4 Experts Reveal How to Sell Your Business for Maximum Value (Phase 3 of 3)

🎯 Phase 3 of the 3 Phases of Entrepreneurship Summit: Selling Your Business — Exit Strategy Planning

Franchise consultant Giuseppe Grammatico reunites his expert panel — David C. Barnett, Henry Lopez, and Rocky Lalvani — for the powerful conclusion of the entrepreneurship summit. You built the business. You managed the cash flow. Now how do you EXIT for maximum value? 

This episode is the most downloaded topic on the Franchise Freedom Podcast — and this summit version goes deeper than ever.

This episode is Part 3 of 3 in the Phases of Entrepreneurship Summit: 
• Phase 1: Finding a Business (Ep. 276) 
• Phase 2: Cash Flow Management, Coaching & Strategy (Ep. 277) 
• Phase 3: Selling Your Business — Exit Strategy Planning ← YOU ARE HERE

👥 Panel Guests: 
• David C. Barnett — Business acquisition advisor, author & YouTuber | www.businessbuyeradvantage.com | @DavidCBarnett 
• Henry Lopez — Host of The How of Business Podcast, serial entrepreneur | www.thehowofbusiness.com | @TheHowOfBusiness 
• Rocky Lalvani — Host of Profit Answer Man Podcast, profitability coach for 7 & 8-figure businesses | profitcomesfirst.com | @profitanswerman

📌 Resources mentioned: 
• Free book download — "Franchise Freedom": ggthefranchiseguide.com/franchise-freedom-book 
• Book a free 20-minute intro call: ggthefranchiseguide.com/book 
• Right Fit Assessment: ggthefranchiseguide.com/right-fit 
• Business Ownership Workshop: ggthefranchiseguide.com/business-ownership-workshop 
• Confidential Questionnaire: ggthefranchiseguide.com/confidential-questionnaire

🔗 Choose the right path at https://ggthefranchiseguide.com

DISCLAIMER: The information on this site is for general information purposes only. Franchising involves risk and careful consideration should be given before making any decisions.

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The Franchise Freedom: Discover Your New Path to Freedom Through Franchise Ownership, Book by Giuseppe Grammatico https://ggthefranchiseguide.com/book  or purchase directly on ...

Transcript

Giuseppe Grammatico 0:00

our number one. Downloaded show, how do I sell my business? And that seems to be coming up quite a bit. And we talked about lots of different areas. And the one one key thing I will mention, and this is something that I did personally and that I recommend to everyone, is that you think about selling your business immediately.

David Barnett 0:16

And, and this is a big shock for people because most business owners think I own a business. It makes money. Someone's going to want to buy it. Whenever I want to sell it, I'll just put it up for sale. And, and the reality is, is it's tough to sell a business

Henry Lopez 0:27

One was a partnership challenge and second was I saw the competitive landscape changing and I knew that I was gonna end up behind the curve there without significant investment. And the other thing is though, that's so hard is when you sell it is the right decision.

Rocky Lalvani 0:42

remember one thing. The purpose of business is to make money. Everything else is solvable once you make money. You have to make money, and I think too often business owners forget that. If it's not making you money, it's not business. It's a wonderful hobby. Enjoy it. Have fun. It's not a business.

Speaker 2 0:59

Welcome to the Franchise Freedom Podcast, where you can escape the corporate trap through franchise ownership. Here's your host, Giuseppe gr, the franchise guide.

Giuseppe Grammatico 1:12

Welcome everyone. We have a very exciting show for you today. My name is Giuseppe Grammatico, host of the Franchise Freedom Podcast, and I wanted to introduce our guests and my good friends.

Henry Lopez 1:22

Thanks, Rocky. Glad to be here. This is Henry Lopez and I'm the host of the How A Business Podcast and an entrepreneur.

David Barnett 1:28

Hey, I'm David Barnett and, I've been talking about buying and selling small and medium-sized businesses now for over 11 years on YouTube. I've got a bunch of books that I've written and I work with people every day helping them to analyze deals and hopefully avoiding, mistakes.

Rocky Lalvani 1:40

Rocky Lalvani, host of the Profit Answer Man podcast. We work with seven and eight figure business owners, helping them to scale and grow their profit and cash flow.

