Business Transition With Dave Kaverman

0:02Hi, and welcome to this week's episode of the Epic Entrepreneurs podcast where we are all about helping business owners just like you achieve success. So we don't do fancy smancy. We don't do flashing lights. We don't do a lot of things that a lot of podcasts will do. These are just real stories about real people and their entrepreneurial and business experiences. We go into their wins, their challenges, and their learnings. So we hope you enjoy it. Hey there, welcome to this week's episode of Epic Entrepreneurs, brought to you by Action Coach Growth Partners. I'm your host, Bill Gilliland, and in this podcast, you'll find three things.

0:46You're going to hear real stories from real entrepreneurs that will help you along your entrepreneurial journey. You're also going to get business tips to help you scale up faster, and you're going to get actual coaching to help you get better real-world results to be the best entrepreneur you can be. Hey, and if you like the podcast, remember to subscribe. And now, enjoy the show. Welcome to this week's episode of Epic Entrepreneurs powered by Action Coach Growth Partners. And I am super fortunate today to be with Dave Kaverman of Acuity Mergers and Acquisitions. So welcome to the show, Dave.

1:28Great. Thank you. So tell us a little bit about how you even got into this business in the first place, and then we'll dig into what's involved. What does it actually take to buy or sell a business? Okay, great. About 20 years ago, I owned a business that I wanted to sell. My wife and I had started a bookstore in 1992, the same year that Amazon started unbeknownst to us. So after 10 plus years, it's a great experience, but we concluded competing with Amazon long term wasn't the smartest thing to do. So I worked with a business broker in an effort to sell the business, and that's what got me interested in this area.

2:18And basically, I've done that the last 20 plus years. Yeah, so let's talk about the mistakes. What are the big mistakes that people make when they want to sell a business? Okay, well, it's a long list, so trying to figure out the biggest one may be a challenge. First, I'd probably put at the top of the list of actually understanding what the business is worth. Many owners get an inflated view of what the business is worth. And typically it's those that are worth the least that may have the greatest inflation factor. Kind of related to that, buyers are most interested in businesses where things are moving up and to the right.

2:58If they're flat, that diminishes their interest. And especially if it's going in a downward direction, that definitely cuts it down. And it's hard to tell how far down it's going to be when you're a buyer. So I'd probably put those two at the top of the list. The other maybe couple related things, the most important thing an owner can do when they're trying to sell a business is to keep operating it great and improving the results. That's not the time to take your foot off the accelerator. And they also tend to vastly underestimate how much work it's going to take. And usually that also translates into the time.

3:39I have sold a business in four days, but that was a very unusual circumstance. The six to 12 months is much more likely and in some cases can extend beyond that. COVID is a great example where I can stretch timing out. Or if someone is in a turnaround situation, it may make sense to actually get part of the turnaround executed. Some owners kind of start midway through the process and it's hard to get the full value for the business until you can prove that you've actually done the turnaround. Yeah. Yeah. I like, I mean, your, your answers track with my experience, you know, and what we do, obviously we're helping people grow businesses.

4:27And at some point everybody exits a business one way or another. Whether they plan it or not. Yeah. Yeah. That's right. And, and, you know, the business is going to be transferred or, or transitioned somehow. And sometimes that just means closing the doors, which is to me a shame. um but yeah yeah so so the the first thing is understand you know what your business is worth keep it growing keep operating it and understand that this is not a short-term thing this is you know the average if it sells the average business is somewhere going to be north of six months before it is you might get a deal out there so great so let's look at the other side let's look at the buy side because a lot of entrepreneurs you know we run into a lot of people that are started their businesses, founded their business, and a lot of them don't understand that they can, you know, sometimes you can shortcut it by buying a business, an existing business.

5:24What are some of your top rules for people that are looking to buy a business? Okay. You know, it always helps a lot if you're already in the same business, so you understand the industry. And I work both for sellers in some cases, usually with exiting owners, but I also work with some younger owners that are looking to buy businesses. And in those cases, it's almost 100 % we're looking in the same or related industry because they already understand it. In terms of a key thing is if you're the buyer, you need to do your due diligence. Make sure you understand that are the financials actually what's presented.

