With several exceptions, most of us have no interest in selling our businesses immediately because we have so much more we want to achieve with our companies. However, the simple fact is that "life happens." And sometimes that means circumstances beyond our control and even welcome surprises happen when we least expect them, making the need to sell our businesses sooner rather than later a pressing priority. That, according to our guest, is the reason why we need to get our businesses "sell-ready." Marc Borrelli, CFA, Vistage Chair and accomplished global M&A advisor talks about the steps every business owner like you should begin to take now to get your businesses sale-ready as soon as possible because you never know what the future will bring.
One of the things I always remember somebody telling me years ago, if you cannot be replaced you cannot leave your job. So if you want to sell it and you can't be replaced because you do everything, you can't sell the business.
- Marc Borrelli
Jeff: Whether you're selling your business a year from now or 30 years from now, my guest says you need to start getting your business sell-ready right now. If you'd like to know why, you've come to the right place.
From our studio in Southern California, with guest experts from across the country and around the world, this is "Deal Talk," brought to you by Morgan & Westfield, nationwide leader in business sales and appraisals. Now, here's your host, Jeff Allen.
Jeff: Hello, and welcome back to the web's number one content source for small business owners committed to building a business for eventual sale. Here on "Deal Talk" it's our mission to provide information and guidance from our growing list of trusted experts that you and all small business owners can use to help you build your bottom line and improve your company's value.
Getting your business sell-ready, what does it entail, why is it important? We have somebody here who's going to tell us all about those things. If you're looking at building value in your companies, this is the show that you're going to want to listen to. So pay close attention, because joining me right now is Mr. Marc Borrelli. He's group chair, business coach and trusted adviser with Vistage Worldwide, and is a renowned consultant and speaker in his own right with over 30 years of strategic and business banking experience. Marc Borrelli, welcome to "Deal Talk," sir, thank you so much for joining us.
Marc: Thanks very much, Jeff. I appreciate it.
Get a good management team. It may cost you more money than you spend right now but it will pay multiple dividends and grow your business much more.
Jeff: Let's talk a little bit about your background, Marc. You've got a tremendous depth of M&A experience, and we talked about the business banking experience and really working in the corporate space chiefly. Tell us a little bit about your background and kind of where you're at now with Vistage.
Marc: Yeah, sure. I started on my career I guess unofficially 30 plus years ago when we sold our family business in South Africa. Made a lot of mistakes, and I decided I should learn how to do this right. So went and got an MBA and a law degree. And then went to start work in London where I worked for a small bank that no longer exists, that many. But in that time I sold premier football clubs and a lot of industrial companies, service companies, oil and gas.
I then came to the States and worked for Holiday Inn Worldwide, head of strategic planning, Europe, Middle East, Africa, and Asia Pacific. And I did hotel deals all over Asia and then Australia. A lot in China and Australia itself. I then went to Equifax where I ran their international M&A for a number of years doing deals in Latin America, Europe and Asia. And what I realized at Equifax, the example I give to many potential clients and Vistage members, and actual clients is … you have a small business, you maybe have 15 people in your head office and a bunch, it'd be 300 employees. And I would come in, and I'd have 20 people in my due diligence team, and we could tear your company apart. You weren’t even be ready for this. And so what I learned was going back to this, being sell-ready so that when the due diligence team comes through it is easy. That became the key.
And so the transition was, I came out of the corporate world realizing that. I started my own firm to focus on that, and found that while I focused on many clients who came to an investment banking firm, they said I want to sell, I don't want to get sell-ready. And so that’s why I migrated into Vistage, to get that message across and help people build their company so they're also ready.
Jeff: Let's go ahead and let's start by asking Marc Borrelli, then, the $64,000 question. It's not the only one but it's the first question we have today. Why should a business owner get his or her business sell-ready whether or not they even have plans to sell their company anytime soon?
Marc: I think there are three reasons, actually. The first one is life happens. I speak to a lot of owners. They don't intend to sell. They have some fixed date out in the future, five years from now it's going to happen. Nobody knows what tomorrow brings. Tomorrow you could die, you could get divorced. I've had clients who get divorced and in a fight destroy the business.