Giuseppe Grammatico 1:50

and we are back. We're talking about the three phases of entrepreneurship we talked about, and we covered the first two phases, and that's finding your right business. Then we got that business up and running. We talked quite a bit about technology and ai. And now in the final phase our third phase and third show in the series, we're gonna be talking about selling the business. I've talked quite a bit with David on this on this topic. It's actually our number one. Downloaded show, how do I sell my business? And that seems to be coming up quite a bit. And we talked about lots of different areas. And the one one key thing I will mention, and this is something that I did personally and that I recommend to everyone, is that you think about selling your business immediately. You don't think about selling your business and this is the recommendation I make to everyone based off of your plans for the business. So what do I mean by that? When I invested in my first franchise back in, in February 2nd, 2007 once I signed the franchise agreement, I asked the franchisor and I said, how do I sell my business? He looked at me almost regretting his decision of approving me. And he is why are you asking how to sell your business? And I said this is the time you start, right? I don't wanna wait until year 10 and say, okay, now I wanna sell my business. What do I have to do? How do I build a business that works without me so that I can have it automated? I can have those systems in place so that I can get the highest valuation. I think a lot of individuals feel that a buyer is simply looking at the financials, and that is simply not the case. You can have a business cash flowing or generating, we'll call it seller discretionary earnings. We'll call it 250,000. And that owner is expecting to get a four x multiple million dollar sales price while still working in the business, 90 to a hundred hours a week. And that's really not what a another buyer is looking for. They're looking for the cash flow, but they are not looking net

David Barnett 3:37

wouldn't pay a million dollars to live that life.

Giuseppe Grammatico 3:39

to work a hundred hours a week. You know, why not? Uh, it's it seems like common sense, but I simply made the same mistakes as well when I got my first offer and realized, wait a second, they're giving me my multiple, but they're giving me my multiple on a completely different number. So, although I was preparing, it was a rude awakening, and I, I had to learn things the hard way initially when I had first listed or started asking around of what the businesses were. So you really have to factor in your involvement in the business, right? You wanna look at length of time. we wanna look for growth. Growth is also gonna be big, but also just the overall involvement. Uh, given that, we had this conversation not too long ago and, and that was our, our number one, uh, to date downloaded episode. I'll let, I'll let David take it from here, but, you know, what are things, you know, do you recommend people start initially and what are some of the major things people should be aware of and preparing for almost day one when launching either a brand new franchise or purchasing a resale business?

David Barnett 4:33

Okay. Four hour version or two minute version.

Giuseppe Grammatico 4:35

We'll go 10 minute version.

David Barnett 4:37

All right. so you mentioned cashflow. Cashflow determines price. So if you want a higher price for your business, it needs to make more money. that's always the first question buyers ask is how much money does it make? But the second question is actually probably more important. And the second question is, will the cashflow continue under my stewardship? that's when they start to examine questions like how involved is the owner? Are the systems and processes in place? Many of the things that you just came to mention actually. And so that answer to the second question will determine whether they want to do a deal at all. it will determine what kind of terms are going to be put on the price that is offered. if there's a huge amount of concentration and responsibility in the hands of the seller, a buyer might think, Hey, I'm going to need this person to stick around for two years to teach me everything because there's nothing organized or put into place. And so in that case, I'm need to have some kind of a deal with them where they don't get all the money until I've gotten all the training. And so the seller could end up with a deal that has the price they want, but not the terms that they want. And they could end up stuck to that business for years afterwards because it's not really ready to transfer. the other big thing I like to point out to people is that, 80 percent of businesses listed on the big business for sale websites do not sell.

Giuseppe Grammatico 5:46

Oh wow.

David Barnett 5:47

And, and this is a big shock for people because most business owners think I own a business. It makes money. Someone's going to want to buy it. Whenever I want to sell it, I'll just put it up for sale. And, and the reality is, is it's tough to sell a business because at its essence, a business is a system where people interact with equipment, machinery, capital, inventory, et cetera, and they perform processes to help make the customer happy. And that's supposed to create a positive cashflow. And so what you are selling when you're selling a business is you're selling this orchestration of human activity. And if you mess it up at all, then the thing falls apart and it doesn't make any money. businesses are fragile is the point I'm trying to make. And so a lot of businesses don't sell. I, I do think that it's important for people to have an exit plan. And in order to really have an exit plan, you have to know what you've got. So this is why I, I often say to people, they need to have an evaluation done of what the business would be worth, what it would sell for, what the realistic terms of sale would be so that they know if they actually have a saleable business or not. And if they don't. It necessarily, and like, you're not going to believe me when I say this, you're not going to believe that I'm the one saying this. If you don't have a sellable business, it doesn't necessarily mean you need to make it one. Because there are plenty of people who do something every day that delivers value and they earn good money. And the, from point A to point B to actually make it into a sellable business could be a decade of work and require huge amounts of growth and training other people and you know, growing layers of supervision within the business and would involve a lot of risk. Thank you. And what might make more sense for that person is trying to figure out a way to earn an extra 50 grand a year and just do that for the next 10 years and they'll end up with the money they would have gotten in the sale anyway, right? so, here's the, the issue is most people are never in a position to actually make an educated, informed decision about which exit plan is correct because they never do the analysis work. They never stop and think about what they have. Is it saleable? Under what conditions would it sell for? And unfortunately, most of the people that I deal with are not planning 10 years in advance. I do have some clients like that. They come to me, they want to do an evaluation, they come back every second year, we update it. They use it like a scorecard to figure out where they're at. But most people that come to me, come to me because some pressing personal thing has erupted in their life causes them to no longer be able to run the business. And now they want to get out and they want to get out now and it turns from a thoughtful planned exit experience into some sort of salvage operation, which is unfortunate, but this is what leads to the stat from the big websites where 80 percent of listed businesses don't sell because a lot of them just run out of time. And a lot of them, the sellers don't have the ability to do the work that is required to, to make it into a saleable condition. And unfortunately, they may end up closing it or they may end up selling off its assets for some amount of money or, or what have you. But as I said, businesses are fragile. I don't know. Rocky, Henry, you've probably had experience either yourselves or with clients who've wanted to sell a business. Why don't you share some of those experiences of things you've seen?

