Part 2 - Should I Sell My Business?

Are you stuck at the crossroads, contemplating whether to keep or sell your business? Well, we, Raya and Trae are here to guide you through the fog of uncertainty. As entrepreneurs who have built and sold a seven-figure business, we've tasted both the highs and lows of this rollercoaster ride. Hop on with us, as we delve into the nuts and bolts of selling a business - why, when, and how!

Building a business is an ardous journey, but deciding to sell it can be even more complex. It’s not just about the financials, it’s also about the people, the systems, and a whole lot more. We spill the beans on the importance of having a solid team, robust systems, and streamlined processes. We open up about our journeys, stressing the need for a consistent profitability track record and a healthy assets-to-liabilities ratio. We also champion the cause of having a proficient accountant who can navigate the financial labyrinth of your business.

To sell or not to sell isn't the only question. Who to sell to and how to manage the process can be equally daunting. We navigate the murky waters of dealing with brokers, the nuances of owner financing, and finesse involved in negotiating fees. With real-life anecdotes and hard-learned lessons, we provide insights on maintaining confidentiality, managing broker fees, and identifying the right buyer. Join us as we unwrap these complex layers, making your decision-making process a little more informed and a lot less overwhelming. So, entrepreneurs, buckle up for a richly informative ride!

Transcript

Copy

Selling a Business

Raya 0:02

I'm Raya .

Trae 0:03

And I'm Trae .

Raya 0:04

We'll share our own experience building and selling a seven figure business , owning multiple successful brands , and share the stories of other entrepreneurs who are incredibly successful in business .

Trae 0:16

This is Billion Dollar Vision , the podcast where we educate current and future entrepreneurs to expand your vision , give you strategy and help you take your business far beyond what you thought was even possible .

Raya 0:28

Your future is limitless and it begins right here , right now .

Trae 0:35

Let's go . Welcome back to another edition of the Billion Dollar Vision podcast . My name is Trae .

Raya 0:44

I'm Raya .

Trae 0:45

And this is a very special edition . This is our first London edition of the podcast . We're live from London , england , and today we're going to discuss a topic that is very beneficial to you if you have a business and you're just wondering , like , where does this go ? Right , where do we go ? If I've started a business , how does it end on a positive note ? I'm getting burnt out . I may want to pivot and do something else , and today what we're going to discuss is selling a business , right ? So we're going to discuss why you should sell a business , how you construct your business to sell it , the challenges that we face in actually selling a business and the benefits of selling a business .

Raya 1:30

Let's get into it .

Trae 1:32

All right . So , like we said , we're going to start off with the why you should , and I'll let you start off , Raya , as far as why should someone sell their business .

Raya 1:42

Yeah . So I think selling a business is a very personal decision , right , like it has to be you fully ready to let go , and I can't speak for anyone else , but I could give a little bit of insight of like why we decided to sell a business . And you know , just for a little backstory . So I had started our brick and mortar business when I was 23 and this was like 10 years ago , and so about eight years into the business I had my first baby , or we , sorry , we had our first baby and when we found out we were pregnant with our second baby , we brought Trae on as the CEO of the company to grow it , while I was just very pregnant and just not really wanting to be there . I wasn't really wanting to be active in the business and it really hadn't required much of my time up until then . I had really , you know , had a solid team . It was doing you know , 100 K months without me , like really having to be there . But with having a second baby , we wanted to grow it and so I had initially thought bringing Trae on as the CEO would maybe almost like make me feel differently . Like , like we rebranded , we added lasers and , you know , new equipment and I thought maybe the feeling of not really like I guess the best way to describe it is a lack of passion for it anymore . I thought that would fix it , like a new rebrand , new equipment , all this new stuff Tray stepping in , which definitely helped and he grew it tremendously in that last year .

