Michelle Seiler Tucker has two decades of experience in selling businesses, mergers, and acquisitions. She’s also co-written an authoritative book on selling a business.
In this appearance, she shares her considerable knowledge on exit strategy, preparing your business for sale, getting the best sale price, and more.
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In the interview:
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Selling a business is a big undertaking, not something you want to take lightly. Michelle Seiler Tucker is an authority on the topic, with over 20 years of experience in mergers, acquisitions and selling businesses. And to help more business owners get the best out of their exits, she has co-authored a book, Exit Rich: The 6 P Method to Sell Your Business for Huge Profit.
The surprising number of businesses that actually sell
Having read the book, James says the overarching concept that came to him is that you would be insane to try and sell a business by yourself. Mentioned in the book is the statistic that around eight out of 10 businesses put on the market will not sell at all.
Steve Forbes came out with that statistic, says Michelle. He actually endorsed her book, calling it a goldmine for entrepreneurs, so many of whom leave money on the table when they exit their businesses.
If you talk to M&A Source, she says, it’s 90 percent that don’t sell. And there’s a multitude of reasons, but the biggest one is that most business owners don’t plan an exit till some catastrophic event occurs. This might be internal – health issues, partner disputes, death, divorce – or it might be external, like this pandemic.
Trying to sell your business during a catastrophic event is the worst idea. You want to sell your business when it’s in its prime, when it’s really doing well.
Spotting opportunities and making something of them
Michelle doesn’t just sell businesses. At any given time, she owns five to 10 businesses she’s building to sell, but if businesses are not sellable and she likes the business and the owners, she will invest money, time, energy, effort, expertise and resources, and partner with that business owner.
She specializes in buying and selling, fixing, growing, but it’s got to be the right deal for her to partner with them, she says, because you can only grow the business as much as you can grow the owner.
How to maximize the value and sales price
Like James, Michelle rose to the top as an employee, and people told her she was crazy to start her own business. But being of an entrepreneurial bent, she had a skill of being able to work with people and see opportunities where others couldn’t.
As a mergers and acquisitions expert, she installs this intel into her prospects, and that’s part of her secret to raising sale prices. It’s identifying the synergies, she says. The business might be well branded, or have certain trademarks, certain patents, contracts, subscription models, recurring revenue, databases, celebrity endorsements, ecommerce, online placements in the top three positions….
Then she identifies the buyers, because they have over 30,000 buyers they work with, and there’s five types of buyers, as she mentions in her book.
They really identify the synergies and figure out what buyers are willing to pay top dollar for those synergies, what buyers can take advantage of economies of scale, what buyers have the infrastructure where they can come in and maybe cut distribution, because they already have distribution everywhere. Even if they have, say, customer concentration, they have buyers that will pay for that customer concentration because they want to get their products in that door.
James recalls the SEO business he sold to his biggest client, because it would give the buyer an instant 50 percent advantage over everything he bought. It also solved the problem of the client possibly leaving and setting up shop in competition.
The thing most business owners don’t even think about
Michelle uses a kind of bridge-building technique she call GPS. She looks at the destination, which as mentioned, many people haven’t even thought of yet as regards to selling their business.
In James’s onboarding, it’s one of the first things he asks a client: are you thinking of selling? And he wants them to come up with their number, because most of the work he’s doing is talking about their current point and where they want to get to.
Michelle considers then the current point where the owner is at. And importantly, she starts thinking about who’s going to buy the business. She’s creating the thing that a business didn’t think to build that would be worth buying. It’s like Facebook seeing Instagram, thinking, We should have done that. That’s a great idea. Here’s a couple of billion dollars.
And then she talks about timeframe, and then about the why.
Some startling reasons for wanting to sell
What are a few of the most surprising reasons to sell that Michelle’s encountered?
Well, she says, there’s the little old lady whose husband had a heart attack. There was a mountain of debt, and the lady knew nothing about the business. There were no employees, no subcontractors, no processes. There were maybe profits, but when the husband died, the business died.
It’s usually, as Michelle said, a catastrophic event. Death, divorce, partner dispute, COVID, business doing badly, the industry dying. There are other things too, like the man who needed to cash out so he could afford his wife and his mistress. Michelle thinks she may have heard it all.
It’s kind of like the emergency card in an aeroplane, says James. If the plane’s about to crash, it’s a bit late to pull it out and find out where the exit door is. He recommends listeners get Michelle’s book now and plan their exit on their own terms, not wait for a catastrophe.
How often do business owners go bankrupt?
One of the shocking statistics James read in Exit Rich is that a lot of people have personal guarantees on their business. When the business suffers, they get called back from their personal guarantees, and can end up becoming bankrupt. How common is this?
Extremely common, says Michelle. Almost every single business owner in the US, she says, will take a mortgage out against their home and sign personal guarantees. So when they go to file bankruptcy, they lose not just their business assets, but their personal assets too. It’s something she educates business owners not to do.