Rocky Lalvani 8:45

So think the biggest thing in selling a business, and it's the thing that we don't put a value on it's trust. How do I trust what I'm buying is really what I I'm buying. So David, what you're talking about, I want to see years of financials, not months, right? We want to see a couple of years of proven financials. you can't have a couple of years of proven financials. If you haven't been taking care of them, it's also what I love about profit first, as we talked about before, you can prove by looking at bank statements. Here's the money that came in. can see every single deposit. It's all came in the same place. You can see the money I took for owner's pay. You can see the profit. You can see what I'm actually spending on the business. And so I think that gives a bit more trust to people to say, Oh, this is real. I can see the cash flowing through the business when it all goes in and out of one bank account. think it gets murky. It's hard to tell what's what. So it makes it easier for people to understand what we'll do, the owner's pay account might include card payment. I wanted a nice car in the business, right? And say, you know, that was for my benefit, you don't need that. It includes our corporate trip that we do every year to, wherever we go. Because not, but you don't remember all that stuff. years later, but when it's put into buckets, I think it makes it a lot easier for people to understand. The second thing is doing the financials? Your spouse? a CPA firm. All right. I know we made fun of the CPA firms before, but least it says, Hey,

David Barnett 10:23

fun of the spouse, too.

Rocky Lalvani 10:24

Oh, okay. Point being there's a professional doing the books that is separate from you. And so that, that brings a little bit more trust the situation. so those are the, the big, big things I think is how do you really prove what you say is the reality? Because in today's world, I mean, I could have AI make up financial statements for me.

Henry Lopez 10:48

Yeah. So great points and of course obvious points here on, as you started the conversation, gi beyond cash flow is the key thing that's obvious. Although I'm surprised, maybe I shouldn't be surprised anymore of how I will talk to people after the fact that they've bought a business for other reasons and it's not profitable, right? And how people are able to sell businesses that are not profitable. But I'll throw in then the non-financial component, which we all I think will agree on is the systems need to place. I think David spoke to it, the systems need to be in place. I can tell you as an example, I think back to one of the key businesses that I sold. It was a business that I bought. It was a salon suite business, two locations. Owned it for six years and then sold it. And one of the key reasons we had multiple offers, obviously it was making money that was a given, but and it had history, to your point, Rocky, right? 10 years of history at that point that I could show leases in place, tenants in place, high occupancy, all of those obvious things. But they all mentioned that everything was documented, that they could come in day one. And the business model, of course, is a very much an absentee owner type of business model anyway. Everything was documented from the front desk. In that model, in our interpretation of it, we had a receptionist, and of course we had the back office function. Everything was documented. And that was a big selling point.

Giuseppe Grammatico 11:57

Absolutely. you need all that documentation or else, uh, you're gonna be in big.

David Barnett 12:01

is what gives franchises a leg up for resale.

Henry Lopez 12:03

Agreed.

David Barnett 12:04

because a franchise has all the SOPs, documentation,

Henry Lopez 12:07

Mm-hmm.

David Barnett 12:07

and the buyer isn't necessarily also relying on the seller to train them how to run it, because the franchise or training infrastructure is there as well. and it's interesting because when, Franchises are run well and are profitable. They usually never go on the market.

Giuseppe Grammatico 12:21

Correct.

David Barnett 12:21

They're usually acquired by like the neighboring franchisee

Henry Lopez 12:25

Yeah. Or a big tranche of, 10 locations, or 15 locations, or 20 locations. Yep.

David Barnett 12:29

and they rarely get out there, you know, on those websites to be advertised for sale. Now, the ones that are not performing is a different story.

Henry Lopez 12:36

That's right.