6:09Equally important is both not to overpay, but also not to think you're being cheap and underpay. Often you get what you pay for. What you want is a strong, high-performing business, so it's better to pay more money. People often look at the multiples that they're paying for a business and in some cases come up with an arbitrary rule that they don't want to pay more than X amount. It's all relative to what you're getting. So that's another important aspect. Yeah, I mean, you see it all the time with these big mergers and acquisitions. You know, everybody thought, you know, Microsoft was crazy for buying Instagram, but, you know, that's obviously paid off.

6:57So, I mean, it's a, you know, they paid a lot for it, but they've also gotten a lot back out the back end. So it's a really interesting game. So what role do you play in this whole process? How do you make the deal happen? Okay, I'm basically the intermediary. So in the case of a sale, first I help the owner understand what's the likely price in the marketplace. And I get paid basically through a success fee. So if I'm not going to be able to succeed based on the owner's expectation, does it make sense for me to do that? So that's the starting point. Sometimes there's education involved in that.

7:41So an example of that would be, for example, if somebody thinks their business is worth a million, you think it's worth$600 ,000. you're probably not going to, unless they're willing to list it for$600 ,000-ish, you're probably not going to be able to work with them because it doesn't make sense, right? Yeah, it's not productive. If they can find a way to get a million, that's great. There's a good comment that a business is basically worth what a buyer and seller can agree to and what the buyer, typically a buyer also needs to get financing. Even if they have enough cash, they usually are going to finance it because that's cheaper money.

8:21So that typically means that their banker has to agree, and usually they will have a CPA involved as well. So you don't actually sell a business just once. You usually end up selling it to two or three people in the same deal to have them all convinced it's worth X amount. Right. Yeah, you got to put them all together. You got to put them all together. So, you know, the next step is, you know, basically putting a presentation together. You get one chance to make a first impression. And in most cases, the buyer has never met the seller. So you need to put the information in the package that they are going to need to know and start building that credibility between the buyer and seller and myself.

9:12The biggest part of the job is actually doing the searching. You only need the one right buyer, but finding that one right buyer may mean you're dealing with 20 to 30 people, if not more in some cases. They got to be in the right place where it makes sense for them. They need to have the money, and it needs to be an industry that they're comfortable with. So sometimes that means talking to a number of people until you get to that point. And then typically there's a due diligence period and then the closing. And normally there's kind of a handoff period where the seller may work with the buyer for some period, whether it's introducing them to key customers or maybe educating them on part of the business that they're not knowledgeable about.

10:02So that's pretty much the general process. Right. So, got it. Got the process. So, what you bring to the table is what? Why should someone use an intermediary? I'm basically focused on getting the job done. Typically, an owner has been busy full-time running their business. So to assume that they can do this in their spare time. And another important aspect is typically business sales, it's important that it be done on a confidential basis. There's nothing that typically worries employees more than hearing that the owner is looking at selling. And it's hard enough finding good employees so you don't want to lose them.

10:46customers get worried about the same kind of rumors and typically it's a great motivator for competitors so working with a third party like myself it makes it much easier maintaining that confidentiality it's hard as an owner to put your phone number out there and assume that no one's smart enough to figure out what business it is that's for sale yeah it's kind of weird i mean in a way, you know, because I know I like to be wide open with my team. If I were going to be selling it, I would want them to know, hey, look, we've been doing this for a while. I hope one of y 'all would want to buy it.

11:22But, you know, at the end of the day, you know, but I know how, you know, actual people just, they just get scared. So I think it's, I think that's a really great service that you offer to be in the middle to, to kind of stop that from, to add that confidentiality in so that you can get a good deal. How'd you like to learn from the best? How'd you like to network with the best? How'd you like to be the best? Well, the key to being the best is to hang around with the best and to learn from the best. And we're going to make that possible for you this August in Asheville at the Asheville Business Summit.

12:03I want you to stay tuned. We're bringing in speakers from outside. We've got a lot of good events planned. It's going to be amazing. We got more information coming, but if you'd like more info on how you can be involved, how you can attend, or how you can be a sponsor for this event, it's going to be over 350 entrepreneurs in one place right here in Western North Carolina in Asheville. For more info or to be a sponsor, I want you to reach out directly to Beth Limmel. that's l-e-m-m-e-l at actioncoach.com that's bethlimmel at actioncoach.com we look forward to seeing you there it's going to be amazing yeah and you know if the right environment has been set up so that you can tell your employees and they'll treat it confidentially that's a great thing but most businesses don't have that kind of an environment so yeah most of it probably can't be stuck to, you know, I mean, confidentiality is hard.

