Successful Exit Strategies for Manufacturers with the Alaska MEP

Live with Alaska MEP

Join us and Damon Pistulka as we discuss effective strategies to help you maximize the exit of your business.

Live Summary

You can change it.

It is not easy, but businesses are turned around every day.

What it takes…. Stopping activities that are not producing results. then,

Getting the RIGHT people EXECUTING the RIGHT things and repeating the process.

Why believe what I am saying?

1. We observe successful businesses in action and learn what makes them great.

2. Read one of the thousands of business books saying the same thing.

3. We have created hundreds of millions of dollars in value by helping companies run better and dominate markets by executing the right things.

Why does this matter to you?

1. Your business (and lifestyle) can improve significantly with the right help.

2. You can chart a new path for your life and legacy.

3. You can get the freedom and financial rewards you desire.

Join the Alaska MEP eCommerce Evangelist for Manufacturers Curt Anderson - Founder of B2Btail as Exit Strategy Expert, Damon Pistulka from Exit Your Way shares effective strategies to help you maximize the exit of your business.

To learn more about how the Alaska MEP can assist your business, connect with us online: https://alaska-mep.com

Key Highlights

• When should manufacturers start thinking about exit strategies? 0:03

• How long should you prepare for taxes before the sale? 1:28

• The common stumbling blocks that businesses run into. 4:13

• The toll of little or no growth. 6:31

• How to determine the value of your business? 8:59

• How much money do you need to make? 14:28

• The importance of having solid financials in place. 17:22

• How to sell your business like an investment. 24:26

Transcription

Sami Jo Lewis 0:03

Hi, everyone. Thank you for joining us for a live show with Alaska MEP. I'm here with our great friend, Curt Anderson and our ecommerce expert. And we're super excited to chat with you all today about successful exit strategies for manufacturers with Damon,

Curt Anderson 0:22

Sami Jo, thank you what an absolute honor and privilege to be here today with the Alaska MEP. As we talked with our friendly manufacturers about a great topic for you, whether we like it or not, at some point in time, that we need to have that big exit strategy discussion. And we brought in the expert, Damon Pistulka, the co-founder of Exit Your Way from Seattle, Washington. Damon, how are you my friend?

Damon Pistulka 0:47

I'm doing great, Sami Jo, Curt, thanks for having me here today.

Curt Anderson 0:52

Well, what an honor privilege and we're gonna dig deep Sami Jo, let's punch and kick things off. Let's just roll up our sleeves and dig right in these questions for Damon, let's do it.

Sami Jo Lewis 1:02

Awesome. Thank you so much, Damon, again, for being here. So I want to start off with when should business owners or manufacturers start thinking about their exit strategy?

Damon Pistulka 1:12

Yeah, that's, that's a actually a pretty easy question Sami Jo, because you're gonna listen, you're gonna read stuff, they're gonna say just start from the beginning. But realistically, no one does that. Right? You might, you might have an idea, but no one really does it. So let's, let's be practical about it. If you've got a large amount of money that you're going to get from the sale your business, you really need to do this, like, seven, eight years ahead of it prac and contact the tax advisers, because tax advisors can save you hundreds of 1000s of dollars, if not millions of dollars in tax consequences. If you do it more than five years before the transaction, there's all kinds of things they can do to help, you know, get your money to charities, and just different things they can do. But in most cases, in a normal business sale, you know, you should at least five years you should be thinking about it talking about with your tax person. Again, it may not have that kind of consequence. But it's going to have a lot a lot of consequence in what you need to do. Because the actual preparation part of it, if you need to say do some things, and we'll talk about in a moment, you know, if I need to augment my team, if I need to strengthen up some other internal part, if I need to beef up my sales, whatever it is, there's a lot of things that may need to happen prior so giving yourself time. It's like It's like the wrestlers, you know, and I was in high school used to see these wrestlers, they tried to drop those last five pounds the day before, you know, and they're sweating it out like crazy. You don't want to be in that situation you want to you don't have time to do it. And and really to enjoy the exit the process of preparing your business for that exit and really celebrate it like you should.