The six Ps you need, and where people typically fail
The 6 essential Ps listed in Michelle’s book are: people, product, process, proprietary, patrons and profits. Which do people fail at the most?
“You can’t grow unless you let go of the control.”
People and processes, says Michelle.
People, because entrepreneurs are control freaks. She always says:
You can’t grow unless you let go of the control.
You’ve got to focus on your strengths and hire your weaknesses.
You have to put the right people in the right seats.
Plus, she says, you have to ask the Who question – who opens the door, who handles customer service, marketing, legal, accounting, manufacturing, logistics, environmental, etc.
And you should never be next to the who, because you really want to build the business without you.
Exactly, says James. It’s about who, not how.
And, says Michelle, the number one reason businesses are not sellable is because the business is 1,000 percent dependent upon that owner. You pull the owner out, you have no business.
On the second thing, processes, most business owners don’t think about processes because they’re so focused on sales. They’re so focused on getting clients in the door and making money. It’s like exit strategy. They don’t think about processes until something bad has happened in their business, and you can’t do that.
You need to design your processes around the customer experience, so you can create happy raving fans. And you need to be productive, efficient, have your policy procedure manuals and everything else. They’re selling a business for $70 million, and have to help the owners get the policy and procedures together, and manuals, and an SOP checklist.
“People and processes go hand in hand.”
People and processes go hand in hand. You need people to help with the processes. You need processes to keep the people in line.
Because proprietary is the big value driver…
What’s harder sometimes to get is proprietary, says James. Even at James’s level of business, they’re doing trademarks, and making sure to protect what they do. Because as soon as someone hits pay dirt in the online world, there’s 25 versions of it.
Proprietary, says Michelle, is the number one value driver that will get you the highest multiple.
In America, businesses that have under a million in EBITDA (EBITDA means earnings before interest, taxes, depreciation, amortization) typically trade from one to four times EBITDA. When you get to over a million dollars in EBITDA, that’s where all the buyers are. And then they typically trade for five and up. Proprietary assets can get you a six, a seven, an eight, a nine and a 10.
Among the biggest proprietary assets are:
Branding. This is first and foremost, says Michelle. The more well branded you are, the more they can sell your company for as long as your brand is relevant in the minds of the consumers.
Trademarks. This is extremely valuable. And in America, she says, it’s not enough to have just a trademark. You need a federal trademark, or someone in another state can snatch up your business name. You’ll have no option but to get another name and start branding all over again.
This extends to products as well. Michelle is selling a company now for about $50 million, and each of its 12 products has exclusive rights to a grocery store chain. Each product has a federal trademark, and synergistic buyers will pay more money for those federal exclusive trademarks and exclusive rights.
Patents. This is another big one that buyers will pay a lot of money for. They sold a company for $18 million that wasn’t making any money. It was losing money, but had 18 patents.
Contracts. Manufacturing contracts, vendor contracts, distribution contracts, franchisors that have franchisees and client contracts are the most valuable, especially online businesses if you have a subscription model with recurring revenue. Buyers will pay a higher multiple for recurring revenue.
The caveat in the US is that you need a transferability clause that says, This contract is transferable upon a new entity. Because 99 percent of all deals are asset sales. If your buyer is not going to agree to a stock sale and your clients won’t agree to consent to transfer, you have a problem.
Would you go to a dentist for heart surgery?
James brings up a subtle thing that he thinks many people don’t think about: Michelle talks about the difference between different types of agents. You don’t want a real estate agent selling your business, she says. If you need heart surgery, are you going to a dentist?
“Always question the person you’re getting advice from.”
Exactly, says James. There’s different types of brokers and different types of agents. You’ve got to be very specific. It’s like advice. James’s grandfather used to say, always question the person you’re getting advice from.
Says Michelle, she herself would never sell a house. A house is a house. The moving parts are different.
When it comes to a business, you want someone with years of experience, who’s sold hundreds of businesses in different verticals. Your business is your most prized asset. And if, like most people, you only sell one business in your lifetime, you want to make sure that you maximize the price and maximize the value.
Michelle’s book contains a list of 20 questions to ask a broker, and a roadmap for the top 10 mistakes. Two very good reasons to buy the book. James asks her to touch on a couple of the mistakes.
As far as the mistakes that business owners make, says Michelle, the biggest one is not planning their exit from the beginning. If you don’t have a destination, you’re going to drive around in circles and up and down the financial hills, ending up nowhere.
You may have a cash machine, says James, but you’re not collecting the big payday.
And, adds Michelle, that cash machine can go under. It happens every day.
The other thing she wants to mention is that it’s important to get an M&A advisor, because advisors like Michelle have over 30,000 buyers. There’s five different types of buyers. And you’ll never create a bidding war if you go with a real estate agent, or with a business broker that sells pizzerias. The only way you ever maximize value is by creating competition.