Raya 3:35

But once we had our second you know baby when she was born , life just is different when you have two children and you really look at , like , how you want to be spending your time every day and and hear me out , even though we had a really great team , there is always something that comes up . When you have a team , right , it's never actually self run . You may not physically have to be there every day , but it doesn't mean there's not problems , right , and there's not team issues or someone did this and someone did that , and at the same time we have two kids , we have an online business that we're very passionate about , helping other people grow their businesses , and anytime something would come up in our brick and mortar business . It felt like a distraction , right , and so we sat down and had a conversation , I think at dinner one night , and we just really talked about the vision we have for our life and whether or not that vision included the brick and mortar business , and we just kind of came to a conclusion that for the vision and direction that we wanted to go in , it was almost like , you know , we talked about going from good to great .

Raya 4:55

It's like , okay , maybe it's time to let go of something good , to have something greater and to go after something that we believe could be so much bigger than this local brick and mortar store could ever be . Like we've kind of outgrown it in a sense , and so it's also a lot about timing and so , like our lease was coming up in the next year . Well , we are about to resign for a lease for three more years and we can talk about the challenges .

Raya 5:27

Yeah , we'll talk about that in a sec , the challenges that came up with that , but a lot of it was timing of like , okay , do we want to sign on for another three years and commit to this or is it time , you know , to sell ? And so we decided it was time to let go . And the funny thing is this is the third time that I had really thought about selling . I had two other times that I contacted a business broker , had them evaluate the business , but I wasn't fully ready to let go yet . And this time just felt different , like my heart wasn't in it , I was not attached at all . I think it felt really good and really aligned .

Raya 6:10

And so , for everyone listening , in your case , if you ever feel your heart's not in it , it's no longer aligned and you're fully ready , like 100% I don't think 80% you can do it . There's still like that attachment and almost like an identity attachment of you and the business . But once you can fully let that go like you're probably ready , you're probably ready and making sure you have your backup plan right , like we already had another seven figure business to fall back on . You know , not really a fallback , but to go all in with our time and our energy . So had we not had that , it wouldn't have been the right timing , and so timing was a big thing too .

Trae 6:56

So for us the online business that Raya had just referenced it was more profitable , right ? So when we looked at our lives and when we looked at everything that we had going on , when you have two businesses , it's like having two children or it's like chasing two rabbits and it's hard , right ? So we would find ourselves splitting time , or just when we were getting in a groove and we were doing something with the online business , the issue would come up with the brick and mortar and we had to divert our attention , right ? And so we looked at Should we continue to do that versus focusing all of our attention ? And where could the online business go if we just literally focused all of our attention into it ? Like I said before , it was more profitable . We had less overhead drastically , and we saw that that was less stress as well .

Raya 7:59

And we love it we love our students . We love people , we work with everything .

Trae 8:04

Yeah , so and we love it . And , with that being said , the other thing to think about in terms of should you sell your business ? All right , as Roy Vaden says , a business worth selling is also a business worth keeping , which is basically saying , typically , when you can sell your business for a multiple , it's going pretty well , so it's hard for you to let it go . Having that backup plan is good and , even if you don't have the backup plan , have a game plan of how you're going to invest your money once you get it , when you do sell .

Trae 8:42

I think it's very , very , very important for everyone that's listening is to make sure you be strategic , have a game plan and , even if you're not in position to sell right now because there are certain things you're gonna have to do in order to sell and we're gonna get into that but start thinking about what would you do if you did sell right . Start thinking about a game plan as far as whether that's getting to real estate , whether it's start another business , what are some of the other things you're passionate about , because you don't have to be handcuffed . It'll start to feel like your handcuffed to the business if you don't have the exit strategy and , with that being said , you have something else you wanna say . With that being said , we're gonna go into how to set your business up to be sold . I'll let you start off , ray .

Raya 9:31

Yeah

Strategies for Selling a Business

Raya 9:32

. So like Trey said , excuse me , you know , 10 years ago I had no idea when you could sell a business . I definitely didn't think that was really ever in the cards for me , even when I did find out you could sell a business . But if you structure your business the right way , anyone can sell . What you can't sell is you as the business . So you know , we're in the beauty industry for our online business and that's who we teach .

