How Was I Supposed To Know That?
How Was I Supposed to Know That? is a business podcast hosted by Bernard A. Williams that helps entrepreneurs and business leaders avoid costly mistakes by learning from experienced professionals. Each episode explores legal, financial, operational, and growth-related topics through candid conversations, practical advice, and real-world lessons that every business owner wishes they had known sooner.
How Was I Supposed To Know That?
The Emotional Side Of Selling A Business
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Selling your business can be the proudest moment of your career and also one of the most emotionally complicated. We talk about the part founders rarely plan for: the identity shift, the protective instincts, and the unexpected grief that can show up right when the numbers say you should be thrilled.
I’m joined by Jonathan Peters, senior partner at Empirical Consulting Solutions, to break down how operator-first thinking changes the way you prepare for a lower middle market transaction. We dig into the difference between working in the business and working on the business, why buyer confidence depends on a management team that can run without the founder, and how that independence can directly impact your valuation multiple.
We also get tactical on exit readiness and M&A preparation 18 to 24 months before a potential sale: balance sheet cleanup, obsolete inventory, accounts receivable aging, predictable revenue and earnings, gross margin discipline, and customer concentration risk. Then we zoom out to the softer factors that can make or break a deal, including culture, employee retention, customer stickiness, and the real-world limits of your team’s capacity to “fix everything at once.”
If you’re a founder, owner, or advisor thinking about exit planning, business valuation, or small business M&A, listen, share it with a partner, and subscribe so you don’t miss the next one. After you listen, leave a review and tell us what exit readiness challenge you want to hear us tackle next.
Welcome And The Emotional Toll
SPEAKER_01Hi, and welcome to How is Us Boast Not? My name is Bernard Williams. I'm the host, and I'm also the managing partner of Company Council LLC. We're a small business law firm that works with companies that are on the move, uh, that are growing and scaling and need support to make that happen. A lot of what we do is in the MA realm. Uh and uh one of one of the things that I find pretty frequently in the MA process is that uh my client, the uh uh the seller of the business, the the owner, uh finds that they are not quite prepared for for the emotional element. Uh that it's uh this that uh that's just a part of that sale process. Uh you know, they've probably spent many, many years amount of lifetime growing a company. Uh, when it comes time to prepare to sell or to actually uh uh go to the closing table, uh they find that what they expected and what the reality are are not necessarily the same. Uh so uh so let's talk about it. This is a podcast that is designed for small companies uh and uh small company owners, where we shed light on the surprises that they that they encounter throughout the the uh business ownership process and the MA process. Uh so let's shine some light on the emotional element of MA today. And joining me for that conversation, very, very happy to welcome uh Jonathan Peters. Uh Jonathan is a senior partner with Empirical Consulting Solutions, and I'm really happy to have him in the studio today. Welcome, Jonathan.
SPEAKER_00Thank you, Bernard, and thank you for having me here this afternoon.
Meet The Operator-First Advisor
SPEAKER_01Uh so uh if you don't mind, why don't you start by telling us a little bit about what you do at Empirical Consulting Solutions?
SPEAKER_00Thanks. So, yeah, Empirical Consulting Solutions, um firm that's been around now 14 years. Uh, the managing partners started it up to focus on the lower middle market companies. And essentially, we help create value uh in privately held businesses, private equity-backed businesses, um, but in all aspects that we we can bring resources and bring experience to the table. And what's interesting about the three managing partners and myself, um, we come at this as operators, not necessarily consultants. We've all been there, we've we've all been running some pretty big PLs. And at this point in our careers, uh, we're thinking about uh things as being an operator and helping business owners to achieve value doing that.
SPEAKER_01So, how is that different? How is acting as an operator different from acting as a consultant? What does that look like? How does that look different on a day-to-day basis?
SPEAKER_00There's some consultants that come at it more from a uh theoretical or a uh academic standpoint. Uh we're coming at it, that's our name, empirical. Um, we're we're coming at it from looking at um diving deep into the business and looking at all aspects of it and just looking for opportunities to create value. Correct.
SPEAKER_01And you mentioned that uh the the firm was was founded with a focus on the the lower middle market. That is correct. How do you define the lower middle market?
