Good. and by the way, it's easy to edit anything. So yeah, I can go through and cut stuff out. So yeah, it'd be great if you could just start by introducing yourself and telling me a little bit about your background. So I'm Cindy Anderson and I am a certified public accountant in the United States, but I wasn't exactly cut out to do public accounting. So I really went more toward the consulting side and mergers and acquisitions.
And so I've spent the last 30 years of my career helping businesses either prepare to be sold or to prepare to buy. So I run a company called Think Strategy and our role is to support companies that are getting themselves ready to be sold or getting ready to expand and grow and buy. And how do you do that both organically and through acquisition? So my specialty is really helping get the most value for your business and helping them along that path, the business owners.
firm solely focused on preparing a business for sale or either helping them acquire or do you provide other CPA services? We don't. We provide managed services, which is unique in the &A world in that we do help our clients. Many times they don't have the accounting resources or sophistication that you might need to do a transaction. So we have a group of CPAs and IT professionals, HR professionals that do work on our team to help our clients get ready for the things that they need or.
Let's say they have someone leave and they're in the middle of an acquisition. can jump in and help them be like a quasi CFO or something like that. But we really focus more on helping them prepare rather than the other. don't do tax returns and things like Okay. Yeah. I mean, it's, it's really interesting because I think I've done nearly 50 episodes of this now.
And when you sort of ask people what they can do to better prepare their business for a sale, pretty much always the first thing people say is kind of clean financial records. So the biggest challenge. Yeah, it is. And you know, in understanding what the buyer wants from them.
I know I think one of the big challenges Barnaby is that many times you'll have financial statements that are fine for you to prepare a tax return or you know, we have a client right now that's actually selling that has operations in the US and in Europe and each entity has a special tax situation, right? And just understanding what are gonna be the challenges for the tax component of this.
Although we don't do tax returns, we have a lot of that experience and we can work with their tax preparers to say, these are the challenges we're gonna have in Budapest. These are the challenges we're gonna have in England or in the US or whatever.
And so I think that The basic understanding before you go to market as a business owner gives you a tremendous amount of confidence that when someone asks you a question, you're going to know when not to answer and when to answer, which is one of the biggest parts of the financial piece is knowing when to say something and when to wait and let the data tell the story. So when do you get involved? So say it's a business that's looking to sell, when do you kind of get involved?
are, is there then other sort of other &A advisory people involved with the deal as well or kind of who else do you typically kind of work Yeah, so it's a good question. We love to be able to work with firms for years before they decide to sell just if they feel like they have, for example, many times an entrepreneur is the face of the organization. They're the ones that are out there selling, selling, selling, selling.
Well, when you go to sell that, unless you're willing to stay with the buyer, that's going to be a problem if you're the only one out there selling, if you're the only one with that name. So we need enough time. Usually two years is nice. to be able to kind of start transitioning the brand from being an entrepreneurial led brand to more of a brand that's gonna be able to sell without the entrepreneur having to stay forever and ever and ever. There's a strategy behind that.
You we've worked with companies though that call us and say, hey, we've got a buyer and we need to hire you to come in and get us ready. And we need to do this immediately. Ideally though, we help you identify what kind of buyer you want to though. Having a couple of years to be able to say, okay, We want to sell for this value. We want to, don't want to have to work more than two years for the buyer.
I don't want to have work with the buyer at all or what have you, but also just to be in the driver's seat to what kind of buyer do you want to sell to? Is it private equity? Is it another company similar to you? Is it a larger organization that has, this would be a component of a division or something like that? A lot of small companies particularly think they don't have those choices, but they really do.
It's just a matter of understanding more about how to sell your So I mean, I think that's a really good point. Sorry. no, no, sorry. The other question you asked us about the other advisors, know, typically there's a tax advisor on the client's team. There's typically a, an attorney on the other side.
and so it's usually us with those two, maybe a bank, if we're looking at an acquisition and there's some leverage that's involved or something like that, maybe there's a, you know, a VC capital play, you know, could be a lot of different ways that we approach this based on who the buyer seller And when it comes to taking a business, you kind of do that work to identify a buyer, but when it comes to taking it to market, will you then work with a broker or will you do that
kind of outreach to potential acquirers? We actually broker deals if they're in the professional services space. But if it's the space where we're not as versed or we don't have the network, then we'll work with another broker. And I'll give you an example. I would say 99 out of 100 of our deals, we're able to broker. We do a lot in professional services. So anything related to technology, engineering, that sort of thing.