Curt Anderson 2:58

You know, I love that Damon, great point. I love the wrestling analogy. That's fantastic. Because these poor wrestlers that are starving, they have like, no, they're they have no energy or strength, yeah, and to lose weight, then they have to go out and do a wrestling match, you know, kind of, you know, not the best best equation. But you know, for entrepreneurs, for manufacturers that are trying to sell their business, you know, sometimes it sometimes you're reactive, whether you want to or not maybe a health issue, and maybe a unfortunate life issue comes up when people have a shorter runway, any tips or advice

Damon Pistulka 3:26

there? Well, in the shorter runway, I mean, you're kind of you can do some but you can't do some of the longer term things. I mean, you can, you're obviously not going to be able to change fundamentally your business, you're going to be want to do as much as you can to strengthen your team. And obviously your sales, growth and profitability. But those are the those are the shorter term things you can affect if you got a year or so to do it, because it's going to take it's going to take a year anyway. So your business people might say you can do it in six months, but it isn't happening six months, it'll take it'll take that, you know, take a few months to get your materials ready and everything and prepare and then you're going to be on market. It's going to be a year by the time you're done. So you've got a full year to work on on a lot of things.

Curt Anderson 4:12

Love it. So systems processes. Sammy, what do you have next for us?

Sami Jo Lewis 4:17

No, yeah, thank you so much for going over that. I appreciate that. It's good to start looking at at least five years ahead of time to appreciate that. What is the common stumbling blocks or roadblocks that you see people and businesses run into when they are trying to exit their business?

Damon Pistulka 4:32

Yeah, you know, you can Google this too, but it's first one is owner price owners price expectations. I mean, it just can't line up. It's like I'm not going to sell my business for a million dollars because to me it feels like it's worth three or I read an article in the Wall Street Journal that said it's worth three shouldn't be worth three. So mine should be worth well. The value of your business is really what the cashflow will support or the buyer wants to pay. So you really have to get comfortable with where you're think it's going to be where someone can help you develop what what the market price is, and get comfortable with that, because that is the number one reason why businesses don't sell Big or small, right? Doesn't matter, because my business is worth $10 million, and somebody only pay me five. But I'm making about that much every year or something like that. I'm going well, I'll just run it for a few years, if it's that value in there, right? There's some some situations where that might be what you want to do. But owners price expectation is the number one stumbling block. The second, the second one is a your business has a limited team. That leaves the owner key to the business success. So you've got a limited team to where, you know, Curt knows everything about the business he's running, or Sami Jo knows everything about the business. You're the you're the founder, you're the brainchild, you're the you're the one that people come to, for everything to figure it out, you've got other people in the business, but they're basically doing what you're saying, and not really having responsibility for things like sales and operations and finance. And, you know, you can have just a few people, like it's not like we're talking about huge businesses. But if you're key to it, from a buyer's perspective, they're gonna go, what do I have left if you leave. And so that's, that's a big, so the second one is a limited team, where the owner is still key to the business success. And the last one is, and in a lot of people don't really understand that the toll ramifications of this, but it is little or no growth. And what happens is over time, as, especially if I'm going to business a long time, so I'm gonna start my business, I got to work really hard to get my business. So it, you know, just pays my bills, it gives me an income, right. And then over time, pretty soon, you know, if you got kids, the kids are through college, or they're out on their own doing their own thing. Now, I don't have to pay for that. And then pretty soon my house is paid off, I don't have to pay for that. So there's really not the incentive for that business owner to continue growing that business unless it's something they really are, are intent on doing intentionally doing because they don't need that money anymore, right. They don't need as much money as you as you get farther along in your business. But from the buyers perspective, that little or no growth situation can be catastrophic to them, because they're at the beginning end of this thing. And they are going to have to pay back a loan or a return on their investment for what they do. Or they got the cashflow from the business has to support the payment to the to the previous owner and themselves going forward. That that growth if there's growth there, and something happens while at least I've got growth, if I lose a customer or two, I've got the growth that can take take, replace that. And so really little or no growth is a huge,

Curt Anderson 8:04

huge

Damon Pistulka 8:07

detractor to buyers.