Giuseppe Grammatico 12:36

there may not be a neighboring territory or area, but Yeah, absolutely. When people ask me, have you seen resales? And I said, well, when, once you become a, a franchisee, you, you essentially get first dibs. You're gonna sell to your neighbor. They're not gonna be, there's gonna be a fewer closing costs and commissions, and I'm all for that. If you find the, the right system and you want to grow and not have to go through retraining I always say if you, if you are buying a franchise or a listing and it's a resale, you're still getting approved from the franchisor who is going to be training you, but they also wanna make sure you have a. A real good understanding of the actual system itself. But, uh, there are various ways, which, which kind of brings me to going back to what I had mentioned before and working, you know, a hundred hours a week and, and trying to sell this business. So, you know, how do you make yourself obsolete in the business? So one of the things I personally did was I had hired a general manager. Now I was in my, my mid to 26, 27 years old. Hired a general manager and the mistake I made was, uh, that manager had to get approval from me. Big decisions crediting a customer, canceling a customer, making a change in the, in the subcontractor, whatever the case may be, he had to get approval looking back. Uh, that was really silly since that general manager had had a lot more experience than I did in that specific industry. But, finding that right person to kind of manage the day-to-day, freeing my time up so I can work a little bit more on, on the business and not have to hear every single issue or complain or call out. Uh, it was almost like a buffer. And what I recommend to, I work with a lot of individuals that are going to try and keep their job and run a semi passives franchise is getting on the same page of that manager. So out the gate, if you are gonna run it semi-passive, maybe giving some equity or, or, or some, um, we'll call it phantom stock or equity, uh, to that general manager. If you're comfortable for, it may not be until after the first year, but that's something to look into. But also this, this was a game changer for me, is getting the, the responsibilities, getting a simple Google document, splitting it down. The middle left was the responsibility of that general manager and, kind of, you know, what they can and cannot do. And then your responsibility, which included if you had a job and I didn't have a job, but for that person that's keeping their job when you are available, which is crucial. If you're available before nine, let's get those calls in early in the morning before you start your workday. Are you available at lunch? Is it text? Is it phone call? Is it, you know, Google meets whatever it is, getting crystal clear on, on the communication so that it works for everyone. They're not e you know, emailing you at 9 0 1 and then you have to wait, they have to wait until after 5:00 PM uh, to get a response. So I think, you know, part of making yourself obsolete is finding that first off the right business and systems, but also finding that key employee, whether it be a manager or just a, an empowered employee as I call it. Rocky wanted to get your thoughts on, you know, how to, how to truly make yourself obsolete so that you're not putting in the hundred hours and now that buyer coming in is discounting the hours you're putting in and beating up your evaluation.

Rocky Lalvani 15:36

that's a mindset of letting go, right? Understanding that somebody else can do something. Maybe they can't do it as well as you, but they can do it. The example I like to use is built an entire business model having 16 year olds run their restaurant. Including manage them. How did they do that? They built systems processes and a way of doing all of that stuff and it's consistent wherever you go. Yet I find most business owners like They are allergic to that. They, they really struggle to say, I want to build a system and a process. My business is special. My business is this. There are parts of your business that are pretty routine. you just have to figure out how to do that so that you aren't working 100 hours. I mean, why you didn't leave a 40 hour job to work 80 hours for half as much. So why do it?

David Barnett 16:37

you know, to just to expand on that sort of hundred hour work week thing that we keep mentioning here, lately, you know, I will often see when I'm working with someone looking to buy a business, we'll see I'll call an abnormally profitable business. getting back to benchmarking data and we'll look at a business and we'll be like, wow, this business is really profitable. It's really hard for a business to earn that amount of money. And then when the, you know, the buyer and seller get to know each other a little bit better and, and there's some experience there, like if they go out to lunch and the owner's phone doesn't stop ringing because people keep calling them or they meet in the evening and the seller's phone is still ringing all the time, seven, eight o at night and you begin to realize, okay, the reason this person is so profitable is because they're actually doing two jobs. There, should be another person on the payroll here so that this person can work a regular work week and, you know, to your point, Giuseppe, you said, you know, buyers discount your hours. This is what happens is they go, okay, there's a person missing from payroll. The business is not as profitable as it appears. I'm going to have to hire somebody else because I'm not going to work 90 or 100 hours a week when I become the owner of this business. Yeah.