But if it has a manufacturing component, for example, we've had a client that we helped them with their strategy. built, we got them to the valuation they were looking for and they were ready to sell. But in their particular case, they had a manufacturing that isn't our network. So we brought in a broker and said, hey, this is the broker we'll use for this because they know the landscape. What we want is to help our client get the best deal.
And so we look at whether or not we can broker that or we need to bring someone else in. Yeah. So I think you mentioned earlier on about the kind of how involved founders can be in businesses and how important it is to get them to sort of transition away from being involved with absolutely everything.
And I've had some experience of this and some people just really like they really cling on and you know, they are just the sort of center, you know, they're the center, they're the face of the business for the clients, but they're also involved you know, managing all of the employees and involved with every single project and, and, how, how, how do you kind of work with someone to get them to let go? Yeah, even sometimes we'll hear the seller want to sell themselves even to a buyer.
You know, well, I bring in all the work. I'm the one who, you know, and you're sitting there going, don't say that. If it's true, it's true. And they're going to figure that out and do diligence anyway. So be forthright. I'm always about that. But at the same time, the best option is to help the entrepreneur understand that, especially if you have a team, let's say of 10 You can't be doing it by yourself. You must be using those other resources.
So really trying to build up the strengths and the opportunities within those resources is where you want to go. You don't want to sell yourself. You're proven. You built a business. You started it. You brought in the sales. No buyer needs to be convinced that you're good at what you do if they're interested in buying your business. It really needs to be about the team. So what we try to work with the entrepreneur is to help them understand that selling the unit. is better than selling yourself.
Selling the team, selling the group, letting the team take on more of a role before you go to market. Having your clients, for example, if you can have your team have close relationships with your client, which many entrepreneurs don't, they keep that relationship very tight with themselves. The challenge with that is you can't scale that way and you can't sell that way unless you're willing to stay.
So you've really got to think through how do you do without worrying about the risk that that person's gonna run away with your client or whatever. There are ways to deal with that. But I think it's one of the biggest issues with entrepreneurs getting the best value for their business is they negotiate themselves into an employment agreement instead of an acquisition of their business.
Yeah. And I think actually that act like that exercise ends up giving the entrepreneur a much easier life anyway. And it actually gives them a lot more options. Cause if the business does then start to sort of run with without their involvement, then suddenly they think, well, actually you could just put an MD in or you could cut your working hours or, you don't have to sell it. You don't have to sell it.
We do feasibility studies all of the time where where entrepreneurs will say, hmm, I would rather I remember this one guy, you know, he had a company. This is probably more than 15 years ago, but his company was making a 4 % margin. He was doing he was making a nice living. It was making a nice salary. and all of that. So he was fine. It matched his lifestyle.
But when he was thinking about selling it, he really looked at the business, brought us in to really do a hardcore look at how could the business. Well, we realized immediately that your EBITDA is like three times lower than it needs to be because of the way that they were managing their business and their finances. within a year, we had the margins up to 9%. Um, for four is better than, know, that's good.
It still needed some movement, but for their business, that was actually not a bad margin compared to their competitors. And it was a very solid recurring business with very little risk. And he soon realized that he could make way more money, really just staying in it for the next five, 10 years and letting other people run it and then selling it for a much higher multiple. And so that's what he did.
And he did really well on the end because it was probably worth three or four times what he would have sold it for, within a very short period of time. And it was mainly because he allowed his team to really take charge. And he was really more of the chairperson overseeing it and less engaged in the day to day.
It doesn't work for everybody, but there are instances where it works really I'm also interested in the idea of, know, sellers discretionary earnings, like the way you look at the accounts and the way a seller pays themselves. just, I guess also kind of the way that they think about the company.