Curt Anderson 8:10

Okay, great. You know what, Damon, I just, man, that was good. Let's recap a couple things here. So number one, expectation of the price of the business for just unfortunately, you know, as entrepreneurs, we put our heart our soul 20 years, 30 years, and we think it's worth X Y, unfortunately, our business is only worth what the person across the table is willing to pay pay us for theme and I mentor friend years and years ago shared this with me, I'd love to see if you agree with this. They said you know a great way to kind of get an evaluation of your business, you know, you can go to experts, like I know, Damon, you do evaluations, you can go to your account, and so on and so forth. They were like, You know what, go to a bank, go to a bank and just ask the bank, what is the maximum loan that you would be willing to give this business because that really is what your business is worth, because who owner is going to do the exact same way. So if that's a real short and easy one. So number one, the Miss expectations, I'll say, number two is as the owner, if you're the key, a, that is a huge vulnerability, and number three, but if your business doesn't have any growth, you know, maybe the owner, the new buyer, not necessarily like a vulture buyer, but they're like they're looking for companies to buy undervalued in his soul. If you don't have any growth, you're not maximizing your sales. So I love those three, three points.

Damon Pistulka 9:28

And I'll give you one more thing on the price because you hit the hit the exact thing that I talked to people about a lot. It right now with the SBA, I mean SBA will own up to $5 million to buy a business on their seven day program, right. And to cover one month $1 million in value with they they work on a thing called debt service, debt service ratio or some coverage ratio or something like that. I'm not I'm escaping me, but It takes $220,000 now and free cash flow to support a million dollars in business value. And that means so if my business makes $220,000, after I pay everybody, including myself as the owner of the business, I can probably sell it for about a million because as Kurt said, going to the bank is a good way to figure out how much it is. The only thing that stinks about that is last year, that was $180,000, the price of as interest goes up, the buying power of the buyers goes down. So this growth comes even in a more play.

Curt Anderson 10:32

Right. Right. Great, great segue. Great.

Sami Jo Lewis 10:36

Those are all great points to think about. Thank you so much, Damon. So if I'm a business owner, and I'm like, Okay, I'm going to exit my business, where is the first place someone would start I mean, is that talking to your tax advisor is like going to the bank, I mean, where's like the number one place that's like, Okay, you want to sell you start here.

Damon Pistulka 10:54

Don't talk to either your or a good financial planner. Because it's always like, the buyer's or seller's remorse is common in a business. I mean, you put a lot of times sweat into blood, sweat, and tears into it. And you, you really want to want to understand what I have to get. And I always tell people figure out how much you would like to get from the business. Or if you have to get a certain amount from your business. Because in small businesses, you may have, you may find out that my business is worth $500,000. But I really, if I want to retire, I need 750,000. So what do we do in that situation? This again, goes back to timing, right? If I'm looking five years ahead, have some things I can do. If I'm, if retirement is six months away, I kind of get to take what I got. So you really go with a financial planner that says okay, here's all the investments you have, or the things you have properties, whatever it is that if you want to live this kind of lifestyle, it's going to take about this much. And they can give you approximately how much money you're going to need from the sale that business or be able to take from that business. So you can build the right next phase of your life like you want. And a lot of people just say, Oh, get the value your business? No, no, no, doesn't matter. Because if you if you don't have the comparison number of how much do I really need to get from this, you don't know where you're going. So I always say start there. And then you figure out how you're gonna get it from your business, right. So it might be a combination, I have to run my business for five more years, and then I can sell it at the value it is today. You know, I'll do some work and make it better, a little more valuable, I do that maybe I can sell it tomorrow. But you really need to understand what that number is. Because otherwise, why waste your time selling it if it's not going to be not going to be worth what you want. And, or you don't even know. And that's worse because people get we got to the point in in years ago, where we didn't have people do this in the beginning. And they would get to the point of getting an offer on a business and then they go, Oh, we go from here to here to here and look at all the taxes they gotta pay and then they go go talk to a financial person and they go, we can't take that. It's not, it's not gonna be enough. Well do that at the beginning. And you'll save a lot of time.

