Zero To A Hundred – Episode 46: The Business Exit Strategy That Actually Works—And Why Most Fail With Homer Smith

Accelerators! 🚀

Are you an entrepreneur looking to sell your business and maximize your wealth? This week, Jarrod Guy Randolph welcomes Homer Smith, founder of Konvergent Wealth Partners and a fiduciary advisor with over two decades of experience in wealth management. Homer specializes in helping business owners like you navigate the complexities of exiting your company, managing multi-generational wealth, and ensuring a successful transition. Having built one of the nation’s largest advisories, Homer shares invaluable insights on optimizing your exit strategy.

What’s on the Menu:

• The Three Pillars of a Successful Exit: Discover why company readiness, market readiness, and owner readiness are crucial for optimizing your business sale.
• Enhancing Business Value: Learn key strategies to increase your company’s valuation, from financial integrity and growth trajectories to building a strong management team.
• Life After the Sale: Understand the financial and psychological aspects of transitioning out of your business, including managing liquidity and finding new purpose.
• Navigating Business Cycles: Gain insights into how market conditions and economic cycles impact the sale of your business—and how to leverage opportunities even in challenging times.

Why Tune In?

Homer Smith provides a comprehensive framework for business owners contemplating an exit, emphasizing strategic planning, financial foresight, and mental preparedness. Jarrod and Homer delve into actionable steps you can take years in advance to ensure you’re not just selling your business, but truly maximizing your wealth and stepping into a fulfilling next chapter.

💬 Gem from Homer:

“The most important thing is to start early—even if you’re not planning to sell for 5 or 10 years. Have someone assess your business through the eyes of a buyer or investor to identify potential red flags and areas for improvement.”

Get in Touch with Homer:

📧 Connect with Homer directly at Homer@KonvergentWealth.com or visit their website at KonvergentWealth.com for resources and expert guidance.

Don’t miss out—hit that subscribe button and let’s accelerate together! 💥

—

Watch the episode here

Listen to the podcast here

The Business Exit Strategy That Actually Works—And Why Most Fail With Homer Smith

I’m very excited to welcome our guest, Homer Smith, who is the Founder of Konvergent Wealth Partners, a firm that specializes in helping businesses like yours prepare for your exit. Homer has been in wealth management for over twenty years as a Fiduciary Advisor, and he works with families, helping them manage their multi-generational wealth creation, so some good things here.

What’s cool is Homer built one of the biggest advisories in the nation as a coach and a leader. Some of the topics that we will cover will be preparing for that exit, what that looks like, creating multiple enhancements, so when you sell your business, you get more, what life looks like after the sale, and the different business cycles that we find ourselves in as entrepreneurs.

For those of you who don’t know me, my name is Jarrod Guy Randolph. I’m the founder of BoxFi. We are the nation’s leading payment processing consultant, providing business growth solutions for business owners through payment processing. I’m excited to share the network that I have built over my 25-year career to help you grow your business and become more profitable. Ladies and gentlemen, let’s accelerate together.

Homer Smith, thank you for joining us.

I’m excited to be here. Thanks for inviting me on.

Are You Ready To Sell Your Business?

Homer, let’s talk about what business owners need to do when they sell their companies. Our audience is entrepreneurs, business owners, many of them very successful, and many of them looking to sell their businesses. When you have a company or an owner that you’re working with who says, “Homer, I want to sell my business,” what are two of the key things that they need to be thinking about when they’re looking at exiting something that they’ve built over the years?

There are three things that need to be there in order to optimize the result for their business when they go to market. First, the company has to be ready. It has to be hitting on all cylinders, growing, financials look good, management team is great, and all the things that make the business itself attractive. Two, the market has to be ready. You might have your business firing on all cylinders, but we’re in a recession, or credit markets are tight, and so the multiples aren’t there that you would want. Maybe the market is not ready yet for your company to go to market.

The third thing is, as the owner, you have to be ready. While this might seem like an obvious thing with a business owner raising their hand saying, “I want to go to market,” but we find many times, especially for founders who created this amazing company, it’s been their baby and now they’re going to sell it and somebody else is going to be taking this thing over, they get second thoughts right at the last minute. It might even undermine a deal that’s perfect in every other way, but they’re not ready. It’s those three things. Making sure the company is ready, the market is ready, and they are ready for an exit.

Let’s dive deep into the company being ready. What does that mean? Build some framework around that so the audience can start to think of, “As I sit here today, would my company be ready for an exit?”