Henry Lopez 17:44

Great points. This is that free labor that often, I've been guilty of it, that business owners will put in, can hide a broken business model as we've talked about before. And so that's a key. But going back also then to Rocky's point doing the comparison of McDonald's, I hear the same thing. Rocky said my business is much more complicated. If, first of all, probably not, you think it is, but probably not. But if it is how complicated is of your making and if it truly is such a customized or highly engineered product that you are delivering or service, then I would say to you that's not probably going to scale. It's gonna be hard to scale those kinds of businesses. There are exceptions, but that's something to look for. Or are you making it complicated because it's your identity, it feeds your ego to be the only one that can do it just right. And I think we've all have seen examples of this. For example, what comes to mind, somebody I spoke to at some point, he was doing HVAC repair and his attitude was only he was the best technician out there. And that may well be true to both Rocky and David at Giuseppe's Point. But he's missing the point. My dad was a victim of this. My dad was a fine carpenter worked on high-end yachts, but he could never go beyond being a solar entrepreneur because his level of perfectionism was so obsessive that no one else could ever do it to his level, and therefore he died as a solo entrepreneur making decent money, but he never could scale the business. So I think that those are key things we have to look at. Not only does it impact of course the sellability of a business,'cause immediately if I'm looking at a business like that, I'm saying we'll never be able to do that and I'm not gonna hire you and keep you for the next 10 years. So I think those are components that add onto what you guys are sharing.

Speaker 6 19:22

Hey guys. Thanks for listening. I hope you're enjoying the show. As a thank you for being a valued listener, wanted to offer you a free copy of my book, franchise Freedom. This book was written back in 2020, and it's my exact blueprint in helping you find that perfect franchise. I wrote it based off my experiences and wanted to pass that along to you. Wanna chat today? You could book a call directly on our website. Top right. Side of that screen and you can schedule a 20 minute call. We'll dive into if a franchise is a good fit. I help you get qualified and figure out what that perfect franchise match may be. So I hope you take me up on my offer. Once again, franchise Freedom. Download the book today for free or book a call with me directly, and we'll help you bypass all that information you find online. Most importantly, figuring out. If a franchise is the right fit, and then figuring out what that perfect franchise looks like. So thanks again for listening to the show and back to the show.

Giuseppe Grammatico 20:22

Any other thoughts? I, I, uh, that, I think we covered that pretty well. I think that kind of covered all the areas. I think, you know, the, the, the, the final piece here is, is how do we structure the deal, right? And that, and what's that kind of, that emotional transition after selling the business. And I've read, talked to so many people when it comes to, okay, yes, you know, they're, they're giving me my, my, my ask of a million bucks for the business. But now, in the fine print or in the agreement, they only wanna give me half upfront, and then the other half is over three years and they wanna link it to if there's gonna be cancellations or not. And, uh, I've seen quite a few structures. Uh, this is definitely, I, I wouldn't say my strongest area and I would lean on you guys for deal structuring. So I'll go to, I'll, um, maybe have David kick off, you know, what is the optimal kind of set up and, as far as the, the deal structure. Something that is fair. And I guess it also maybe depends, and, and I'll let you answer this, but why you're selling the business, right? If you're selling, obviously if it's, uh, something, you know, you're going through a divorce or you know that that's gonna be a different sell. But if this is the legacy and you're looking at, you know, that retirement, talk us through kind of different structures and any, any types of recommendations.

David Barnett 21:29

So every seller, whoever sells a business wants to get a check on closing day. I've never met one who didn't, right? and so that's the starting point. Because we've, we've been talking throughout these three different conversations about all the potential problems that a buyer might see in a business. Lack of systems, owner dependency, you know, concentration with one supplier, tax returns and financials that don't match, you know. Problems with, clarity in the financial statements, owners that work a hundred hours a week, like all of these things cause the buyer to have doubts and concerns. And doubts and concerns equals risk. And so basically as a seller, there's two choices. If you insist on getting a check on closing day and you have to be paid in full, then what the buyer is going to do is the buyer is going to try to figure out what all of those different concerns of theirs is going to be. worth and they're going to discount your price. So instead of getting the million dollars that you want, you might have to accept less than half because discount what the buyer needs to be comfortable with all those risks. However, if you do still want to get a million dollars, you probably can negotiate it if you share the risk with the buyer. And so this is where you get into these different structures where. The buyer might say, well, I'll give you a down payment of this amount and I want you to hold a seller financing note and I'll pay you over several years or maybe I'll pay you this amount. But if these numbers are achieved, then there'll be this bonus payment after four years, you know, and basically there's 101 different varieties of how you can structure these things, but it's all comes down to the same thing. It's all about managing the perceived risk that the buyer sees. Because the business is not buttoned up tight with a bow on top, everything done perfectly because when they are buttoned up tight with a bow on top and everything's taken care of perfectly, buyers come along and write a check because they have absolute confidence in what they're getting. And so basically I, I, I run into this all the time where There are so many problems with a business that a lot of buyers just chicken out. They just don't want to make an offer because they, they just see all this risk and they're like, there's no way I'm going to borrow money at the bank if, if this is the business is condition, I'll out to them, Hey, this is a great opportunity because what the seller has done is they've managed the business into a fashion that's made it unbankable. And so their only option to sell this thing is going to be to accept some kind of down payment from a buyer. And then they become the bank with offset clauses that. cause discounts against that note if any of these things they've that they're telling the buyer turn out to be untrue and sellers hate it. They absolutely hate it. If you've run your business in a lackadaisical mismanaged fashion, then this is the cost. This is the reckoning at the end. And this is probably another one of the reasons why 80 percent of small businesses don't sell because when business owners are faced with these kinds of offers, Many of them probably just feel frustrated. They don't understand that this is realistic and what they can expect. And because they can't find the buyer that they expect to meet, they get frustrated and they leave the process.