Curt Anderson 13:12

Well, you know what, Damon, there's a lot to unpack right there. Okay, there's a lot to unpack. And if somebody hasn't, you know, sometimes you know, what, those stressful days? What is it Phil Knight from Nike says as a as an entrepreneur is a crisis, every taste and entrepreneurs a crisis. You're putting out fires all day, you know, if you know, there's no person that's more passionate than an entrepreneur, but boy, it's down to Riri. You talked about the seller's remorse, I really feel that we need to scratch that. And the emotional side. Yeah, selling. I don't know, if there's gonna be something in as an entrepreneur, if there's something more in for the record, I sold my business in 2010. I don't know if there's something more emotional. It's your baby. It's your child, like you raise this thing up. And now you're going to sell it to somebody else. David, can you expand on the emotional side? And like, how do you prepare for that potential sellers? remorse?

Damon Pistulka 14:10

No, we in some cases, there are people that will help you do that. Right? What's next? You got to really think about what's next. If you say I'm gonna go play golf from an official date is that that runs out in about six months, right? For most people. So you really need to understand what you're going to do next. And this is part of that whole planning process. Because what I want to do next, for the rest of my life, and the next phase of my life, really, that determines how much money I need to because if I say I'm going to travel around the world, or I've say I'm going to stay at home and build the cabinets, you know, they they're different needs. But you really have to figure out what you're going to do next and get your mind ready for the fact that this is a transition in my life just like I came into business. I'm coming out of business and embrace it and get ready for it.

Curt Anderson 14:58

Yeah, just in the Pick back one more, and then we'll move forward. And the you know, you mentioned numbers, okay. So like the numbers that you threw out before, like, just, you know, keep simple math, hey, I'm going to sell my business for a million dollars on my cast, my business needs to be cash flowing again, for simple math 200,000 ish, right? Well, if I'm pulling out a paycheck, and if I'm netting if I have a net profit of $200,000, in, I'm like, Oh, great, I'm gonna sell my business for a million dollars. Well, after taxes, like, you know, you've got to ask yourself, boy, was I better keeping my business? Or like, how far is that million that you know, a million dollars today is not what it was say, you know, 20 3040 years ago. And so like, that person really needs a look at it. That's where the emotion comes in. You know, he has a health issue. There's a family issue, I have a personal thing. I'm just fed out, I'm spent, I've put in my life, my heart and soul. I don't have any thing left in a gas tank. And Damon, you always talked about when people stay too long, then that's when it gets, you know, goes in a bad direction. Right?

Damon Pistulka 15:59

Yeah, yeah. And it really is, it's you, you have to be ready for it, and are just gonna be a time that you have to do it.

Sami Jo Lewis 16:10

Sounds like you really have to plan for it. I mean, what we're going over five years. And it's like so hard, because like, I'm not a business owner. But I just know, a lot of times when you get started in business, you're not you're just so excited and wrapped up in it and so crazy busy, you're not thinking about getting rid of it until you have to. And so really thinking about that, I mean, almost seems like all entrepreneurs should go through a little, you know, Damon session or some things like, Hey, I'm starting a business? Well, let's, you know, I know, we're not thinking about selling it, but know that you need to start five years in advance just to really put that on the radar. I think that's really important.

Damon Pistulka 16:44

Yeah, yeah, you know, and in fact, when I used to run businesses, for investor owners, when we would buy them, we would start talking about where we were going to sell them where they were, you know, because we would be in and out of them in five to seven years, and you'd have to go, Okay, this is where we're going to sell it, or this is the other companies we're going to buy. And then we're going to sell it to this kind of place, but they start talking about it from the beginning. Because they're they're looking at it as we should be in smaller, smaller private owner owned businesses, is that it's a wealth generating tool. For us. That's what it is. That's what it really needs to be considered as.

Sami Jo Lewis 17:22

So diving into step one, you know, get with your financial adviser sounds like that is very important. Can you talk about the importance of having solid financials in place when going to sell a business?