SPEAKER_00So, in terms of revenue, probably down to maybe 10 million, um, on up to that 100 to 200 million. Uh, there's certainly outliers on both ends, but that's typically tends to be our sweet spot of where we focus.
SPEAKER_01Okay, perfect. Uh so uh no one of the things you hear you heard during the introduction that I began talking a little bit about MA and the emotional component uh of getting that ME process. Uh is that something that uh did you work with with owners on? Do you is that is
Working On The Business
SPEAKER_01that something that that that that that that you've seen uh in your experience working with small company owners?
SPEAKER_00There's there's always a lot of emotion in terms of um look, owners have put blood, sweat, and tears into their business over many years. They missed vacations, they you know just put in long hours, weekends, et cetera, whatever needed to be done, um, work truly working in the business. So we come at it from an outside perspective, being able to offer an objective view, taking the emotion out of it, particularly when they are thinking about going to a transaction or even going to the next generation. Um I use the phrase quite a bit, and I don't think it's overused, is that a lot of times founders and owners work in the business and not on it. There's always many things to do throughout the day. There's a lot of things that just have to get done. Doesn't always give the space or the time for the owner to step back and really see the bigger picture of what would enhance value and really position the business well to get a higher value.
SPEAKER_01Now, is it just a matter of bandwidth? They spend so much time focusing on answering emails and returning phone calls and and and selling and all the things that are a part of learning the business. There's just no time to focus on working on the business, or is it more of a of an energy uh distribution?
SPEAKER_00I think it's more of a conscious effort to say that I'm gonna step back. I I could do, I could stay busy all day long in the business, but I'm going to carve out some time to look at my pricing strategy as an example. Or I'm gonna take a look at um my supply, um, you know, my supply chain and what's happening there. Just two examples. But it's something it just it needs to be a disciplined and conscious effort to be able to step back and and look at the business more objectively.
SPEAKER_01So, what percentage of an elder's time would you recommend they spend looking on the business, uh sort of with a bird's eye idea strategically versus working in the business?
SPEAKER_00I think the the question that really varies as to where is the business at? Uh, how well is it performing today? Um, what is the time frame that that they're looking to either go to a transaction, or like I said, it could be uh a multi-generational transition. Um what's the timing? And I think that the closer you get to wanting to exit the business, more time needs to be focused on that. But here again, you got to start thinking about this 18 to 24 months before you you're you're even contemplating exiting the business.
SPEAKER_01Okay. Uh so it sounds like the closer I get to to exit, the more important it is for me to remove myself from the inner workings of the business as an owner, and focus more on working on the business. Is that right?
SPEAKER_00For a number of reasons. One is yes, to be able to have that strategic view, but I would say also any buyer or the next generation cannot be dependent upon the founder or the current business owner having to be there day to day in order to keep the wheels on.
SPEAKER_01Uh tell me a little bit more about that. What why is that the case?
SPEAKER_00Well, I think from the standpoint of an ongoing and sustainable business, if some an owner truly wants to exit, the business from an operating perspective cannot be dependent upon that individual being there. Secondly, when whether it's a an investor or potentially a PE firm looking at it, they're going to place a higher value, they're going to put a higher multiple on a business that has a sustainable management team, not dependent upon the the founder. Okay.
SPEAKER_01So it's one thing to have key employees, um, and that's fine for a buyer. But if that key employee is also the owner, then that that creates problems. Correct. Do you agree with that? Absolutely.
SPEAKER_00Yeah. Yeah, it's it's not it's not sustainable when that person steps out.
SPEAKER_01In your experience, do business owners find it difficult to step out?
SPEAKER_00Probably for several reasons. Um, one is there's that emotional connection to the business because they founded it, they like I said, put blood, sweat, and tears into it. Um, I think there's also um it's it's their baby, if you will. And they want to make sure that it's the baby goes into good hands going forward.
SPEAKER_01But now, what about companies that have multiple founders? Uh, how does that that how does that dynamic play out when there's more than one owner of the company as they approach the seal?