Raya 10:04

So a lot of people in the beauty industry are solo beauty professionals . You can't technically sell a business if it's you solo , because you are the business , you're the one doing all the things , doing the services . If you remove yourself , there is no business , and so I hate to say this in such a way , but it's not a true business . If it's you by yourself , I mean like it is a business . I hate to say that in that way , but it's not a sellable business , right ? If you are the business , something happens to you . There's no business , and so it's very important early on you know early on enough to take that next step and hire , because once you start hiring and replacing yourself in certain roles , whether that's the service which is really important in selling a business or a front desk person or whatever the thing is right and in whatever industry . I used the beauty industry as an example , but this goes probably for a lot of businesses , right ? Accountants go off on their own and start their business , or lawyers , and then they eventually grow a team . And so once you start hiring , you wanna have a playbook , you wanna have processes and systems to follow so that every person that you hire , not only you're training them once , right Now you have the playbook so that if someone else were to come in , you might not even have to train that person anymore . Now your other hire can train that person , right , because they have a process and system to follow . And so that's huge .

Raya 11:41

In the beginning is one . You need a team , and so when you're ready to the point where you're ready to sell , you should be fully out of the service-based part , unless you're wanting to sell , like , to another beauty professional that can insert themselves and do the same thing . But in that case why wouldn't they just open their own business , right ? There's a reason people wanna buy a business , and that's usually because it is a well oiled machine that's profitable . So the first thing is the team . Have a good team in place . The second thing is systems and processes in place , that is , someone were to come in , they could know how your business works and functions .

Raya 12:28

And the third thing is you need to have at least three years of profitability in your business on paper , right , and so you need to show that your business actually is profitable , and what the bank is looking for is they'll take the last three years of profit and loss statements and they'll take an average of that three years , right , and so then they'll come up with that number as your profitability and , based on the industry that you're in , you're gonna get a multiple for that number , and so for the beauty industry , it is a two and a half to three times multiple . For us , we got about a three times multiple on the profitability of the business , which was great . The other thing , though the other side of that that I didn't learn until we went through the process was that you need to have more assets than you do liabilities , right . So liabilities are like loans , debts , liens on the business , anything like that , and so if you have any kind of equipment debt or anything like that , that has to either be , you know , very minimal , because that will work against the profitability , right . So they take that off the total evaluation , or you'll have to make an agreement to pay the total debt off by the time the business sells .

Raya 13:56

And so for us , because the year before we were all in , we were like , let's grow this thing , you know , let's find that passion again , and either I'm in or I'm out , right , like for me at least .

Raya 14:09

I'm like let's go all in and grow it or I'm just totally over it . So the year prior , before we had our second baby , we were all in to grow it and with that we bought a very expensive machine called an Emskolt Neo . It was a $350,000 machine . But when we purchased it , right , when we took a loan out to purchase it , we thought we were gonna be in for the next 10 years and things change . So unfortunately that worked heavily against us because that was essentially a $350,000 debt we had to pay at the sale of the business . So they did wait for us to sell , right . So we actually had the money to pay it off , but we would have been able to keep $350,000 had we not purchased that machine . So that was a huge learning lesson in that . So anyway , you just wanna make sure that by the time you're ready to sell most equipment's paid off , your liabilities are very low , because you'll just end up , you know , keeping more of the profit .

Trae 15:17

Talk about the importance of the accountant and as far as getting information over and making sure you have a good accountant .

Raya 15:24

Yeah . And so I mean I've never been one to like do my own taxes Like I've . Just , I don't know why people try to skimp on that . They think , oh , I'll just save money , pay an accountant and I'll do my own taxes , but you don't know all of the write-offs , you don't know all the like , loopholes and just so many things . So I've always been really big on having an accountant that also prepares taxes for us , and so he knew the business in and out , thankfully . So he had all the information .