We’re going through that with a number of businesses right now. We’ve got a long-time client who’s been through ups and downs throughout the fifteen years that we’ve been working with them. The timing is now perfect because they’re on a four-year growth trajectory where, two years into it, they’re seeing significant year-over-year growth. A huge factor for a lot of buyers is that they want to see that you’ve consistently been able to grow the business over a period of time, and that you’ve got a runway to keep growing the business.

In addition to the growth, they’ve got to see, are our financials in order? When a buyer is reviewing the financials, can they trust them, or are there all sorts of questions and things that make them wonder, “When we take this thing over, are we going to get the results they’re showing us?” There needs to be confidence in your financials.

A lot of buyers these days are financial buyers, private equity groups. There’s a lot of dry powder out there. They want to know, particularly, does the management team has the capability to keep that growth path going without the owner being as heavily involved. Often, what happens is they come in, they want to invest a lot of money to continue that growth, but the owner is ready to leave. Can that management team sustain that growth? What kind of revenue streams is it? Is it recurring revenue or is it one-time revenue that impacts the value of the company?

When we say, “Is the company ready,” it’s 7 or 8 different factors that we know that, whether it’s a strategic buyer or a private equity group, these are the questions they’re going to ask. These are the things that are going to be important to them, and it’s going to impact the valuation, depending on how well those things are going within the company at the time.

If you’re looking at selling to a PE firm, is there one key thing that you should focus on in the business to make sure that the business is ready to sell? You had mentioned there are eight different things, but if there’s one thing that you can correct starting right now, and you’re looking to sell in two years from now, what would that one thing be?

Let’s assume the business is doing well financially, because if the financials aren’t great, no matter who the buyer is, that’s going to be a problem. I would say from a private equity group standpoint, and our experience, it is the management team. Do you have a team that can drive the growth of the business, or is the business overly dependent on the owner?

That’s going to dramatically impact the way a deal might get structured or the value. They might be willing to pay you the number that you want, but they’re going to lock you in as the owner for 4 or 5 years, which you may not want to be there for that long. They might structure the deal with a significant amount of earnout versus cash because of the risk of that management team. Having a management team that can run the company where as an owner, you can ask yourself, “Could I disappear for 1, 2, or 3 months, and not have any contact with my management team and be confident they can keep the growth going without me,” then you’re probably in a good position from a management team perspective to be ready for private equity.

If you’re looking at the company’s financials, we get that the management team has to be ready to take over the company. In essence, as the founder of the company, you have to become as irrelevant to the daily operations as you possibly can, which creates more value for the company. From the perspective of your financials, what should you make sure is in order so you’re getting the highest valuation in the marketplace?

A couple of things I mentioned before. One is, what’s the growth path of the company? Can you demonstrate 2 to 3 years of consistent, steady growth and the plan for how you would expect to keep getting that growth going forward, whether or not you were acquired or not? Another part is the ability to trust the numbers themselves. Do you have audited or reviewed financials?

Not so that you have to, but if you don’t have audited or reviewed financials, can you demonstrate strong certainty in the numbers that you have in one area? We talked to a lot of owners about how being a private business owner provides a lot of flexibility for running business expenses through the business, and even very legitimate business expenses through the business that cross over as a business owner to sometimes personal expenses.

Have you adjusted your financials? This is where I recommend not from a gambling standpoint, but you should have two sets of books if you want to keep running expenses through your company. You want to be able to show a buyer, “We’re running a business. We have the ability to run expenses through our business. That’s totally legitimate, but if you were to buy our business, you wouldn’t have a number of these expenses. This is what the business would look like.”

What I see is that too many business owners do that right at the end, and so it’s the first time they’ve made these adjustments. As a buyer, that’s a lot harder to trust, and they’re going to have a lot more scrutiny on those adjustments. They may not be as willing to give you those adjustments if it’s something you haven’t been tracking for a number of years. If you are able to show them, “We’ve tracked this actually for the last three years. Here’s our adjusted financials, and here’s our tax financials,” they’re going to have a lot more confidence in trusting those adjustments when you’ve been showing that you’ve been able to track it consistently over the course of a number of years.

What’s The Best Timing For An Exit?

Is there a timeframe in which you should start preparing for that exit?

It depends. I would say, in a perfect world, you’ve got 3 to 5 years of a runway to think through it, and who’s the ideal buyer going to be? Sometimes, how you structure the business will make it more attractive to a strategic investor versus a private equity investor. Do you have a sense of which of those is going to be more attractive for you? You might do things differently over 2 or 3 years to make yourself more attractive to your ideal buyer.