Henry Lopez 24:18

Yeah, and so well said. I've seen that so many times, and so I think what happens there in those cases, David, with those people, those situations where you have a business that you're selling that doesn't have all of those things is sometimes those sellers need a little bit of time in the shock of reality that, oh, I didn't get. Multiple offers that I wanted all cash, like you said, some of them exit. It is it's like it happens in real estate, right? Somebody has this inflated idea of what their home is worth and then, and they don't get it. And so they take it personally, take the house off the market. But it's such an interesting dynamic. But I wanna speak to for a moment and then I'll pass it to Rocky about the whole selling mindset and the identity challenges that come with this. But I always say there's two hardest decisions a business owner has to make. One is, when do I shut down a business that's not working? And that's the harder of the two. Yeah. Very hard decision to make instead of we're able to, we keep it afloat and we keep inputting money and we accept not making any money. And the second hardest is selling a business. And it's interesting having done both and having advised people, it's interesting how the advice you'll get, again, for, from the attorney or the CPA who are not business owners at the same level. How are you gonna replace that income? My philosophy, and this is just my philosophy, is that everything is always for sale. And we won't get personal about that. But every business is always for sale, in my opinion. Because the thing I always tell people when they're thinking should I keep the business and keep making that money? Is that we don't know what the risk is that might hit us two years from now. That might completely change my ability to continue making that money. So I always look at it as if I can take that off the table and the timing is right, then I take that opportunity. But that's just my mindset. You were talking about back when you started your business, Giuseppe and talking about exit planning. I think that's a more recent thing. I don't think 10 years ago people were as focused or even knew this term exit planning Lisa, that'd be interesting what you guys think, but now we think about those things and rightly but those are two things that I think add into the identity. I think of my David partner. David would begin co-host of the, of my podcast sometimes, and we've talked about this on the show. He went through a major identity crisis when he sold his very successful car wash business. It was part of his life for 12 years. He was known as a highly successful car wash operator. He was the president of the International Car Wash Association from period of time, very respected. When he sold the business, he still to this day, struggles a little bit with, okay, that was my identity. So I think we gotta think about that mindset shift as well. I'll pass it to Rocky.

Rocky Lalvani 26:38

So we always like to say, begin with the end in mind what everyone forgets about until April 15th is the tax bill on the sale. depending on how the deal is structured, your tax bill is dramatically different. And it really just depends on how, what they're buying and how they're buying it. can assure you that a smart buyer is setting it up for their benefit. And so they want to make sure that they get the best situation from a tax standpoint. They also want the best situation from a liability standpoint. If I'm buying a C Corp. I'm buying stock in that C Corp. I now own all the liability the last however many years that that company has been in business including the current year tax liabilities. So these are all the things that you have to be aware of from that standpoint. What are the tax implications of how it's being done? And that also, if real estate's involved, how are those separated and, and how would the two transactions happening, what does that look like? The other side of this is, can I afford to sell? So I know a lot of business owners, they're like, I want to sell. I'm like, well, how much money do you have for retirement? Because business is, you know, generating 250,000. you're going to sell it for a million, woohoo, but a million dollars if you just use the 4 percent rule, which is a retirement rule, says you're going to get$40,000 in income for the rest of your life from that million dollars. you were making$250,000. How are you going to cover the other$210,000. What's gonna, you know, and that's really where business owners are like, Oh, really have to think this through a lot more, often than not in those situations, decide not to sell. decide to put a manager in so I could still pay a manager a hundred and a quarter I could still make a hundred and a quarter I still have a business.

Henry Lopez 28:37

was in the great point. I think that was in part which you were speaking to initially on this point to cepi, right?

Giuseppe Grammatico 28:42

Yep. Absolutely. That's a big part of it. You have to, you gotta run those different scenarios because as to Rocky's point on that 4% rule, which, you factor in, you could pull four, which I was following someone that was toying between the idea four to 6% was the range, but. That's not gonna cover your cost. You're gonna be out there starting another business or getting another job. So unless you can, really reduce those expenses.