Or even worse for your business, not for you but for your business, is you become seriously disabled, like Christopher Reeve. And all of a sudden you're in a hospital unable to function. Your family's focused on you. Your business is leaderless. And the value of it dissipates every day you lie in that hospital bed. And you haven't got a management team that can run it. And you don't have enough disability insurance to maintain your lifestyle. You don't know what tomorrow will bring. You also don't know that, you may have some date in the future where you want to exit. But let's say 2002 you had said, "I plan to sell my business in 2008." Well, great luck, because in 2008 you couldn't give the business away. We don't know. So that's why it's always best to be ready. Secondly, following on from that, businesses that are sell-ready, I would say very similarly they're more efficient, they make more money, and the owner doesn't kill himself doing it. And that's a great way to be.
Jeff: Boy, I'll tell you, it really does sound like a tremendous luxury even for those of us who are kind of self-employed and do our own things here, in our studios here in Southern California, and the host not withstanding, of course. It really does sound like if you could somehow, someway have that second person in charge who knows every bit about the business as much as you do that so many of the worries that you might have now might be able to drift away slowly but surely, that you don't have to have those concerns should something happen to you.
We're going to talk about some of the details behind getting sell-ready, Marc, but how important is part of that getting sell-ready process? How much importance do you place on finding that second person in charge or getting that second person in charge, that manager, for example, that seems to have so much promise, ready and up to speed with everything that's going on with your company? So that if something by god does happen that you've got someone you can rely on.
Marc: I think it's crucial, but I don't like to think of it as one person. I see it as a whole thing if it happens across the organization. And in that aspect what I look at is, first we'll start out with the leadership team. And the analysis I always give there is think of a Seal Team, which is a very common thing. And the thing I love about this analogy, and I've used it with a lot of people. A Seal Team are given a mission. Their mission is to accomplish X. And then they develop the strategy. And because they develop it as a team they all know it. If you'll ask each one individually what is the strategy, they will give you the same answer. There's no confusion.
They also know exactly who's going to do what. And they know if somebody goes down how they're going to cover for that. And finally they know at what point the mission is no longer attainable and they need a new mission. And I find that most entrepreneurs on in that state they don't have a strategy, which is one of the sell-ready things. But even if they do they tell their management what it is and so you don't get this unanimity across the management. Everybody gives you a slightly different version and they don't quite know what everybody's covering and where the gaps are.
And so if you get your management team involved where they're producing and they're developing it, and all they know is what the end goal is then you don't have to worry as much. Because if you have a good management team they will accomplish it. And following from that is all the employees.
One of the great things private equity has done is they help most employees figure out what they do that makes money for the company. And if each person knows what they're doing that makes money for the company, then they're more likely to be able to do that efficiently. And combining a few other thoughts is can you get them to make the decisions where they have the information and not dictate everything from above?
There was a great book by a guy called David Marquet called “Turn the Ship Around,” and he says, "Move the decision making to where the information is. Stop giving orders. Let people come to you with questions but let them make decisions.” And I think that's a culture that if your employees have it then you don't have to do as much. And they know what the goal is, and you tell them what the goal is, and everybody works for the goal. But it does require one last thing. They have to believe you care about them.
The more you can show systems that track things, you show how you measure things, how you correct the changes in the market, and how your team is all working as a team, that just gives them [buyers] confidence and the value goes up. And people want companies like that.
Jeff: That's so important, and I think it's something that we forget about. Marc, today in this day and age, as busy as people are, so many people, and we've said this again and again in the program, not only work on their business but they work in their business. And because of that they spend so much time quite literally in their office or out in the field.
We're all in our little silos and we forget that the people down the hall or maybe on the floor down below, if we're running a manufacturing facility. Each one of those individuals, according to what you're saying, possesses a value. And that value in fact can contribute to the overall value of the organization. And it is incumbent upon us as leaders of our companies who are interested in the value of our companies to utilize the value of our employees and understand what it is they do, what it is they do well, and how they can contribute.
I think it's really, really important, very key indeed. Marc Borrelli is that man on the other side there. Group chair, business coach and trusted adviser of Vistage Worldwide. We told you he has 30 years of strategic and business banking experience. You're listening to "Deal Talk," my name is Jeff Allen.
Marc, I'm kind of interested to know. We talk about the importance of getting sell-ready and so that, OK, I'm not even really ready to sell my business, so I'm looking for other good reasons to sell my company. And you touched on it a little bit. I was wondering maybe you can kind of elaborate just a little bit just how much getting sell-ready and all the preparations that I make for that, even though I don't have any plans to give up my company yet. How much getting sell-ready might actually improve the value of my company right now, very, very quickly indeed, that could take my company into another atmosphere where value is concerned and do it in a relatively short course?