Also, you can recognize things that might be considered risks in your business. Some of those risks might take a couple of years to work through. You might realize the management team isn’t up to snuff and that I might need to go out and do an executive search, and then I’m going to want them around for a year or two to show their value before we go to market.

The more time you have, the better. There have been plenty of times where we’ve had businesses that, for whatever reason, either financial needs, health needs, or they’re ready to go, we have six months to a year, and there are still a lot of things you can do. I don’t know if it’s the best analogy in the world, but it’s the difference between fattening up a pig for market or putting lipstick on a pig. The longer you have to drive value in the business, you’re going to get better outcomes. At the same time, there are still things that can be done very quickly to reduce the risk and get the best outcome possible in that short of a time. Ideally, 2 to 3 years, I would say.

Strategic Buyer Or PE? Choose Right

You had mentioned earlier a strategic buyer versus a PE buyer. What’s the difference between the two? Are you achieving a higher multiple with a strategic versus a PE or vice versa? Is it all market-dependent? Are there certain businesses where you should seek a strategic investor over a PE or vice versa?

That’s a great question that we get a lot from our clients. I’ll use an existing client whom we’re taking through this process as a great example of that. They’re in the consulting business. I won’t get into too many details because it’d be too sensitive, but that’s the exact question as we’re speaking to them. With that right now in the investment banking groups that we are introducing to them so that they could pick the right partner to help take that through that process, did a great job of explaining like, for a strategic buyer they’re going to care more about certain things in your business versus a private equity buyer. Particularly with this firm, they’ve got amazing delivery of their service. When they get a client, that client never leaves. They upsell, they stay with that client for years and years.

What they don’t have is the best sales process and filling up the pipeline nearly as consistently. For a strategic, strategic won’t care as much about the pipeline because they’ll be able to plug them into their pipeline. They’re going to care more about the delivery. Do they have the team in place to keep that delivery going and prove to them they could cross-sell in the bigger organization?

However, to the private equity group, they’re more concerned about the sales pipeline because they’re not going to be coming in with the ability to deliver as much of a customer base to them. They would want them to focus a year or two on building the sales pipeline ability and upgrading the sales team to show that they can consistently build this pipeline.

In that case, for that particular business, the path to, if I were going to sell to a strategic versus a financial buyer, could look very different over the next couple of years, depending on which path they chose with us. That is one example. That’s not going to be necessarily consistently the same across every industry, but that’s one example of what a strategic versus a financial buyer might be looking at with one particular risk.

Maybe I’m trying to generalize, and you can’t generalize here, but are there specific things that you can do within your business that become multiple enhancements? You have your core base where industry standard, you’re going to get a 4X, but if you had these systems in place or you put X, Y, and Z in place, maybe you’ll get another 2X or 3X. Is there a way to generalize that, or is it industry-specific?

There are some generalities, and I’ll even answer it with one of your previous questions as well, which was, “Are there different multiples between strategics and financial buyers?” I’ll start with that, and then frame it into how you can maybe improve that. The answer can be yes, there could be very different outcomes with a strategic versus a financial buyer, because if that strategic sees an immense amount of synergies, like we already have this huge customer base, and if we could plug you into that, we can double the revenue. In this case, it’s a consulting company. Their rates are 25% higher at the strategic than they are at this consulting company. They would raise those rates overnight and realize a 25% increase in revenue from that.

There are things that a strategic can do that they might be willing to pay an extra turn or two on the multiple. What we’re seeing in general though is because of the amount of capital that needs to get put to work in the private equity group space, there used to be, maybe ten years ago, some gap in what a private equity a financial buyer might be willing to pay for a company versus a strategic. We’ve seen that gap close, and there now have to be some significant, obvious synergies to see a dramatic difference.

There might be some differences in deal terms. That matters, too. A strategic might be willing to have more of the money in cash or guaranteed payments, whereas a private equity group might have more of an earn-out and rollover equity to prove it. The total value of the deals is getting closer. In terms of things you can do to increase the multiple, I think what’s important is to take a step back and like, what is the multiple, and what does that mean.

What the multiple tells you because no deals are ever directly structured, like, “We’ll pay you a seven.” They’re going to do their own discount of cashflow model and come up with the value, and look through your financials to determine what they think you’re worth. We always relate it back to some multiple of your EBITDA or multiple of your earnings. What that multiple tells you is the risk of your business. Depending on the size of your business, if you’re at $1 million of EBITDA, $5 million of EBITDA, or at $10 million of EBITDA, there might be thresholds where you move into different ranges of multiples based on supply and demand.