SPEAKER_00Well, I think that that that varies, and and that's a whole very deep topic for probably a another discussion. Um and and there's others that are much better at uh you know go diving deep into that topic. But I I think alignment is critical, that all of the partners, all of the family members, whatever the case may be, are aligned in in exiting the business and what they're trying to achieve and how they're going to achieve it.
SPEAKER_01And so uh, how do you go about creating that alignment?
SPEAKER_00Well, I think the the questions around um what are they trying to achieve? Are they are they aligned on the value of it? Are they aligned on the timing? Um the desired buyer, uh, whatever, whatever, whomever that may look like. Um so I think there's just a whole host of things there. Like I said, and that that could be a very deep topic in itself in terms of multiple stakeholders and and gaining alignment there.
SPEAKER_01Okay. That's fair. So let's go back to more of a uh, I don't want to call it a simpler topic, but maybe one that's uh a little more digestible.
The 18-Month Exit Assessment
SPEAKER_01Uh the concept of the the founder-led company uh who's uh that founder is ready to sell and he's thinking maybe 18 and 24 months out. Uh uh he'd left the clothes, maybe go off and do something totally different afterwards. In that 18 to 24 month time period prior to uh to his exit, what kinds of things should that business owner be thinking about to care for the sale?
SPEAKER_00That's a really good question. And and we do assessments like this all of the time where we will do a deep dive in that 18 to 24 months out before desired transaction, looking at a whole host of things, uh starting with um the balance sheet, what what condition it is, how healthy is it? Um is there a um an excessive amount of obsolete or slow-moving inventory that needs to be cleaned up and decisions need to be made on? What does the AR look like? It are there are there agings out there that just they're not collectible. So just from a balance sheet perspective, what needs to be cleaned up? Uh from a from a PL perspective, just starting with the revenue, what does the the last three years to five years look like? Was it very episodic or what were there spikes? Or is it fairly predictable? Um, nobody likes risk, nobody likes unpredictable revenue. And if there is some explaining that needs to be done, get out in front of why were what happened. That could have been COVID, for example. Everybody had spikes during you know 20 to 23. But beyond that, um, was there a supply issue? Was there you know something? But when you have a kind of a smooth trajectory, both in revenue and earnings, that's that's an easy story to tell. Otherwise, you you got to get out in front of it. Um, look at gross margin. That is indicative of either pricing, pricing discipline. Um it could be on the supply side in terms of supplier uh um relationships. Um we look at customer stratification. Um, many times a small amount of customers will make up a majority of the revenue that introduces risk. So customer um uh concentration, you know, what does that look like? Um many times owners will put too much emphasis on the what they call the A customers. Well, at the end of the day, those are the lowest profit customers. What's happening with the B's and C's? So and an acquirer or an investor is going to look very closely at that. And then as you get down through the middle of the PL, just what do the operating expenses look like? Here again, are they fairly predictable or are there a lot of spikes in there? And if so, being able to explain that.
SPEAKER_01Now, these are all things that the owners should be focused on from day one, correct? I mean, even if they're not interested in selling within the next 24 months, are aren't these all just healthy business management principles?
SPEAKER_00Absolutely. And and when we do a deep dive on something like that, um it will typically lead to two or three areas that need attention. And then we will work closely with the owner to agree on a project plan. And and I'll give you an example. In some cases, um, an owner might say to us, we have a revenue problem. And we peel it back. And well, the revenue necessarily isn't the problem. Your problem is in supply chain. You're buying the wrong inventory, tying up working capital, therefore, you cannot fulfill orders, and then therefore you're you're stagnant on your revenue. So we'll we'll we'll kind of peel that onion back and really understand what is the root cause of the of the issue.
SPEAKER_01Um, and this is all part of the assessment process that you do in in these early plan exchanges, right? Correct. Correct. So as as a as a as the owner of my own law firm, as a business owner myself, I I can only imagine receiving one of these assessments and being surprised by the results, maybe even being insulted uh by by seven advice. Yeah. Have you ever had that experience as someone that somebody feels insulted or or do they feel like they have to defend themselves uh based on what the assessments are showing?
SPEAKER_00I think as a business owner, it's fairly easy to be defensive. You're very proud of what you've created. You you think everything is running great. Again, you've spent so much time in the business, but when you have an outside objective lens looking in, it's it's yes, it's very easy to become defensive, but after digesting it, many times the owner says, You're right. Now let's get our arms around this and get a plan.