Damon Pistulka 17:35

Yes, you can. Well, I, I, I've been in, I've written $50 million companies, where people literally run it out of a checkbook, right? You know, that's just like paying bills, there's money in the account, paying bills, all that kind of stuff. And, you know, until the point where you get to, oh, we gotta pay taxes, I gotta go to the bank, because I mean, a million dollars, pay taxes kind of thing. So you can do that. But when you go to sell your business, how the heck are you or anyone else going to determine, you know, what are my actual cost on a weekly, monthly basis, annual basis, and what is my business value, because if I'm not keeping good financial records, and I'm intermingling my life in my business too much, or without really designated witches, which you can mix them up, but you're gonna have to pull it apart after a while, but if you don't have those records that are good that someone else can verify that, hey, I build a million dollars, I, here's where I got it coming into the bank, and here's how it went into my financials, it's gonna be real hard for anyone to be able to, you know, assess the financial health of your business. And I don't even know that you could get a business loan, if you didn't have good, good financials. If there's someone's gonna use a loan to buy it. So

Curt Anderson 18:54

it's critical. It is in Damon, you're hitting on the head. And it's very common for entrepreneurs that just, you know, that kind of slips through the cracks. You know, we do our financials, you know, quarterly or, you know, somebody a friend or relative or whatever, and they're just, you know, I'd say that go back, you know, in my experience, that was one thing that we did was like, we were meticulous down to a penny, where whenever somebody wanted something, you know, all we had to do is hit a button. And it just, it gave such a greater peace of mind and you could sleep peacefully, because you didn't have that stress of like, oh, man, I gotta go back to a receipt from three months ago. And I've got to do this got to do that. Boy financials, financials, financials, as Daymond said, if you're thinking about it, if you're just thinking about it, get your financial house in order, contact Alaska MEP, they can connect you with a financial expert. Get a great CPA accountant behind you. Talk to someone like Damon an expert and just align yourself but if if you're going to do yourself one favor out of this conversation, get your financial house in order. You're going to really thank yourself to you Go think your future your future, your future self would think your current self, how's that?

Damon Pistulka 20:05

Yeah, and I'm gonna, I'm gonna get put one more thing in here too, about solid financials is, as you're in the process of selling a business every month, you're going to want to be updating the performance of the business. And that will therefore update the value of your business every month. So if I'm on a growth phase in my business is actually worth more, because my profitability has increased over the last four months. It's like a rolling fall month schedule, that's how they they enter when you're selling the business determine the value, but if that's going up, you want to have that really good and really safe. Because then when you're discussing the sale of the business, the buyer, you can say, this is what it's worth today, but it's going up tomorrow, and it went up last month, just like, you know, it helps tremendously to have that kind of information. And on the flip side of that, if you're going to make a change to your business, for some reason, you want to see the impact right away. Yeah. So yeah, real important

Curt Anderson 21:05

credit. I, you hit a phenomenal point in Damon, I don't know if you agree with this, I would I would I've dealt with manufacturers business owners, that you know, they bind to sell, but you know what the challenge is? And we talked about this several times, Sami Jo, like with our workshops, we're always talking about like, hey, how do we think of the customer in sales, with our messaging with our marketing, all that stuff? Think about the seller, look at your business, pretend like you know if your home like if like, you know how my home is right now, compared to like, if I was trying to sell my home, it's probably two different houses, right? Yep, touching up paint, we're going to clean this we're buying, you know, like, it's going to look sick and span. So treat your business because the business owner is buying this. And Damon, I'd love to see if you agree with this word, I have one word in mind, one word only hope they are buying hope, I hope that I'm going to buy this business. And you know, you know, shame on us for having an ego. But I'm going to take this business to a whole different level than what you could do. So they're buying hope. So when you sell your business, you're selling a story, you're selling your past your expertise, your previous customers, but when they come in, like they need a fresh, clean slate, and they're trying to take this thing to a level that they intend on taking it, you know, much higher than what you did. If you can paint that picture and share that story and want them so successful. incur that success. That's when you're going to be successful with that sale. Right? How do you feel? Yeah,

Damon Pistulka 22:33

oh, yes. Because, you know, the performance as of today establishes a price. But the hope in the in the way that you can communicate what tomorrow looks like, the more hope the more you can communicate that tomorrow is a brighter future. And that fire believes that can see themselves in it, the better off you're right. Perfect, gets healed.

Sami Jo Lewis 22:57

Yeah. And I feel like it just feels so hard to do that with just like the different emotions and play that come with selling your business. But I know we've touched on a lot of different points around this, but any more to say about how a business owner will really determine the value of their business. I know as Kurt pointed out, maybe just go into the bank seeing how much they can get for a loan but and then you just talked about the different gross doing check ins month anymore, you can really dig into that to determine the value.