The larger your business is, the more private equity groups and strategic buyers that will be willing to buy you. There’s more demand, which means you’re going to have a higher multiple range. Having more profit, would that dictate a higher multiple? If you think about it from a strategic standpoint of a large public company, buying a company for $20 million or $30 million isn’t going to move the needle for them. They’re not as interested in small deals and so there are fewer buyers for those smaller deals. If you’re over $10 million or $20 million of EBITDA, all of a sudden, that’s going to be meaningful to their bottom line. They’re going to be more willing to pay a higher multiple for that business because it’s going to immediately add value to them. Size is a huge factor.

What you see a lot of times is companies will start to do some roll-ups. They might buy some smaller businesses in their same industry to move them up to a different EBITDA level, which opens the door to more potential buyers. That’s one thing you can do. Other things, if we look at risk, where you sit in that multiple range based on your size, so maybe at $1 million of EBITDA, you’re at a 3 to 6 multiple range. If you’re at $5 million, you’re at 5 to 7. If you’re at $10 million, you’re at 7 to 10. That might be a starting point, but then there’s that range itself. Why would you be a 7 versus a 10 multiple or a 5 versus a 7? It’s a risk. How are your financials?

Back to the same things we spoke about earlier, are your financials clear and dependable? Are you on a good growth path or not? Are you starting to teeter out and look like the growth is going to slow down? How good is your management team? What kind of revenue streams? How much of the available market is still out there? There are all these other factors that are going to dictate where on that range you’re going to fit within that.

Market Timing 101: When To Sell

Let’s talk about market readiness. You had mentioned that before. Give me a general sense of what market readiness means, and then let’s talk about when you’ve seen it go well and when you’ve seen it go bad, so we have some context around what market readiness means.

A lot of the market readiness is another way of saying the business cycle. If you look throughout history, we see these cycles where economic activity and growth are good and other times, when economic growth and activity are bad, going in and out of recessions, higher and lower interest rates. When it comes to the capital markets and acquisitions of private businesses, interest rates are a huge factor in that. Depending on the interest rate environment that we’re in, and oftentimes, those go hand in hand with the business cycle, interest rates go up, and then profitability goes down, and the market and the economy go down.

That confluence of when interest rates are still high and the economy is starting to fall is one of the worst times for trying to go to market. It doesn’t mean you can’t get a deal done. It can’t mean that you’re not going to get a generally good outcome, but the probability across the board is going to be lower because there’s less liquidity in the markets, which means there’s less demand, which means there’s fewer buyers, which means you’re not going to have as the likelihood of getting nearly as many offers and creating that contest to see who can get the business right.

At the same time, go to the opposite route. There’s a great example. This is right after COVID. Initially, we had a business that was going to market, and they went right as COVID started. We had to do their first management team meetings via Zoom because everybody was under orders not to be out in public and meet in person.

It completely unwound the deal. As you started looking through coverage, you’re like, “Any deals going to be able to get done this year because we’ve got this crazy thing that nobody knows where this is going to go.” By the end of the year, the Fed had lowered interest rates to near zero. Between what the Fed did and what the government did, they flooded the economy with liquidity, and by the end of the year and then into 2021, there were massive amounts of deals getting done because there was so much liquidity out there.

Multiples went to the top end of the range simply because the market was ready and had liquidity, and the economy was starting to roar and take off because of all the stimulus that was going on. Just that one period within about a 6 to 9-month period, you saw both sides of it. You saw the economy crash and liquidity completely dry up, and no deals getting done to six months later, liquidity flooding the system, and people paying high multiples to get deals done. That’s both sides of it.

Do you have a war story that you can share with us about a deal that you were able to save that was rocky in one of those markets?

The way I’ll frame it is this, and the way we frame it to business owners going through selling their business when we’re in a negative market cycle, because the deals aren’t going to be as good. At the same time, though, you might be getting what you think is only 70% to 80% of the value that you think you deserve. We’ve seen that with businesses that have been going through it during a down-market cycle.

There’s not much you can do to change the market, change liquidity, and get back to the top end of the range. If you need to sell on that market, you need to sell for what you can get. At the same time, if your business is down 30% in the transaction market, the stock market is probably also down 20% or 30%. It’s not like you’re selling your business at a discount and then you’re going and taking your liquidity, investing in other assets that are at their peaks. They’re also down 20% or 30%.

We all know historically, the markets all end up going back up over time. You’re getting to take your fresh liquidity, and you’re getting to buy into the market at a discount. If the market goes back to where it was, you end up with the same dollar amount as you would’ve had if you had waited until the market recovered as well on the selling of the business side.