David Barnett 29:03

You guys ever heard the expression, if you don't sell it, you bought it?

Henry Lopez 29:05

If you don't sell it, you bought it.

David Barnett 29:07

Yeah. so it works like this. Like if somebody offers you a million dollars for your business that maybe is cash flowing, you know, 300 grand a year. And, you go to your accountant and they tell you after taxes, you would clear, you know, 700. If you don't take that offer, what it means is that if you had 700 in the bank, you would write that check to acquire that business. So I'll ask people if you had the 700,000 in the bank, would you do that deal knowing what you know about this business? And it's interesting when people kind of turn the tables on, on this idea. Like if I had the cash, would I buy this? And that's, it can sometimes sway people one way or the other, really, but it's a different way of looking at it. And. You know, there is something to be said for exiting on an uptick. you have increasing sales and profits year after year, and you get that opportunity to exit, you're going to probably have an easier time selling. Then if you carry on for a few more years, have a little bit of trouble, have a downturn, have a, you know, reduction, you know, you're going to have a In profitability, it could become very difficult to sell. And so I, I have, you know, coached a lot of people like, Hey, maybe you should do this deal. And the topic of, well, how can I afford to retire? I'm only 62. I don't earn enough money. And the solution is usually in the deal to become an employee of the new owner. And they usually welcome this kind of opportunity because it means that they get to hang on. To that access to all the historical knowledge, decision making, et cetera. And so, you know, I've seen more than one person sell a business and then stay on as an employee for five or six years before retiring. And, and it can actually give the buyer greater confidence in doing the deal.

Giuseppe Grammatico 30:38

I

Rocky Lalvani 30:38

don't like working for someone else.

Henry Lopez 30:40

That there's definitely that part of it. But to your point though, that could be one of the ways that you address that income gap that you have identified. Right. But it still might make sense to sell. You know, I, it comes with that same salon, suite salon business that I referred to. There were two reasons I decided to sell. One was a partnership challenge and second was I saw the competitive landscape changing and I knew that I was gonna end up behind the curve there without significant investment. And the other thing is though, that's so hard is when you sell you, it is the right decision. You made that decision. If you look back and try to second guess it, boy, it's gonna be a lot of sleepless nights. But, but great point. I think on why sometimes you, you need to sell, even if it might not necessarily be that you have to do something else to cover the income gap.

Giuseppe Grammatico 31:23

Absolutely. Yeah. And if you're fortunate when you, you have a key employee we entertain an ESOP where that key employee would start earning, over a 10 year period and essentially absorb that business. But we unfortunately did not have interest. We had some people that were moving, we had some people that were retiring I did not have that key employee at the time. But there's so many different ways. They're a little bit more complicated and expensive to set up. But that's something that you may wanna entertain if you have that.

David Barnett 31:49

ESOPs don't make any kind of sense unless you have a cash flow north of 750 EBITDA.

Giuseppe Grammatico 31:54

Oh, really?

David Barnett 31:55

they are horrendously expensive to set up and then you've got maintenance costs. You have to get an evaluation done every year. it is really not something that should be a part of a small business conversation and it's kind of one of the things that kind of you know, I noticed this all the time in online content where people will say like, here's how you can sell your business. You can sell to a private equity group. You can create an ESOP, you can do this, you can do that, and you know, what's always missing from the list selling to an individual entrepreneur, but in fact, the vast majority of small businesses are sold to an individual entrepreneur. And,

Henry Lopez 32:25

Sure.

David Barnett 32:25

and, but that's not reflected in the stuff that people see online. I really would not like people to get sidetracked by these various ideas, like selling the business to your employee is a very different kind of, scenario than doing an And I've seen a ton of people sell their business to an employee or a small group of employees, maybe, two or three people that are part of the management and supervisory team. Those can make really good deals because banks love it because they consider those people insiders.

Giuseppe Grammatico 32:51

Right.

David Barnett 32:51

know the business, they understand the day-to-day operation they are not going to have a lot of the concerns or fears that a lot of outside buyers will have because they, they're living in the business. Like they really do know what's going on and if you show them some stuff on paper that doesn't make sense, they'll probably sniff it out.