And I've come across this quite a few times when I've been looking at deals is that the founder finds it hard to sort of differentiate themselves from the company and the money in the company from their money. and what the real EBITDA is, and how much they've been paying themselves. And yeah, I've come up against that quite a lot. And I just wonder whether what your experience of that is and how you sort of get someone to understand. It definitely is something that we come up on a lot.
call it, the first question I'll ask is now tell me, is yours a lifestyle business or do you really have it as a separate business from your personal life? It's the first question I want to know before I even propose on the project, because it just helps me understand what our obstacles are going to be.
Because so many times people will say, it's a business, but yeah, mean, you I might give myself a little bonus here, bonus there if I'm getting ready to go on vacation or I may do this and they kind of, well, pays for my car and it pays for my club. It pays for all these things. So when we're looking at it, what we tell them is we're going to run this as if we're replacing you. What would the company spend if we brought in a professional CEO didn't have any ownership?
What would their compensation be? Because we're going to make adjustments on your EBITDA based So if you're sitting here and you're running every personal expense through the business and in the future, that's not going to be the case. Then we're going to add those things back to your EBITDA, which is great. The problem is in the future, you can't ask the buyer to pay you for that because we just took it out of how you valued.
And so I feel like the biggest challenge is when the seller says, well, I make $300 ,000 a year right now and you're only offering me 200 ,000.
Well, Probably because for what your size company is that is the amount that a CEO or president should be paid that you're paying yourself More because you can which is fine, but now we're gonna put you on incentives You only get more if you earn more It's not gonna be just because you own the company because you won't you're getting paid for that value today So I really try to help the owner understand they
separate themselves from the business and their mindset has to be this is what your salary is most likely going to be and these are most likely going to be your incentives. This is what you've been doing and that's great. And if you want to leave that in there as your salary more than it's going to reduce your value. So how do you how do you want to play I think it's such a sensible thing to do.
And I think you're just, you're far better off to, you're, you're far more likely to get off to a better start with a potential acquirer. Cause I've, there's a quite a big brokerage in the U S who I won't name, but they do quite a lot of, media and agency businesses and stuff like that. the, their valuations are on the sort of, information men around them that you get kind of look pretty reasonable.
know, they're kind of three times EBITDA for a small agency, but the ad backs that they put in are just like completely ridiculous. You know, it's just stuff like, you know, we have an office, but we could go remote. So we've just stripped out the office costs for the last three years, you know, and yeah, and it just, it's just not, it's just not a great starting point. because then you already feel like you have to have this kind of stupid argument about whether or not they have it.
But you do have an office. You have an office. No, 100%. Absolutely. Plus, I think you have to look at it too. Like if you were buying this, I tell clients all the time, if you were buying this, you're a smart business person. If you were buying this, what would be acceptable to you? And it really helps if we can do that before we ever have a buyer, because then we already go through it.
We're coming from a position of We've already gone through and this is how we were running through the business, but we've made some changes and this is how we've done it and this is why. And then all of a sudden the buyer looks at it goes, I can work with you. You're sensible. You've thought through this already. These are the things we thought we'd have to convince you to do. And you're already telling us this is what we need to do.
It just puts you in a position to, know, many times when you're purchased, we think that there's an exit. I'm going to retire. And for a lot of people, that's true. But for some They may want a new opportunity in the new organization to be, you know, more than what they are today in a smaller organization in some way professionally. So you have to think about what your motivations are too.
When you're thinking about how to align your business, what is it that you want for your career post transaction? Is it retirement or is it a potential new opportunity within this larger group? Because that's really going to help you show up differently to the buyer. And how, from a sort of project management point of view, like how do you kind of prevent things like deal fatigue, you know, things dragging on forever and ever? And have you seen deals fall apart as a result of time kills deals.
You know, we've all heard that a million times and I think it's absolutely true. I think the key thing is when we broke our deal, we're really adamant to go to agree and align on a schedule. This is our schedule for due diligence. This is our schedule for legal documents. This is our schedule for each one. This is our potential closing date. We're going to work toward that date.
Because my experience is that when there's ambiguity about when we're going to close or how long things take, many times they drag on and on and on. And the more they drag on, the more we're just pontificating versus deciding and moving forward, the more likely the deal is going to fall apart because people just move on to the next thing. Something else happens or... whatever.