One thing for people to keep in mind is that because the market isn’t ready to deliver the highest value, that probably means there are other factors that you’ll be able to take advantage of with liquidity. When the markets are in a crisis and having significant drawdowns, when you can come with cash, there are going to be a lot of opportunities to buy things on sale. You didn’t make as much off your sale as you wanted to, but there are going to be other opportunities now that you have cash to make up for that.

That’s a very good point because if the stock market is down, the real estate market is down, you’re putting your money somewhere, so you’re buying into those markets at a discounted rate also. On a dollar per dollar, you’re still making out the same, ultimately. Technically, you could potentially be in a better position than most because you’ve got the liquidity, and it’s a down market. You can acquire more at that discounted rate where a lot of people who are locked in and they’re trying to save their butts, for lack of a better term. That could technically be, especially if you’re able to get a deal across the table, a win for you as a seller.

I think if you have the right team around you and you can look ahead past the transaction and see what opportunities are out there, cash is king. Most of these business owners, because they’ve been pouring everything back into their business, have never had that kind of liquidity to be able to take advantage of anything outside of investing in their own business. Now, all of a sudden, you have this ability to go out and create deals that you couldn’t have done before. You’re in the same position as those buyers buying your business who have the cash. You’re now in that same position to go out and take advantage of on the other side of it.

Are You Emotionally Ready To Exit?

That was very insightful because I would’ve never looked at it that way. Let’s shift over and talk about owner readiness. Is this strategic? Is this a mindset issue? How does an owner prepare to sell their company?

There are two parts of owner readiness. There’s one that is easy to help navigate and one that can be much more challenging. The easy one is personal financial readiness for the transaction. Have you done the work to know the likely range your business will sell for? You’d be surprised, most business owners don’t know the true value of their business. Do we even know what you might sell it for? Do you then also understand the tax implications of that?

It’s not just the big number that most people focus on. It’s what you get in your bank account at the end of the deal. Also, what I mentioned earlier, what expenses are you running through the business now, or the advantage of the tax code is that you get to deduct those expenses. Once you don’t have a business anymore, those are now after-tax expenses.

Have you accounted for how much more you need to have from a cashflow standpoint to afford those same expenses? If you were running your box seats at the Giants or Jets Stadium through your business, it’s a lot more expensive when you’re paying for it after tax than pre-tax. Have you done that work? Have you looked at your lifestyle needs and done the math on “What’s going to be my necessary estate, and then what might be my excess estate that I can then do some other planning with that could be tax advantageous?” Those are the money side. That’s math. We can help them and make sure, but most of them don’t do the math before they sell.

They get to the finish line, and they finally realize what the net is going to be, and they’re like, “That’s not going to be able to replicate my cashflow from the business.” All of a sudden, they have to back off the deal, or have to mentally completely change their mindset on what their lifestyle is going to look like post-close, because maybe they’re too far down the road to go in a different direction. We’ve seen that.

We’ve had situations where we got brought in very late in processes. We start doing the math with them, and they’re like, “Your math is very different from my math. I thought I was going to have a lot more.” We’re like, “You didn’t account for that you had a debt on the business.” You don’t get to deduct that when you pay the taxes on your business sale.

If you’re getting $30 million in your deal, but you have $10 million of debt, you’re paying tax on all $30 million, even though $10 million of that has to pay off your debt. If you’re in New York, you’re only going to get like $6.5 million for that 10$ million that you got. A lot of people don’t account for the taxes fully, but again, it’s easier.

The harder part is the mental readiness. That’s the part where so many founders have dedicated their blood, sweat, tears, sacrificed time with their family for 20, 30 years, rode the market cycles up and down, almost lost the business multiple times, put payroll on their credit card, all these things. Their purpose is the business. All of a sudden, you start to think about, “What am I going to do with my life?”

A lot of founders don’t have a lot of hobbies, and they don’t know what they’re going to do. It can become more stressful for them thinking about, “What am I going to do with myself after retirement,” and selling the business, than it is all the stuff they have to deal with to keep the business going every day. Many times, it can start to unwind the deal.

I’ve seen it where we’re getting near the finish line, and an owner will hone in on some tiny term within the deal. They’ll scuttle the entire deal over something that everyone is like, “Why is that such a big deal?” It’s not. It’s not a big deal. They’re using that as the excuse. They don’t even necessarily know it. They’re using it as the excuse to unwind the deal because they’re not ready to let this thing go yet.