SPEAKER_01Um what is so what is that process like? Going from the the defensiveness, the yeah, the the you know the anger, uh not wanting to accept the results, move from that to get into a place where you could say, all right, I'm ready, I've moved past that. Uh now let's go. Is that is it a matter of days? Is it a matter of months? Uh are you involved in that process, trying to help them to take it to shift their mindset? Can you tell me more about this?
SPEAKER_00I think it's different for everyone. And and it it again, it's it's situation dependent, but for the most part, um many owners will look at it and say, Yeah, you're right. I hadn't thought about that. So let's let's talk more about that. Let's get aligned on what does a grow good gross margin look like. Now, let's let's detail a plan of how we're going to get there. Um, we we've worked with uh some privately held businesses. One comes to mind just through uh customer stratification, not necessarily pricing, but just customer stratification, focusing on the right segments of the business, we were able to increase his gross margin by over 500 basis points within a year's time. And that made a significant uh impact to the bottom line.
SPEAKER_01I can imagine great results.
SPEAKER_00Yes.
SPEAKER_01Um okay, so so so getting back to the timeline, uh you've uh you've
Moving Past Owner Defensiveness
SPEAKER_01you've now uh given the uh the owner the the assessment. Uh he's uh worked his way through the uh the process of shifting from defensive and angry to acceptance and ready to go. Uh so what's next? And I I I'm actually gonna differ depending on what the assessment showed, but uh but but but I mean talk to me a little bit about the journey uh over the next 18 and 24 months and and how you helped that that that owner to actually prepare for the close.
Prioritizing Fixes Without Overload
SPEAKER_00Well, I think it it really um it's important to take the areas that could be worked on and prioritizing them, meaning that if you if you think about a four block, there's there's some initiatives that are gonna be very easy to do, but have a high impact. We'll certainly get right after those. There's some that may be high impact, but a high degree of effort. Assess, do you have the team, is the team ready to do it? And if so, get after those. Then there's gonna be some that's a high degree of effort with a fairly low impact, and and then there's gonna be low impact, low effort, just kind of discard those, but prioritize the areas of opportunity that we see. Some of those may the decision may be just call them out to whoever is looking to invest, but don't do the work. And in other cases, yeah, it's fairly significant to do the work now in order to maximize the value for the transaction.
SPEAKER_01Is there a danger in trying to fix too much at once?
SPEAKER_00Absolutely. There's a capacity of any team or capacity limit of any team. Um, there's also a capability limit of any management team. So, really assessing that softer side as well as yes, it needs to be done and it would and it would drive value. Can we do it? And and do we have the resources to do it?
SPEAKER_01So um Steve talked a lot about the numbers and about some of the tangible things that uh that that that sellers can do to improve the evaluation of their company and to prepare for sale.
Intangibles That Move Deal Value
SPEAKER_01Uh, what about some of the intangible things? Uh what intangible factors uh might influence whether or not a deal is closed or or or or or how a seller um uh views a perspective uh transaction?
SPEAKER_00Well, we talked about some of them already. Um the quality of the management team is really important because that's whether the the business can be ongoing with it with pulling the owner out or the founder out. Um I think that there's other softer things, level of engagement, retention of employees. Is it if there's a really high turnover, that that's that's indicative of culture or a culture issue. That's something that can't necessarily be fixed overnight. Um there is um customer retention. That's something that you know, how sticky is the customer base? Um, how how predictable and recurring is the revenue because of levels of customer service. There, there's there's a number of intangibles there that can either uh put top spin on the flywheel or could actually slow it down. Okay.
SPEAKER_01So I'm sure you've worked with I'm not gonna estimate how many companies you've helped um uh to prove the evaluations and uh and to close these sales. Um I'm sure you've seen mistakes.
When Sellers Say No
SPEAKER_01Uh can you share a few without giving any names? Can you share a few examples of maybe uh owners who did the wrong thing, maybe they didn't listen to your advice, uh and some lessons learned?