So I'm really adamant that if you really want to make this deal happen, once you sign that letter of intent or term sheet or whatever, to move into the due diligence phase, it needs to be really clear what the timeline is and what the for both sides are. I think the other thing is so many people think, well, if I just hold out for a little while, I can talk to more people and I might find an even better buyer.
And I think that That's a really dangerous way to, if you're serious about talking with someone, you can't leave them on the hook like that. You might be able to do it for a month or two, but you can't do that for very long. So that's another reason to go for like a professional, I'm going to put myself on the market because then you talk to a lot of different buyers upfront before you make this choice.
So you're not feeling like you need to continue talking to more because you feel like this one is the one that's narrowed down. to possibly be the best buyer for all of your needs, whether it's value needs or how they're gonna approach the business post transaction or whatever it is that matters to you. Do you find that there's often with founders, there's quite a lot of sort of uncertainty or sometimes a lack of being able to like decide whether they actually want to sell it or not.
So they sort of go into the process and then flip Yes, we see that a lot, particularly, you know, one of the reasons I like to work with folks a year or two or more before they want to sell is to make sure they actually want to sell, to really look at the feasibility of all their options and really what meets their needs. it internal? Is it, you know, some sort of employee stock buyout through an option plan or an ownership plan or something like that? Is there, you know, just another way?
that would be preferable to you or you really going to go all in on that third party sale because if you're going to go in on the third party sale, you have to be mindset for that. You're going to hear things about your business that are going to make you feel like, man, I should have known that I'm embarrassed. It's part of the process and you shouldn't feel that way.
They wouldn't be interested in you if you hadn't built something good, but they're still going to find the things that they want to change about it. So it's a harrowing process. So many times people say they want to sell because they think of the dollar, they get at when they start getting into the hard questions, they really don't want to do this. They want to keep doing what they're doing. They just want to monetize it. And there are other ways to monetize versus just a sell.
So I think that that's something that people have to get really clear about when they go to sell, they have to be all in. Really be all in, or you're going to waste a lot of time and money. the sort of dollar signs as well that come up. How often do you find a sort of seller goes into it with an unrealistic expectation of what their business is worth? Oh, many, many times, right? On both sides. Sometimes it'll be, well, it's not really worth anything.
really, don't even know for sure why they told me I should talk to you because I can't sell this. I mean, you know, whatever. And then you're, then they sell it for, you know, $10 million. And all of a sudden it's like, oh, I didn't realize I had any value in here. I've got 10 million or 5 million or 2 million or whatever the answer is. And then there are other times when they think they're worth 50 million and they're absolutely not. And they don't think about taxes.
They don't think about the net effect. They don't think about the closing down of the business if it's an asset purchase versus the equity transaction and what that might look like and how I'm structured and what the impact is going to be there. What are my reps and warranties that I'm signing on for? How long am I signing on for them? All those sorts of things people don't think about when they're just looking at the dollars.
But later on when you start saying, I have to rep this and if something comes back, I may have to give some of those dollars back. What's the likelihood that that's gonna happen? Just knowing all of that and understanding the true impact of it, not just the financial, but the other risks that may play into this. It could delete financial risks, but it also could just lead to people leaving.
Maybe for example, we see a lot of deals with smaller entities their stay bonuses for certain people or the seller gets some sort of incentive for making sure the staff stays in place. And when that doesn't happen, it affects the deal. But usually valuation of the company is where we really have to help people understand that just because you're making a lot of money out of your business, your recurring annual revenue may not look the same. going forward.
That's usually where we see the biggest is like, oh, I'm making a million dollars a year. And so when I sell it, I have to make at least a million dollars a year. Well, if they give you 10 million upfront, they're not going to give you a million dollars a year unless you're doing something to earn a million dollars a year. So that is definitely one of the biggest conversations we have early on is expectations. Yeah, it's interesting.
Like you mentioned, if it's an asset purchase that you have to wind down that existing business, like that's just, that's just a sort of, it's a legal process essentially. But I guess some people like find that emotionally like quite difficult. And, and I guess that's, yeah, that's my next question really is like, does it, how does selling a business affect people emotionally? Well, for most entrepreneurs, the business is a baby.