Marc: You know I think it does add a lot of value to the company. Because if I go back to the concept that your employees and your management team knows what your goals are, they will help you realize them, and you don't have to work so hard. So the chance of you hitting them, if you've got a 30-person employee base and management team. You have 30 people all paddling the same way as you are. You're going to get there quicker. I think the other thing is that sell-ready has many metrics and you start to track metrics, you start to have processes. You become a learning organization, and all those things help.
And the other thing about being sell-ready, the key of it is to give buyers confidence in the future, because they don't know what the future is. So when you tell them I'm going to make $10 million next year, or $5 million. And the year after I'm going to double it. They want to look at something that tells them, "Yeah, there's a good chance you're going to do that." And the way they get that confidence is the systems, the processes and the people. Because we don't know. The future is unknown, and so we're trying to get rid of the uncertainty. And the more you can show systems that track things, you show how you measure things, how you correct the changes in the market, and how your team is all working as a team, that just gives them confidence and the value goes up. And people want companies like that.
I talk a lot about selling businesses is like dating at 50. Unfortunately, not every company is going to find a date. There are a lot that'll just never get sold because nobody really wants them.
Jeff: And he says that with all fondness, sincerity and a smile in his heart. And I can see right now that ... this is a guy right now, probably if he needed a date, he wouldn't have a problem getting one at all. Marc, I'm going to ask you to stay right there because when we come back what I'd like to do is I'd like to talk to you about the actual steps to kind of get sell-ready. And you talk about getting sell-ready with less effort. Marc Borrelli is joining me. He is in the Atlanta, Georgia, area, I think, aren't you Marc?
Marc: Yes, that's right.
Selling businesses is like dating at 50. Unfortunately, not every company is going to find a date. There are a lot that'll just never get sold because nobody really wants them.
Jeff: And we're going to continue our conversation when "Deal Talk" returns right after this.
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Follow the instructions to leave your question. We'll reach out then to one of our guest experts, one of those experts might be even Marc Borrelli down the line, who knows? We can feature your question and their response on a future edition of "Deal Talk." Ask Deal Talk at 888-693-7834 extension 350. Ask Deal Talk and morganandwestfield.com. My name is Jeff Allen, with my guest today, Marc Borrelli in Atlanta, with 30 years of business banking experience in the M&A space, and trusted and well-renowned speaker and business coach, and now with Vistage International.
Jeff: Marc, you have some very interesting points to make on your website and you provided me with some very interesting information that you share with your own clients. And what I'd like to do now is talk a little bit about the steps that business owners can take to help them get their businesses sell-ready with less effort. I think that's what all business owners want to hear because they're so busy trying to figure out ways to make money and to just get their jobs done. And to make sure that everybody is productive in finding ways to grow their companies. But what are some of those first few steps that we can take to get our business sell-ready with less effort?
Marc: I think first of all you got to be realistic. It's a process and it takes time. And a lot of people want to do it in a couple of months, and you just can't, and that will kill you. So to do it with less effort you got to lay out a time period, and I usually say it takes three years.
Secondly, you do need to use some other advisers. They will help you through it. And I think the first place to start for everybody is a buyer’s due diligence list. And if you've never seen one, they're huge, and most of the people I show one to look at me in total disbelief and go, "Nobody would ever ask us all those questions." And my answer is yes, they will. And not only will they ask you, whatever you say will go into the reps and warranties and sale and purchase agreements, so you better know.
What I found when I do this with clients, and this is just the starting point. But once they completed that buyer’s due diligence list, either saying something's not appropriate or they've pulled the information, we've analyzed it, and presented it the way it should be. They've learned so much about their business that they suddenly start to understand some of the issues that they businesses face and where they have to fix them.
And I think this comes out as my experience in 30 years has been that successful entrepreneurs all have one common characteristic, they're great salesmen. If you can't sell, you don't have revenue, you don't have a business. So they could all sell. Which means they know their customers and they know their products. They don't always know how they perform financially. They'll know if they make a profit or if there's money in the bank. But true financial performance and metrics they don't know.
Legal is a total mess and HR is the worst thing. I've had a couple of cases were their wives have been the head of HR and they've said, "We don't let our husbands anywhere near the employees because they'll just upset them." You start from that, where they know one part of the business and the rest they don't worry about because they don't feel they need to, they're driving the engine. But it's the backend where there's a lot of stuff you need to pay attention to and fix up.
I think it's a process. You start with a buyer’s due diligence list, you work through that. And that'll identify the things you need to work on as you go through the next few years. And then it's like getting fit in a gym. The first stage is to get fit for the heart, but once you get there, you just maintain it. And so once you've set yourself as sell-ready, you’ve just going to maintain it without a lot of effort going forward.