Raya 15:55

So most of the process of selling was really just us working with the accountant and going back and forth on paperwork needed and anything that the bank needed . I would just call Steve up and be like , hey , steve , I need this , I need that . So that part wasn't really that difficult . It was just more of a like middleman right Between my accountant and the bank and anything that I didn't understand that the bank asked for . I could go to him and just be like , hey , what does this mean ? Do we have this ? So that was pretty simple . So I'd highly recommend getting an accountant anyways , if you're in business like , don't skimp on that , it makes your life so much easier . Oh , we should also talk about why the bank is involved in general , maybe in like who to pick as a buyer ?

Trae 16:49

Well , I guess , in terms of yeah in terms . Yeah , we can talk about that too , and we can also talk about the role that a broker may play .

Raya 16:57

Do you need a broker ?

Trae 16:58

Yeah . Do you not need a broker ? Yeah , so we'll get into that too , something else . I just want to circle back to a few things . It's very important whether you do it first or you do it second .

Trae 17:10

Raya had mentioned a team and then a playbook , but you always want to have an operations manual , which is the playbook , like Ray was saying . So , and it's not just it'll make your life easier . Even if you're not selling , it'll make your life easier because your operations manual is going to be the do's and don'ts of the business , how things run every single day . But to let that person know , whatever their role is , these are their responsibilities , duties , and so when you have that set in stone when you're hiring , it makes it a lot easier . When you're firing , it makes it a lot easier because you can go based on facts and not emotions . You can say hey , look , these are your duties and responsibilities . Unfortunately you're not meeting these , so we got to let you go .

Trae 18:00

And then , when you're selling , it's very , very important , it's actually required . You have to have that in order to sell and you have to have that in probably a little bit more extensive way if you are wanting to franchise . So that playbook . That operations manual is very , very , very , very , very important . Now we were going to go into the importance of the role of a broker whether you need a broker or not and the importance of the role of the bank . What role do they play ? So I'll let you start off . Let's start off with the broker first and then go into the bank .

Raya 18:35

Yeah , so in our situation the business was so profitable especially with the multiple that it was given that a lot of people try to find someone who is like them to buy

Selling a Business With a Broker

Raya 18:50

the business . So in our industry I would think a lot of estheticians might be like , let me find another esthetician to buy my business , or a team member because they already know the business , already like them . There's two reasons I'm not for this . One is if you go to your team anyone in your team and they don't want to buy the business or they're not serious about it or anything like that , now your team knows you want to sell the business and that could be horrible , detrimental to the sale of your business . So it's very important when you decide you want to sell your business that your team does not know you also , usually , in the NDA that you sign , you find a buyer during the process that you can't tell them . But I would personally never go to a team member and ask them . Secondly , I wouldn't go to another service provider in the industry that you're in because , honestly , it's so much more expensive for them to buy a business that's profitable . Right , then just start one on their own if they can do , if they can essentially do the same thing . And so for the amount that we were looking for and not settling for like really much less than that amount , you know it had to be worth it for us to sell it right , because it was a profitable business .

Raya 20:14

So we decided to find a business broker who can find a buyer looking to buy a business . So we wanted to go the entrepreneurial route of let me find another entrepreneur that could replace us , right , you know , as the owner and CEO of the business , that can take this to the next level , that could really grow this business . And they don't have to be a service provider . And so with that and because of the price of the sale , most buyers , unless they have that kind of cash on hand , are going to go through the SBA for a loan to buy your business . And so that's where the bank comes in .

Raya 20:55

So the bank are the people that actually give the loan . The SBA , the Small Business Administration , is who backs up the loan , right ? So if anything were to default , the SBA is saying we have enough information that this is a solid business that we don't think the buyers are going to default if everything goes good . But in case they do ? We're here as a backup to the bank , and so when you go this route with a broker , which I'll you know , kind of talk about in a second , but you actually are dealing with like almost two different people , right , you're dealing with the bank side and you're also dealing with the SBA side , and the SBA is like no joke , like I think during COVID , like it seemed very easy , like you just submit paperwork and they give you thousands of dollars you know for you know , it's a lot different .