Giuseppe Grammatico 33:08

That's good to know. Yeah, I didn't, I, I, it's been years and years, but I just remembered the expenses were on the esop. So yeah, you have to look at all, all different angles and benefits. Timeframes and the cost to your point on Instagram, I remember what, there was some accounting advice you should just switch to a, they would just make a blanket statement switch to an S-corp, or, um, yeah, it was an S-corp from an LLC if, and the break even is just, they would just throw a number out and it's like, well, there's a lot more to that. And it's, uh, it's doing, in my opinion, almost a disservice if you're acting on that advice. You really need to find a, a professional to, to do a full review, especially depending on what state you live in. Makes all the difference. Uh, as our laws are different from state to state. So yeah, I agree. Don't get your advice from, from Instagram. I, I don't know, can that, that'll, uh, summarize things or at least talk to that professional to back it up. So, any last words as we, you know, we're, as we kind of, um, conclude the show and it's been exciting. You know, I, I've learned a lot and I'm looking forward to your comments and you can definitely send comments and questions and, you know, we can all get back to you. But any other kind of last words of, of wisdom in this three phase entrepreneurial journey

Henry Lopez 34:10

we've shared a lot of positives and negatives and challenges and benefits. I wanna make sure I ended at least, and I think Rocky and David, and you will agree, Giuseppe I, love being a business owner. As Rocky said, I can't imagine if I need to, I will, but I can't imagine working for somebody else again. While it has its challenges and you have to have the right mindset, and we've shared here in these three conversations, what it takes to get in, to get out, to manage it well to make it profitable. It's the best thing I ever did in my life. And it's so rewarding. Not just from financial perspective, although it's gotta be there, but just in the freedoms that it has given me and in my life and having worked in the corporate world for many years, I can compare it and contrast it, right? So if you have the right opportunity and you're in the right position in life and you're taking the right level of risk, there are no guarantees. But boy what an opportunity it is to be able to be a business owner.

David Barnett 35:01

Yeah, know, there's all kinds of wise things people say about people that reach the end of their life and, and, you know, the things that may regret. I, so happy that I, I took the leap and, and I took the leap a couple times because I jumped back and forth across the fence a few times over the course of my adult life. So I was an employee, then I owned my own business and then I ended up being an employee again because the business didn't work out. And then I ended up back in being in business for myself again. I don't think there's anything wrong with that. It's, it's a journey of personal growth we mentioned earlier, I think in, in the first chapter of this conversation, you know, some, someone used the, the bankrupt comment, in reference to something when I had my business brokerage office open, we used to have an intake form for people that wanted to sell their business and most of these people had successful businesses with good profitability and that's why I wanted to list them for sale one of the questions on the intake form was, have you ever declared business or personal bankruptcy? a third of them checked yes. And when I asked the question, it always was some version of this story. Yes, I was young, I was inexperienced, I got into something I didn't understand, I went too far, I over leveraged, I borrowed too much, and boom! know, the bad things happened then I use those experiences to build the business I own today and it just kind of highlighted the fact that can into trouble with business. Absolutely. are going to learn you are open to learning. you can make this into a successful path. And if you're open to learning from other people's advice and other people's experience, then you'll probably do even better.

Henry Lopez 36:29

Well said.

Giuseppe Grammatico 36:29

All right. Well said.

Rocky Lalvani 36:30

remember one thing. The purpose of business is to make money. Everything else is solvable once you make money. You have to make money, and I think too often business owners forget that. If it's not making you money, it's not business. It's a wonderful hobby. Enjoy it. Have fun. It's not a business.

Giuseppe Grammatico 36:46

I like that. Love that. Yeah I always say bet on yourself, or you're gonna regret it. Explore it. That doesn't mean you should own and move forward with the business, but you owe it to yourself. I always say when you're much older in time and you reflect on life, you wanna reduce the what ifs or the should have. I truly believe in exploring it. Maybe it's diving in full-time, maybe it's a partnership franchise or startup whatever that vehicle looks like to you. I encourage at least to explore, talk to those professionals, talk to the individuals that have owned businesses and not the Thanksgiving dinner with maybe a family member that's never owned a business in their life. But talk to those owners, find the good, the bad the everything in between and see how that kind of factors into your life and, the life you're looking to create. But I truly believe you, you owe it to, to yourself. This has been awesome. This is my group. When you ask about our group and, the people I go to, and these are my go-tos. We've been on each other's shows. I consider everyone on the three shows we just did. Personal Friends of mine advisors. Sometimes I just have to call someone and complain, so I know I've done that with Henry and Rocky and actually, and David. But, we appreciate the friendships, we appreciate the advice, and I encourage everyone listening in if there's something, a topic specifically, you want to, get into more, more of a conversation, learn a little bit more, reach out to all of us. All our contact information and website info will be on the show notes as well as the blogs. However, this, however you're finding this online. And, uh, we appreciate all your support and thanks for listening in. It's been fun guys. We'll, we'll talk soon.

Speaker 5 38:10

Thanks for tuning in if you want to learn how to make the transition from corporate to owning your franchise. Join Giuseppe on the next episode. You can also follow on all social media platforms and achieve financial and time freedom today.