Jeff: And there you go. That kind of makes it easier, like you said, moving forward and allows you to just simply at that point really focus on what's most important. Those are your customers, your employees and your business as a whole. Marc, one thing I remember reading in your materials that you provided were kind enough to do so to help both of us prepare really for this conversation. You talk about gearing our businesses to suit others. And when you think about it, it makes a lot of sense. Although it's funny, we don't ever hear it verbalized quite that way. Why is it important to gear our businesses, something that we're so close to, something that we're so intimate with and so much a part of us, to suit other people down the line?
Marc: Well, I think it's for the very reasons you said, we're so close to it and we're so in it, and it suits us. I give two analogies, one it's just like selling your house. And in your house you've got this big, comfy, La-Z-Boy in front of the 60-inch TV, and maybe you've got a mini fridge next to it. And that is how you like to spend your weekends, and it's perfect for you. And it never bothers anybody. But when you come in to sell it the realtor just about has cardiac arrest looking at that and says, "We've got to get this house fixed up so that it'll appeal to the market.”
And when you're selling outside of yourself you got to appeal to everybody. You can't just exclude people. So that's why I said we have to get ready for others. We're trying to create it so that it has more appeal. And in that the next issue that comes out is the owner usually, if there's a strategy he has it and it's in his mind, he knows what his advantages are in his mind, but this is a great wealth of information that all exists between his ears. And we need to extract that out from there and get it out so the people can appreciate it.
Going back to my dating analogy, as I tell people, when you sell a business, all the buyers get a teaser, what we call a teaser, and it's like an online dating profile. It's a short piece, got some financial, some information. And financials are like the picture, they stop the person from throwing it away. But what does the rest of it say? What is the strategy? What is the sustainable competitive advantage the company has in its marketplace, what is the management team?
And if you can put that down, that's like having a great online profile that excites people where they don't just look at the picture and say, "I want to meet this person." They say, "I want to spend time with this person." So the buyer looks at it and says, "I want this company. I'm falling in love with this company. I want it in my portfolio because it's the best thing I've ever seen." And if you can't talk about that in your business and you just say, "Well, we sell widgets and we make a good profit." It's interesting but it's not captivating. And you have to captivate people.
Jeff: Marc, I know that you personally advise business owners and have done so all over the country and all over the world in your travels. But are there other individuals that we might be able to call upon, particular individuals maybe for third-party organizations or maybe they're business advisers themselves that you can point to who can give us the feedback that we need?
I'm not looking for names but I'm actually looking for the types of business professionals that a business owner can call upon to help him do exactly that, essentially get him or her get their business sell-ready. But also kind of take them a bit off to the side and say, "Look, this is what you need to do. You're not doing this. This business is not appealing to this set of people over here. And these are the folks who are going to be most interested in buying your company." Who should those individuals be that you look to for that kind of advice?
Marc: I think it's hard to say exactly, but a couple of people I would talk to is, I would talk to an M&A lawyer. I know lawyers aren't the people you'd look to but they can point out some gaps you may have in your legal systems. I would talk to your accountant and say, let's look at the financials and qualitative earnings on the business if you're not having audited. How much comfort do we have in this? Are we going the right way? And then maybe some HR professionals to say how efficient is this team.
One of the things I always remember somebody telling me years ago, if you cannot be replaced you cannot leave your job. So if you want to sell it and you can't be replaced because you do everything, you can't sell the business. A truly sell-ready business, the owner should be able to step away for three months. And I'll check in and come back and find everything is running smoothly. And then it doesn't matter if you sell it or not. It just runs and you make your money.
So I would say look at those three people, they're not going to do the coordinated work that somebody might do. Some investment bankers will do it but not all. But if you get them as a team and work with them they may be able to help you.
Jeff: I want to come back and address an idea that you just talked about a second ago. You touched on it. The buyers, they'll walk away from something if they're not confident about it or if there's something that turns them off. Some of these things are probably, maybe factors that can be measured, others that can't be as easily measured, certainly with statistics or with any kind of measuring instrument per se, Marc. But price aside, what are some reasons that a buyer might walk away from the table and say, "No, no deal"?
Marc: I think it's a couple of things. I think first of all is lack of information. When they start to do their due diligence, if they can't find all the information they want they get more concerned, because things they can't find the answers to just have big questions. Secondly is the management team. Can they trust them? Because if the owner were, in the worst possible case, to drop dead the day after closing, who's going to run this business?