Raya 21:46

Yeah , it is nothing like that .

Raya 21:48

Like the SBA was way , way more thorough and difficult and just asked a million questions more than the bank did , because I mean , I get it Like if anything goes wrong , it's on them .

Raya 22:04

So , finding a broker I mean you could probably Google a broker in your area , but I had known a friend that sold her tanning salon a couple of years ago , and so I had asked her who she used , and so that's who I ended up using , which was someone completely different than brokers I had gotten evaluations for in the past , Because I think you know , we always trust referrals a little bit more than anything else , and so when we met with him the first time , he did an evaluation and he said , hey , this is how much I think your business is worth , and we decided to sign with him . We had a timeline in mind . We wanted to sell within . We said we want to sell by the end of the year or , you know , beginning of 2020 , 2023 . This was we listed in October 2022 at like the end of the month right , but that was like January February .

Raya 22:59

Yeah , because we had a launch coming up for our online business and we just wanted to be all in on the launch .

Trae 23:04

We wanted to the launch was in either late February or early .

Raya 23:08

March . It was early March , Early March right , so we were trying to get it done before then , before then , and he's like yeah , yeah , for sure , for sure , he did find buyers right away . He did .

Raya 23:17

So the benefit of business brokers is they have a list or a database actually , of buyers looking to buy and so they list your business in this database and then people can , you know , find it and inquire about it . And he did find buyers very quickly . But we should we talk about the challenges of why it took so long to sell .

Trae 23:41

We're going to go into that . I just want to , I just don't want to skimp past the broker part . So you don't have to have a broker when selling your business . But a broker can make your life a lot easier because if you're still operating it , you don't have to take time out of your day to try and find and fish right . So the other good thing about a broker is when they , when they meet a potential buyer , that buyer has to sign paperwork and they can't talk about .

Raya 24:10

but you're selling .

Trae 24:11

Yeah , they can't say oh , I heard that such and such is selling , or this business or that business is selling , so that's another benefit when they talk to someone is in confidentiality confidentiality , so those things are very important . You do not have to have a broker . We use the broker and it worked out for us . And the fee ? Yeah , well , again there's a fee , obviously with the broker .

Raya 24:36

They take 10% of the sale price , but it is negotiable .

Trae 24:40

That's all I was about to say . It is negotiable . Yes , it is negotiable .

Raya 24:46

It's a pretty penny .

Trae 24:47

Yeah , it's a pretty penny , but it is negotiable at the end of the day , because not every deal is as clear-cut and dry as far as what you're getting up front . Sometimes you're getting things . How do you what do they call it ?

Owner Financing and Negotiating Fees

Trae 25:05

Like the amount that was held by the SBA are supposed to be held by the .

Raya 25:10

Oh yeah , so we did in the deal that we structured . A part of our deal was I'm financing or we're financing a portion of it , right , like a small portion , but enough that in that portion , like it'll be paid back over time . So we got a lump sum from the SBA or the bank and then a portion is going to be paid over five years and so it's called owner financing . So we were able to subtract the owner financing out because that's us taking a risk , right , whether we get that or not , and so we don't want to pay the broker on something we're taking a risk on , and they did agree to that .

Trae 25:51

Right , and so things like that can you can talk to the broker or negotiate a different fee , because if you're not getting that money up front , then why should it be 10% off the whole total when X amount is being held back ? And that's what we ended up doing at the actual at the table at closing .

Raya 26:15

Remember it all starts with your big vision .

Trae 26:18

Stay determined and always keep your billion dollar vision alive . Please , wherever you are listening , subscribe and leave us a five star review .

Raya 26:27

It would mean the world to us .

Trae 26:29

See you next time Rob wurden .