The protection is in not revealing everything
Another big thing Michelle’s company does is make sure their sellers are protected. A large part of that is confidentiality.
That’s another reason you want an advisor. Some business owners will hand over their client list in the first meeting. You don’t want to do that. Michelle tells her clients what to show, what not to show, and when to show the rest. She doesn’t allow her clients to give away proprietary information.
A lot of times, if somebody is in an industry, and Michelle feel they’re just trying to get information, they’ll even make sure the attorney draws up a non-compete, so that buyer is not going to compete with their seller in that geographical area.
If a competitor is looking at a certain business, Michelle’s team won’t show the business without written permission from the owner. And many times they’ll do it nondescript, revealing no personal proprietary information at all, even the company name or address. They run the whole process as far up to almost to the LOI without disclosing who the company is.
Another reason for confidentiality is to avoid employees knowing the owner is selling. Nobody likes change.
Michelle also advises against selling to one’s employees. The problem is when the owner starts giving staff information they didn’t previously have, like financials, trademarks, trade secrets. And they might not have even qualified to make sure the employee can afford them. If it turns out they can’t, there might be disgruntlement, talk with other employees, and eventual mutiny.
Michelle suggests selling to employees in ESOP, or hiring an advisor like Seiler Tucker to play the bad cop in the situation, giving non-disclosure agreements, deciding what to give and not give.
What price to put on the business and the help
Is it worth paying an advisor to boost the price on your business?
Absolutely, says Michelle, because the advisor not only brings buyers to the table, and maximizes value, but they also help you avoid trouble, not get sued later, make sure that the reps and warranties are there, and you’re not over committing to things.
Michelle and her company bend over backwards to take care of their sellers, to make sure they’re not only getting the maximum price, but they’re also being protected all along the way.
A lot of M&A advisors charge retainer fees, anywhere from $5,000 a month to $60,000 upfront. And if they charge retainer fees, they might drop a point or two on the commissions. Michelle’s company doesn’t charge retainer fees. They’re results-driven.
The number one thing you’ll want to take away
What’s Michelle’s top piece of advice, asks James, (besides, obviously, call Michelle?).
Number one is buy Exit Rich book, she says. And then number two is call Michelle.
But seriously, what she wants to get across is that Exit Rich is not just about selling your business. Listeners might say they have no plan to sell. Well, nothing lasts forever. You should always plan your most valuable asset with the end in mind. Exit Rich is all about building a sustainable business that can operate without you, that you can scale. And when you’re ready, you actually have a saleable asset, and you don’t end up in the 80 percent of businesses that never sell.
So number one action would be, figure out what you want to sell for. What is your price tag? And it has to be realistic. If your EBITDA is $100,000, $20 million is a stretch. You might say that’s what you need to retire on. Buyers don’t care. So start with, what do you need? And then, what are you worth today? Most business owners have no idea what their business is worth right now. And then you’ve got to bridge that gap.
And James has this concept, OwnTheRacecourse – it’s about building assets you control. And his book is called Work Less, Make More, and he feels a business that’s good to sell is actually a really good business to keep. If your reason why isn’t very strong to sell, then it’s a good business to have in the meantime. If it does have good people running, if you do have great systems, if you do have fantastic patrons, if you’ve got proprietary edge on the market, they’re wonderful businesses to run.
James wishes he had Michelle’s book a few years ago, but it’s not too late for anyone listening to go and get it, at exitrichbook.com.
At exitrichbook.com, you can get the book for $24.79, which is less than Amazon, and they will send you the digital download immediately. Buyers in the United States will receive a hardcover on their doorstep upon launch date. Outside of the United States will be extra shipping.
You’ll also get access to the lifetime membership of Exit Rich Book Club, containing video content and deep dives in different strategies and techniques. You’ll also receive documents to run and to sell your business, there for your review and your immediate download. These documents would normally cost over $30,000 for an attorney to recreate.
Then you get a 30-day free membership in the Club CEOs, which is a mastermind where they do hot seats and Q&As, where they help business owners build sustainable, scalable businesses and when they’re ready, they can exit rich.
All of that at exitrichbook.com for $24.79.
Is that 30 days from book purchase, or from login? asks James.
Michelle will need to ask her team.
There are two ways to do it, says James, and he may just do a whole episode on forced continuity. He himself has just set up a funnel giving away his book at SuperFastResults.com/book. He upsells the print copy and the audio version. There’s then a coupon sent for SuperFastBusiness giving $70 off the first month, so access is less than $1 a day instead of $99. That’s how he’s testing it.
Maybe he can compare notes with Michelle.
Yeah, she says, maybe he can consult with her on that. And she’ll consult with James on the next businesses he sells.
Definitely, if he sells another business.
You can look up Michelle and her team at SeilerTucker.com.
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