13:02You know, I mean, word, you know, word leaks out about things. So it just, yeah, it just does, or somebody quits or gets mad or who knows what, you know, what could, what could happen there. So, yeah, that's awesome. So I love the, I love to hear stories. So there's got to be, you know, a success story and probably a great failure story too. So or or or or just a learning that you had along the way. So, you know, what are what are some? Let's hear a success story first and then we'll talk about. I'm trying to think of, you know, I guess one good example is a business. It was a power outdoor power equipment.

13:44So like lawnmowers and small tractors, et cetera. The person that owned this was a character would probably be the best way of describing him. He didn't, according to his tax records, make any money on the business, but he owned 22 rental houses, owned the shopping center that the business was located in, owned a cabin up in the northern Michigan area. So obviously he made some money somewhere in the process. we were able to find a customer of his that was looking for a business for his daughter and son-in-law. And so we successfully got that transaction completed based on a business that in theory didn't look like it was making money.

14:33Part of it was structuring the terms of the deal that helped show the profitability when the bookkeeping was done a little bit more accurately. Right. Yeah, I like it. And so what are some of your learnings over the years and things that you would advise? I mean, you've already given us some about working, staying in the business, understand that you probably need to plan the transition well more than a year in advance to make this thing work. So what are some of the other learnings? Yeah, with that, a lot of owners hope to sell a business to an employee or a family member. It's important to do the prep work there so that they're both or they actually interested in becoming an owner.

15:22And then do they have the skill set? So do they have the right training? And maybe that means they should be working for someone else for some period of time, you know, developing financial literacy. so they actually understand P &Ls and balance sheets and have that knowledge. As the owner, all that basically falls in your lap that you need to be able to handle that well. The other useful lesson is a deal's not done until it's done. Things can fall through at the last minute. So you need to remember that and not announce a sale prematurely before it's really done. The other important thing I think is you need to develop credibility.

16:16The probability of a sale is vastly higher if the buyer and seller feel that they can trust each other. The minute there becomes a serious question on the buyer side, can I trust what the seller is telling me or the broker is telling me the odds of that deal moving ahead, drop by a factor of 10. So doing the things that you don't have to absolutely tell every skeleton in your closet, but you need to be fairly open. And if you kind of flip the coin and say, if I were the buyer, what things should I know about? And be fair and treat the other party the way you'd like to be treated. Yeah, it's going to make it a lot better.

17:01I mean, everybody thinks they're going to get every last nickel out of the business. It doesn't work that way. If your business is worth what it's worth to whoever's going to buy it. And so they've got to take it. So you've gotten involved in the summit. You've come out. You decided to sponsor our Asheville Business Summit. Tell us why you got involved and what you see happening at the summit. Okay, great. I'm always interested in hearing from great business people to get their insights on things. I moved here four years ago from Indiana. I've been busy with lots of clients in Indiana. I joke that I'm smarter now that I moved and I'm further away, but I've done this for about 20 years.

17:47And I think the approach I've taken has made satisfied clients. One of the best compliments I had is a person I sold a business to came back to me six years later and said, My son-in-law and I have other things we want to do and would you sell us for us? So that was a good compliment since I had worked on the seller side before. So part of what I'm looking to get at the conference is just making people more aware that I'm available here. There aren't a lot of people that do what I do. I'm a little unique in that I've been a business owner in a prior business for 10 years. I think that's the best experience you can have in doing this that you understand where owners are coming from.

18:35I was fortunate to work in the corporate world before then, both on the marketing side and the financial side. So those are really, I'd say, the three key ingredients to having a really solid background at doing this. If you have a$25 million business, there are a lot of great investment brokers or bankers that will work with you. But the smaller business owners need the same kind of service. And I feel I can deliver that to them. Yeah, it really is a little bit of the Wild West, right? I mean, even though it's an established profession, not very many people sell more than one business. And so, yeah, a lot of people have never sold a business that come to you.

19:24So it's their life's work or they've been doing it for a long time, just like you did. I mean, you did the bookstore for a long time before you sold it. So, I mean, it's, yeah, I mean, there are a few people, investors and such that do a lot, but it's pretty unusual. And the larger things, I mean, you got, I mean, they buy and sell divisions and businesses a lot more often. It's a big deal. So I love that you're bringing that to mid and small size businesses, you know, here and here in North Carolina, South Carolina. I think that's just just awesome. So I got one last question. And the question is, based on all you've done, known, your business experience, what do you what do you wish someone had told you much, much earlier or that, you know, now?

