, is that no longer considered. I just recently did a study, and I think what I I think my numbers are correct, and I said there's about 1000 companies listed in the stock market, in the US operating companies that have revenue less than $100 million and if that's true, then that means that, you know, a 25, $50 million company could conceivably go list on the stock market. Or is that just not in people's minds? You
Laurie Barkman:
know, it just doesn't come up in conversations that I have with clients. A lot of my clients are in the built environment, the architecture, engineering, construction services. They're not going to go public, you know, unless you get a certain size, the capital markets are pretty cash rich. Still. There's a lot of dry powder from private equity. As you said, they need to make investments. Are looking for good deals. And so I just, you know, in the circles that I'm in, which is the lower middle market, IPO is not, it's just not on the radar as an exit option.
Andrew Stotz:
Yeah, yeah. In Thailand, we they've tried, over the years, to make the stock market an accessible exit. And if I look at that data, I was just calculating data on the Thai stock market, and the median, the median level of revenue in the Thai market is about $50 million and there's plenty of companies that have five or 10 million in fact, I've recently been contracted by the stock exchange to write research on companies that have not been covered by analysts, and so I've been publishing that research, and it's pretty fun, because, you know, there's a lot of interesting smaller companies, but the problem that you face is, when it's small, it's hard to get much attention in the stock market, particularly when it's a family business, and then they don't put a lot of free flow into the market, so there's just not a lot of trading volume, and people can't really get into it. So where should people go if they want to learn more about what you're doing and, you know, and get access to it?
Laurie Barkman:
Yeah, my website is my name, Lori barkman.me, so that's a great resource. And if people want to follow, so slash, follow will get you part of our community. On newsletter, we put out all kinds of content all the time. As you had told me, I think off air and on air about LinkedIn, I'm doing a lot of content development and really trying to help business owners and meet them where they are, and also financial services advisors, folks who are financial advisors working with business owners. I'm putting out a lot of content for them too, because I realize, look, I'm, I'm one person. We have, you know, we have one team, a small team, and there's so many more people out there doing the good work. I've created a toolkit for them, and if people want to learn more about that, if you're a financial advisor working with business owner clients, you're looking for a more consistent way to have conversations about business growth and transition. I have a toolkit that you're welcome to learn more about, and that is called built by design. Dot info,
Andrew Stotz:
great, and I'll have a link to that in the show notes. Last time we talked, three years ago, you talked about helping business owners, but you also talked about, I asked you the question, what's your number one goal for the next 12 months? And you say that you'd like to take your book and make a course out of it. Well, you've taken it even further than that, it sounds like but what is give us an update on that specific goal. Where are you at now and then? What is your 12 your goal for the next 12 months?
Laurie Barkman:
Yeah, I'm proud to say that I did achieve that goal. I wrote the book in 23 in 2024 I created a master class that I call the end game entrepreneurship master class. And from that taught me a you know, slash, not taught me, but made me realize, as a marketer, I need to really niche down. And that's when I was connecting in with the Exit Planning community, the financial planning community, and understanding that they would need a way to activate what they've learned if they've gotten a certification on Exit Planning, how do we activate it? How do we have these active conversations with business owners? A lot of folks don't really know what to do after the certification. They say, I got certified. Now what? And so the master class I use with clients. And it's, you know, kind of in its own inclusive bundle, so to speak, with my clients. And now I've commercialized it. And so the evolution is 2324 right now, here we are, 2526 that I've commercialized, built by design as a product for, you know, conversational framework with for financial advisors to have with their own business owner clients. So I'm really proud about that transition. It was a lot of work to get there. We're on the starting line. We're on the front end of we're launching a founding cohort. We're really encouraging a community. So the first 20 or so folks that sign up are going to get a lot of extra benefits, including my time and including peer group time with each other, to, you know, compare notes and make a difference for business owners lives, and also make a revenue impact on their own business
Andrew Stotz:
and and where do you want to be 12 months from
Laurie Barkman:
now. So 12 months from now, I hope that I'm coming back on your show, telling you about this amazing flywheel of partnerships and marketing efforts that we've done to really grow our subscription product and of built by design.
Andrew Stotz:
Yeah, that's wonderful. Well, ladies and gentlemen, all that will be in the show notes, so you can reach out, and if you can't click on the Show note links, just go to just go to LinkedIn, and you can find Laurie there. I want to thank you for coming back on the show and sharing and you know your update, and I appreciate it very much. And I'm going to wrap up by saying this, ladies and gentlemen, is your worst podcast host, Andrew Stotz, and I will see you on the upside