That’s the harder part because most people in the financial world are not experts or psychologists. We can help them recognize it’s happening, but honestly, I’m not going to be the one to help them navigate that. We have great experts. We have great people we work with. That’s all they do. They work with founders to help them think through the other side of the exit and help them navigate that. It’s important to recognize that it’s there and that you have a plan for it to deal with that.

Life After The Sale: Managing Cash Flow Shock

Let’s talk about life after the sale and preparedness. One of the things that you’ve mentioned, which I think is important to focus on, is the cashflow aspect. You go from being able to cover a lot of your expenses within the business expenses. You’re paying yourself a salary. You might walk away with a $30 million check. You have to pay taxes on that. We’ll get to that. You walk away with that $30 million check, but you’re now living your lifestyle out of that $30 million. How do you prepare yourself for what could be a massive shock to some business owners of their actual cost of living and what that means to their cashflow?

An important consideration is the tax component of it. Part of our job and in working with the clients post-sale and the job is to do that pre-sale. Hopefully, it’s something that we’ve been able to plan for a couple of years and walk them through it and do the math with them. I do think sometimes they get overly stressed about it. They look at the numbers, and they straight-line things out too much. Part of our job is to help them recognize that “We can break up your money in multiple buckets to where we can effectively make the likelihood of you getting the income you need over the next fifteen years.” We can’t guarantee it because we can’t say that, but it’s a very safe investment that is going to have a very high likelihood of paying out what you need to live your lifestyle.

What that allows us to do by segregating in different buckets that way, 5 and 10-year buckets, or however they might want to do it, is for those longer-term assets. That’s where we have the growth because we need to keep up with inflation, we need to keep them with growing. They might have opportunities they want to take advantage of. Maybe there’s another business they want to invest in.

Private equity, what often happens is friends and family all of a sudden come out of the woodwork with these great business opportunities that might take years before they pay off. We need to have a place where we can put those, where we have plenty of time to deal with the ups and downs of the business cycle, so they don’t need to rely on those funds. A lot of it is educating them.

To your point, it’s a very different way of thinking about creating cashflow. We’re going through a transaction with a client right now, and their funding should be today or tomorrow. That was their first question, “How do we get paid? How are we going to get the money? We need to live our lifestyle.” It’s like, “We could recreate the paycheck for you again. We can send you money every month, or we can give you a pot of money that you live off of for a period of time.” It’s so foreign to them because, to your point, they’re so used to getting the paycheck or taking a distribution when they have it. First off, we try to replicate or recreate that same mentality as best as we can with them, so that it feels normal initially with them.

A lot of it, too, is helping them rethink their budget. To be honest, what I find is it’s not that they have to think about less. What I find is that most of the time, they don’t have a big enough vision of what is possible. They don’t see the potential of all the things they can be doing. They think too small and they get too concerned about all the things they can’t do and they don’t see all the possibilities of what they can do, not only for themselves, but for their family, for causes they care about.

Until we map it out for them and show them the math, they have a hard time seeing it. Once we do, it can be very freeing because they’re like, “I had no idea that we could do all these. These were pipe dreams, things we had in the back background if we got lucky.” It’s like, “No, you could do that and still do all the things that you want to do for the rest of your life.” Interestingly enough, it’s more the other way than restrictions and limits. It’s much more about possibility with them.

Exit Regret: How To Avoid Leaving Money On The Table

Is there anything that you see as a common trait of regret when business owners sell something that they feel like they should have done, or money they left on the table? What is it that you see that’s a commonality there?

The most common is some level of regret about not getting the best outcome. That’s usually if they didn’t have enough time to plan for it or know about it. We did some research and some surveys with business owners who had completed the sale of their company. A couple of interesting things came out of it. It can be a challenge.

First off, even getting a deal done is a challenge. From the surveys that we did, something like only about 30% of business owners who start the process to sell their company are able to complete a transaction within two years. It gets worse because then, when you survey them, the 30% that made it, and we ask them about how successful the deal was, only about 20% of them said they optimized, maximized their wealth in the deal, and were highly satisfied with the outcome.

If you put that together, something like only 6% of business owners who start the process to do a sale end up maximizing their wealth and being highly satisfied with the outcome within two years. Back to your question, the most common regrets, frustrations are that the deal terms weren’t as good as they thought they were going to be. They only got a 7 multiple instead of an 8 or a 9 because the company’s financials weren’t as good, or the management team wasn’t as good.