Damon Pistulka 23:25

You know, the the only other the real practical way that people do if if you're in the business of selling businesses right there, they're going to look at comparable transactions. And there's private databases same ones a bank use, I mean the banks use it to develop their their valuation, and you're gonna look at it but when you look at a comparable transaction, I can look at okay, we saw these are 17 comparable transactions, this was their revenue, this was their profitability, this is the price they got as a multiple revenue, multiple profit, you know, there's there's a whole bunch of things analytical that you can look at, really compare yourself to go okay, where should I be within this range? Because there's a range do I fall in the bottom of the range or the high range compared to others? That helps a lot that but still back to what Kurt said about the bank is a great you know, because it's gonna get you close. And really at the end of the day, that first close guests is is the one that you want to start out with.

Curt Anderson 24:26

Yeah, great, man. Damon, you are so good, man. This is such a great jam session we're gonna wind down and one thing I want to share that we you know, unite for folks new you know, you and I have a live stream show. We've interviewed some wonderful people and you know, different folks and sauna business. I'm going to share we had a gentleman who if I can say the name of the company, big ass fans, wherever so we had founder and he took this company from zero and into a half a billion. That's a B half ability, company and We and he was quoted as saying this, in this, if I were to give any advice for someone trying to sell their business, this is what I would love to share. Don't treat it like your baby. And it's very difficult. And if you remove the emotion and treat it like an investment, treat it like a stock, treat it like a piece of real estate. But we get so emotional because it's attached to us. It's attached to our ego. But Carrie Smith, the founder of a company I just mentioned, I won't, I won't say that word against Amy Jo. But what his advice was, I never treated it like a baby, it was my investment. It was like a pack of gum. And when it was my pack of gum, it was great. And when you paid me for it, it was now your pack of gum. If you didn't have a few, I hope if that one sticks with you, if you can treat your business, I don't mean to be so flippant about it. But if you can treat your gut your company and remove the emotion and treat it like an investment, you're going to make much more sound logical, rational decisions, and just treat it like a pack of gum. So that's my advice. Even any other as we wrap up any other parting thoughts?

Damon Pistulka 26:01

No, I agree. 100% Your business is a wealth generating machine. It's an investment. And you need to like you said treat it as such and do these things. Really take your time get started early. Don't Don't wait till the end because you don't you can't change a lot the end. You know, and and understand what it's worth how much you need and

Curt Anderson 26:23

do the work. Do the work? Absolutely. We've got to we've got to comment in the chat section there. Hey, look at that. Hey, everybody, Jason's there. So Jason, thanks for joining us. Appreciate it. We're going to wind down Sami Jo Damon. I are honored and blessed. We are going to be visiting Alaska. We have a great roadshow coming up in Kenya. Do you want to do you want to share what's going on at the Alaska BP coming up in two weeks?

Sami Jo Lewis 26:48

Yeah, absolutely. And thank you so much for joining Jason. I know. I'm super happy that you enjoyed this. I know I've learned a lot about treating it like an investment. And this is something that all entrepreneurs should get in. We're super excited to have our experts, Kurt and Damon both joining us on the Kenai Peninsula. There'll be hosted on Tuesday, May 30. At keypad, you can find the registration on our website and we would love to talk to you about it more. We'll be talking about succession planning, SEO strategies, pricing your products to make a profit and so much more. So we hope you all can join us.

Curt Anderson 27:24

Awesome. Thanks, everybody. Thanks for joining us, Sami, Jo. knows you Matt Damon and what a great hostess Sami Jo is yes. knows how to throw a great party. So reach out to the Alaska MEP, any entrepreneurs manufacturers out there. You need help taking your business to a new level. The Alaska MEP is an incredible, wonderful resource for you and reach out to Sami Jo and the team at the Alaska MEP. Sami Jo, take us away once you close this out and we will wrap up now. Thank

Sami Jo Lewis 27:55

you so much. I so appreciate you having you on the show. Damon is wonderful to have you interviewed and I hope everyone learns so much and can get started and getting that five year plan ahead of time. Thank you guys.

Curt Anderson 28:08

Thanks, Damon. Thank you