SPEAKER_00There's probably a number of examples that that we could give, but it it's really where the owner is not open to listening or is um just doesn't support the idea and just says, no, I'm not gonna do that. And at that point, it's better that we shake hands and and you know, we we only want to engage where we can see that we can be successful. And and that's effort on both parts, not only our part, but us also on the owner's part and the management team's part. So um when we're aligned, when there's when there's uh good uh good agreement, then yes, we can get we can definitely get the results done. If that's not there, the inverse is true.
SPEAKER_01So what what kind of thing I mean I guess I can't imagine why a business owner would wouldn't would engage you and not take your advice or you know, or not do the things that that that you telling them can help them to close their deal. Um do they give you is there specific pushback that they give you or are there reasons why they're they're reluctant to implement those changes?
SPEAKER_00Perhaps they don't want to make the investment of either time or money, um, where they feel that um it's good enough uh to take the transaction. Um but it it's usually a conscious decision of you know what, we're not gonna make the the effort and time.
SPEAKER_01How often do buyers, I'm sorry, not buyers, how often do sellers pull out for emotional reasons that they're just re it just doesn't make any sense on paper, it doesn't make any sense logically, uh, but but but emotionally that seller decided, you know what, I just I don't want to go through this. You ever see that?
SPEAKER_00I have where other alternatives came into play. And um I I can give you an example of a of an environmental services company that we worked with, where it was actually they wanted to transition the business to the third partner, and the two founding partners wanted to exit and move into retirement. Um as they did this assessment, as they saw what effort and what amount of time and money would need to be put in in order to position the business to get to this third partner and be successful, they opted then to go to transaction. And they just said, you know what, it's better just to take for what it's worth today as opposed to betting on tomorrow.
unknownRight, right.
SPEAKER_01Uh and as long as they're satisfied with that decision, I guess all's well that ends well, at least for them, right?
SPEAKER_00It did work out well. It did work out well all the way around.
Final Advice And How To Connect
SPEAKER_01Uh so as we uh start to come to a close, are are there any pieces of advice that you'd like to share with the audience that can help them to maybe avoid mistakes and uh have successful transactions?
SPEAKER_00I I think really it's it's where we all started is that um don't wait until time is ticking and you want to exit. Start the process, do the assessment early on, and give yourself time to make decisions as to what you want to work on, what you can do to enhance the value of the business, versus call out where the opportunities are to the potential buyer, but say I'm not that that's gonna be for the next owner to do that work. Um, but it's really starting in advance in thinking about things and doing the assessment.
SPEAKER_01I I love that. Yeah, one of our core values is um is that we live by proactive protection. Uh so I love the idea of being prepared, thinking thinking ahead. Um I uh yeah, I I like what you're putting down, uh so in terms of you and your own business, uh does Empirical Consolidum Solutions have any exciting programs coming up? Any anything you'd like to announce?
SPEAKER_00We have um a host of initiatives going on right now in in multiple fronts. Um an operations standpoint, we have a we've just upscaled our operations team um where we can do value stream mapping, we can go in using lean six sigma principles. Um and that I know that sounds maybe over the top for small business owners, but the principles themselves will help diagnose where are pain points, where is their waste, where are their opportunities. And whether it's a $200 million business or a $20 million business, we use those same principles to be able to map that out. Um there's other areas. This this exit readiness is a big focus in our area right now. Um, for what, like I said, whether it's privately held businesses or even private equity backed portfolio companies, um, really we've put together a defined project to be able to do that.
SPEAKER_01That's great. And I'm sure that exit readiness uh program covers a lot of the things we spoke about during during this podcast.
SPEAKER_00That's correct. That's correct.
SPEAKER_01And what's the best way for people to get in touch with you if they want to find out more?
SPEAKER_00So you can reach out to me directly at jpeters at thinkempirical.com or visit our website www.thinkempirical.com.
SPEAKER_01Great, terrific. Well, this has really been uh an enlightening conversation. I've enjoyed talking to you, and I appreciate all the insights that you've shared.
SPEAKER_00Thank you, Bernard. It's been a pleasure to be here.
SPEAKER_01Uh the pleasure is all mine. Thanks so much. All right. Another episode of how it's nice posting a bit. Thanks, Paul.