They had 20% of the deal in an earnout. Now it was restrictive, and it was going to be hard to meet it, but that was the only way that they even had a chance of getting the value that they wanted. It’s more regrets around those things that I see, especially in the first 12 to 18 months. The regrets start to happen more after that, or stress is more around missing the purpose. What am I getting out of bed for every day? You can only golf so much. I can only take so many vacations. They have this purpose with this business. If they haven’t found that 12 to 18 months after the transaction, you start to see a much higher level of stress and anxiety in founders who sold their business.

To prepare yourself and make sure that you have an exit that you don’t regret and it’s a seamless, successful exit, what team do you need to surround yourself with, and how far out to be able to do that?

Build Your Exit Dream Team

For the core team, you need to have a great deal attorney, a good financial team, and your CPAs. I believe you need to have a good coordinator, quarterback advisor. That’s the role that we play for our families, where we’re able to take a much bigger picture, look at everything, look 5 years or 10 years into the future, and make sure all of that pre-sale planning and post-sale planning is done before they go to market. Depending on the size of the business, usually, there’s going to be an investment banker or a business broker involved.

Not every business needs that. If there’s a business that already knows who the buyer’s going to be, you may not need that resource. Oftentimes, that’s a critical role. Even if you’re not selling for 3 or 4 years, that’s a great professional team to bring in to help give you a sense of where the market is at that moment, to take a look at your business and help you identify, “Here are some recent transactions in your industry. Here are the multiples that they got. Here’s what was going well in their company. Here’s why they got what they got,” and compare it to their business, “Here are a couple of things in your business over the next couple of years where you were able to improve these.”

Maybe there are current strengths that you need to lean into, or maybe there are some weaknesses that you need to address. You’re going to be in a much better position by the time you go to market. Most people don’t think about hiring an investment banker until they’re ready to raise their hand. Oftentimes, it makes sense for them to come in, whether you’re formally engaged or have them coming in to help provide some good insight 2 to 3 years in advance. I would say that’s the core team of people that you need around the transaction.

Is there a specific size in terms of what you think your multiple is going to be, your EBITDA? Is there a benchmark where, if you’re going to exit, you should be looking at putting together this team?

At every level, you need that team. Whether you’re selling for $1 million, $5 million, $10 million, the people will be different than if you’re selling for $30 million, $50 million, $100 million. The type of investment banking or business broker might be slightly different. The type of attorney might be slightly different for pure cost reasons. The reason for that is that getting a transaction done for a $5 million or a $10 million sale is not dramatically less than getting a transaction done for a $30 million, $40 million, or $50 million sale.

What’s important in those smaller transactions is managing the cost of the transaction. Again, finding good attorneys that enjoy providing value in that space, finding the right business broker and CPAs that can add value in that space, where you’re not having to lose 30% of the value of the sale, paying the professionals to get it done. I believe almost any size of business needs a team around them to help navigate that.

Before we get into the rapid-fire section, is there anything that is golden advice that you want to leave with our audience of business owners and entrepreneurs about this process of selling their business?

The most important thing, and we’ve touched on it a little bit, is to start as early as possible. Even if you’re not thinking you’re planning to sell for 5 years, 10 years, whatever it might be, getting someone to take a look at your business from the eye of a buyer or an investor to start to identify what are the things that a potential future buyer is going to look at and maybe have some issues with or that could be improved.

That’s so important because you never know when the Godfather offer is going to come along, where you’re going to get an offer that’s too good to refuse. What if that happens two years before you plan to sell, and someone wants your business so badly that they’re willing to put an offer on the table until they look under the hood and you haven’t done that work yet?

If you’ve done that work, even if you’re not planning to sell for 3 or 4 years, you’re always ready to do that. There might be circumstances that come about that dictate that you want to do it yourself sooner than you were planning to. If you think about it, all the things that we discussed that are going to get you a higher multiple, a better valuation, are also all things that are probably going to make your business easier to run anyway. Why not do all those things now? You’re probably going to have a business that you can take more time away from, that’s going to be run better by your management team, and that’s going to be growing quicker. Why would you not want to do that stuff now?

One of my mentors always said, “Be ready to exit your business at any point in time because you never know what life will bring you, whether or not you’re planning on exiting.” Let’s jump into our rapid-fire section. Are you ready to go?

I’m ready. Let’s do it.

Coffee or tea?

Coffee.

If it is a zombie apocalypse and you have to get out of your home and protect your family, what is your one weapon of choice that you’re taking with you?

It’s got to be like a shotgun.

Do you have a favorite movie or streaming series that you love?

There are a lot of good ones. What would be a good recent one? You’re putting me on the spot on this one. I’d say Your Friends and Neighbors is a good one that we’ve been watching recently. That’s been a pretty entertaining one.