And finally, it's how easy or hard is the owner to work with. When I ran Equifax's M&A, if I was working with an owner who was difficult, or they didn't have all the information... As I used to say to people, I go to the board and I present a deal, and I'm going to put my career on the line saying we should do it or not. If you make my life hard or you're difficult to work with, or I don't have confidence the deal is good I'll pass. Because there are so many other deals out there. And I'm not willing to put my career on the line because you don't have good information.
There are a lot of things that'll scare them away. But lack of information that I can get to and justify why you're telling me what you have is what you have will drive a lot of people away very quickly. Or buyers will just keep changing their mind and are difficult to work with.
Jeff: Marc, you've got your own trusted adviser in the room there with you. It sounds like he might be kind of hungry there.
Marc: I apologize for that.
When you're selling outside of yourself, you got to appeal to everybody. You can't just exclude people. So that's why I said we have to get ready for others. We're trying to create it, so that it has more appeal.
Jeff: No, that's OK. There are companions, and their family members, and they're just an active participant here in the program. How important, Marc, are the intangibles? Again, I just mentioned a short time ago about the things that you can't really plainly measure. They may not be things that you can plainly see. But intangibles in a business, how critical are they and are there intangibles that can actually build a buyer's confidence in a company that can actually help to kind of seal that deal?
Marc: I think the intangibles, there are two things. One, there are assets which buyers don't always realize they have. The best analogy I can give to that is years ago I was working with a company that was looking at buying Playboy, not that they were interested in anything Playboy did. Except if you can remember '80s Playboy had like 40 channels on your cable box. They just wanted those channels. They didn't care about anything else, they wanted access.
Sometimes buyers had these assets they don't appreciate and that has value. But that's not a true intangible. I think the true intangibles buyers have, again, is that management team. Can they resolve the issues? Can they lead the company? Can they see what's happening in the market and adjust this strategy, adjust their tactics to maximize the value? That is the greatest intangible.
If I meet a management team and they all give me the same strategy. And when I talk to them they know what they're doing, they have great pride in the company, they can tell you why their company is superior to any of their competitors. They understand their market. Boy, that just speaks volumes. That is a company I'm really excited in.
Jeff: Marcus, we're winding down the program now. Sixty seconds, can you give us some final thoughts and things that we can take away from our conversation today, or maybe things we didn't talk about at all that you'd like to go ahead and leave with our business owner audience today?
Marc: Yeah, I think I would definitely start getting your business ready regardless of what you plan to do because you don't know how long it'll take. I would use advisers in an M&A deal. It is time-consuming, it would distract you. What you should try and do is run your business as much as possible. Because until the contract's signed and the money's in your bank account, the deal's not done. And many owners go through the process and find out at the end it fell apart and they haven't looked to their business for three months, and the numbers have suffered.
And finally, get a good management team. It may cost you more money than you spend right now but it will pay multiple dividends and grow your business much more.
Jeff: Oh, can you imagine. Absolutely, Marc. Great words of advice. There are no doubt, our folks who might be interested in contacting you to potentially work with you, at least bend your ear a little bit and get your tips, your guidance, your advice, hear what it is that you have to say to help them get their business on the right track. If they're interested in sitting down with you or chatting with you by phone, how can they reach you?
Marc: Phone, you can reach me on 404-368-9894. Again, that's 404-368-9894. Email, I'm afraid it's email@example.com, but that's Marc with a C. And Borrelli is B-O-R-R-E-L-L-I. I apologize for the name, but it's my father who gave it to me and I can't change it.
Jeff: Marc, there's no need to apologize whatsoever. We appreciate having the opportunity to speak with you today. This was a great conversation. And I hope that if you're willing, that we can have you back on the program again sometime in the near future.
Marc: Sure, I'd love that, Jeff.
Jeff: That's Marc Borrelli. He is a seasoned business expert with over 30 years of business banking experience, and now Vistage Group chair.
We hope that you enjoyed this conversation as much as I did. Why don't you tell a friend about "Deal Talk"? We would appreciate that. In addition to morganandwestfield.com, you can find us over on iTunes, Stitcher and Libsyn. And don't forget, the morganandwestfield.com site you can find the complete transcript of this program. So you can always go back to those notes and you can print them out, you can save them onto your computer, and go back for reference purposes, and see exactly what it is that Marc said that really kind of tuned you into the importance of getting your business sell-ready.
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