20:13That's a good question. Nothing immediately comes to mind here. I was fortunate that I had a pretty entrepreneurial father. I grew up on a family farm, but he had a side business doing, putting in ditching tiles for other farmers. He was very creative. So I learned a lot of life lessons there, I think, early on. yeah farm's a good background I mean they you know farm is a business so I mean so every farmer is a business person they're all entrepreneurs you know or at least they should be yeah the ones that are successful are anyway so alright well anything come to mind on that or maybe just something you'd like to leave our audience with well the important part is there are a lot of baby boomers that are hitting the 65 and 70-year-old mark.

21:10People have longer life expectancies so they can work longer, but it's important to sell a business when it's on its upswing. You want to keep the momentum there. And as you get older, you get other focuses, grandkids, et cetera. So it's important not to kind of overstay your time. The key is to figure out what money do I need for retirement? And once you're able to do that, go enjoy that. And there are some great stories of, say, the 2008 timeframe where owners wanted to wait another year to get a little bit more money. And in 2009, that was no longer going to happen. And at that point, you don't have another five or ten years to kind of rebuild the business.

22:00So, you know, have your priorities straight and know what's important for your life in total. Yeah, I think that's good advice. I remember back in 2008, you know, I did a lot of work with insurance agencies, insurance people for a while and still am. And also in the construction industries, but, you know, trades and that sort of thing. But I know in the insurance industry, insurance agents were hot. They were a hot property and they were all getting sold for about three times where you hit what they call three X. And, you know, 2009 hits, they're all at one X. And so for the next five years, there's a whole bunch of people that were going to sell their business in the next five years who couldn't sell it because they weren't willing to settle for a third of the money that they would have gotten five years ago.

22:52And yeah, so there's a whole it's still out there. There's still a lot of agencies that are available right now that the owner of the agency is still out there and they're in their 70s and looking to do something different. And, of course, they're not really trying to grow it at that point. They're kind of servicing what they already have. And often that means the business is probably heading downhill potentially, which diminishes value. Yeah, yeah. And truthfully, you're right. the baby boomers are looking to sell the business. So if you're in the market for a business or want to get into business, then you should get a hold of Dave, and he can probably help you find a business that would suit your rules and your needs.

23:37So this has been great, Dave. Thanks for being here. Great. I enjoyed our conversation. I look forward to the summit coming up. Yeah. And just so you know, I just want to remind you the Asheville Business Summit coming up on August 20th, 2024. you're going to want to be there. We've got Brad Sugars coming. I'm going to speak. We've got all kinds of networking. Great sponsors going to be out there with offers and special offers and deals. And I mean, it's going to be a massive event. That's going to be, it's going to be life changing right here in Western North Carolina. So come out. All you need to do is go to WNC summit.com.

24:19That's WNC summit.com. You can get your tickets right there. You just click on get your tickets. And we look forward to seeing you there on August 20th. And until then, all the best. Hey, thanks for listening to the Epic Entrepreneurs podcast. Here's three things that you can do. Number one, remember to subscribe to the podcast. It takes very little effort on your part. It's going to help you and your fellow entrepreneurs. Plus, you guys know how it works. The more subscribers we get, the more cool things we can offer to you. Second, to learn more about growing your business, just download my book, The Coach Approach.

24:55It's free for you at giftfrombill.com. That's giftfrombill.com. Hey, and if you'd like more info about growing your business and what we can do to help you grow your business, send me an email directly. Just send it to williamgilliland at actioncoach.com. That's my personal email that I read. No one else reads it first. It's not screened. It's my real email. Just send it to me. I can't wait to talk to you. Hey, and until then, all the best. Hey, thanks for listening to the Epic Entrepreneurs podcast. Here's three things that you can do. Number one, remember to subscribe to the podcast. It takes very little effort on your part.

25:42It's going to help you and your fellow entrepreneurs. Plus, you guys know how it works. the more subscribers we get, the more cool things we can offer to you. Second, to learn more about growing your business, just download my book, The Coach Approach. It's free for you at giftfrombill.com. That's giftfrombill.com. Hey, and if you'd like more info about growing your business and what we can do to help you grow your business, send me an email directly just send it to williamgilliland at actioncoach.com that's my personal email that i read no one else reads it first there's it's not screened it's my real email just send it to me i can't wait to talk to you hey and until then all the best