Is there a book that you would recommend that the business owners and entrepreneurs who tune in to this show read?

A book that I love and any entrepreneur or business owner should read is a book called Buy Back Your Time. Dan Martell is the author of that. It applies to so many things in your life, not just your business but your personal life. Entrepreneurs and business owners create so much value. We often overlook things. We’re too busy using money to buy things, and you should be using it to buy back your time. That’s a great book.

Is there anything in your industry that you disagree with or think could be improved?

That’s a whole other episode topic. To be honest with you, the reason all the stats are so bad for business owners, a lot of that is the lack of value and that our industry is dramatically underserving business owners. There are so many things, the conflicts of interest, the lack of growth, and people learning to find ways to bring more value to business owners. There’s a litany of things. I could spend an hour on that could be improved in our industry to be better servants to our business owner clients.

Give me two people in your life, it could be business or personal, who have helped you grow to the success that you have realized now.

A colleague of ours that you know well, an amazing mentor of mine, Russ Alan Prince, who has been working in our industry, our space, for 30-plus years. What I appreciate about mentors that I get the most value from is no nonsense, tell you the truth. I think there are a lot of times that people get told how amazing they are for a long time, and aren’t very good at taking criticism or seeing where they can improve. I have always been one who could, because I always want to grow. I appreciate it when someone’s willing to do it and give you harsh feedback that’s very constructive. We can then learn from it and take advantage of it. I’ve learned an immense amount from Russ over the last 4 or 5 years.

Another one, a mentor, a little bit more recent, but in the last couple of years, is a gentleman, Chris Smith from The Possibility Co. I learned so much from Russ about bringing more value to ultra-high net worth business owners and families. What Chris helped me with is the language, like, how you create a consistent culture and language across your firm so that when we are interacting with our clients and other professionals, everybody is speaking the same language on the same page. It gives a lot more confidence to the people we’re speaking to as a team because they can see the consistency across the board. That’s had an immense value to our business over the last few years as well. Those two, I would say, are the biggest impacts for me, especially in the last five years.

Homer, why don’t you tell our audience where they can connect with you if they’d like to do so?

The best way to find me is on LinkedIn, but the best way is by email. If you have questions, email Homer@KonvergentWealth.com or go to our website, KonvergentWealth.com. We have a lot of information, education on the site, on all the different things that we do. I’m a big believer in trying to get as much value and information out there to the business owner community. If we can add value through a conversation, and I would love to do that as well. The best way to reach out is through our website.

Homer Smith, thank you for joining us on the show.

Thank you for having me. This has been great.

Pleasure.

Important Links

• Konvergent Wealth Partners
• Buy Back Your Time
• Homer Smith on LinkedIn
• Homer Smith Email
•  BoxFi

About Homer Smith

Homer S. Smith IV

CFP®, CRPC®, BFA™ , CBEC®

A Private Wealth Advisor with over 20 years of industry experience, Homer has dedicated his practice to working with business owners and families of wealth with complex financial planning needs. His mission is to simplify the lives of his clients by quieting the noise that surrounds them both personally and, in their business, while allowing them to focus on what matters most – their purpose and goals.

Homer has the unique ability of taking complex strategies and presenting them in a way that is remarkably intuitive and straightforward so clients can easily grasp the ideas. Working as a fiduciary and business consultant to his clients, it is his legal duty to put his clients’ needs first and act in their best interest while maintaining full transparency throughout the financial planning process.

Unlike traditional advisors, Homer provides a deeper level of service for his clients, going beyond investment management and traditional retirement planning to focus on advanced planning areas like wealth transfer, risk management, tax mitigation and philanthropy as well as personal development and family wealth planning. Homer’s goal is to be the trusted advisor for his clients, the guide they turn to when any major decision comes up, even those that are not financial in nature.

Homer’s financial experience spans many years in various roles. In his early years, he coached, developed, and trained advisors, which grew to a branch management role in Honolulu where he led that office to become the firm’s #1 branch in the country. After shifting back into working with individual clients, he noticed there wasn’t a lot that traditional wealth management had to offer for business owners, so he began to develop his long-term growth to exit service which is now at the center of his professional service model.

Homer is a graduate of Western Washington University with a Bachelor of Arts degree in Finance and a Minor in Economics. A passion for education and community involvement, Homer serves on the Board of Trustees and is a current Board President for his daughter’s independent school. Homer enjoys spending time with his wife and daughters – hiking during the summer, going to Seahawks games in the fall/winter and traveling to Hawaii, their favorite destination after living there for several years.