It's like a child that you've raised from inception to now and you're letting your baby go. So there's all of the emotions that come with that. When many entrepreneurs, you hire every single person that works for you. You've seen them grow up in the business. Sometimes you've been partners with that person forever and you can't imagine what life would be like.
I mean, It's just a, it's very personal for most of us because we eat, breathe, sleep, and study our businesses on a daily basis, seven days a week, 24 hours a day. It doesn't leave you when you own something. And so I think part of the emotional process is being just like when your child leaves the nest to go off to whatever life is taking them.
You have to be able to let go and you have to be, you know, I always tell people in the pride of knowing you built something and let that kind of seep in. Be proud of yourself because another, I think, psychological component of all this is feeling like you could have done more. Most entrepreneurs never feel like they've done enough. And so they beat themselves up at probably what should be one of the most exciting times of their lives. This is why you built it. This is why you did it.
You're getting this big payday. getting, you helped all these people. come into the workforce and you've trained them and developed them. And so instead of looking at it from, wow, that's really cool, we tend to beat ourselves up because that tends to be the driver. It's never good enough or never there. So we try to help them just see, hey, pat yourself on the back. This is pretty amazing.
And the opportunity that you're giving your team and everyone else in this new opportunity can be really amazing too, but you have to let go. You have to give it and let it be its own thing from that point forward. I guess that leads on to my next question really, which is about integration.
I guess just from the founder perspective again, from quite a lot of the interviews I've done, people find that transition quite hard because you go from being master of your own destiny and then suddenly you've got a boss. It works for some people, for a lot it's very challenging. What can you do to prepare people for that and help them through it when it happens.
Well, one of the things that I highly recommend is that the buyer really get involved in planning the integration with the seller during the due diligence. I always feel like you should, due diligence is one thing and the attorneys and the accountants and all those other people are gonna be going through due diligence. But there's another side to the transaction aside from the legal documents and all of that is how are we gonna exist day one?
How are we gonna, What does it look like 90 days out, six months out, one year out? When I sold my CPA firm, I did not do that. And I learned the most valuable lessons. I was very lucky that my buyer was wonderful, but I didn't even know where I was going to sit day one. didn't know technically who I reported to. didn't really, I didn't know some basic things. And that was a really big lesson for me because I've always been kind of, I, I like change, so it was exciting for me.
But I realized that was really hard on my team for me not to be able to answer certain basic questions about what I was gonna do. We had a real clear idea of what the staff was gonna do, but not me. And so I had a personal lesson in how ridiculous that is, right? You need to know, like, what do you expect of me? Who am I gonna work with? Who do I report to? How does that, what are some things you're going to expect of me after the first year.
For example, many times the name of my organization may stay in place the first six months or so for a transition of brand. I have to be part of letting the new brand take over and what is going to be expected of me there. I think those are critical to the integration plan. And when we represent a buyer, we require them to do strategy sessions with the seller. because we feel so strongly that those strategy sessions are the difference between success and failure in an M &A transaction.
Because if we all agree this is what's gonna happen day one, 90 days, six months, one year, two years, nobody's surprised when you're not the team that normally has reported to you, no longer reports to you after six months. You don't have those resources anymore. You knew that was coming. You have to be prepared for And you have to be part of the solution to make it happen, not part of the holding it back to keep it like it was. I think that's really critical.
Another sort of thing that people say a lot about selling a business is, that you should always be sort of comfortable with the down payment and not expect the earn out. So yeah, how often have you seen people successfully complete their own outs versus how often have you seen the missed targets or, or, or just end up leaving for whatever reason? Yeah, you know, I'm not a huge fan of earnouts. I don't think anyone who represents one side, you know, is a huge fan.
Obviously on the buyer side, they're nice because it takes a lot of the risk out. But my experience and I do a lot of work in the professional services space. So a lot of most of my clients are selling time, you know, professional expertise. And so we have had a lot of success with our clients hitting the earnouts. But it's really based on how they're calculated.
Where we've seen them be unsuccessful, and we've seen a lot of unsuccessful earnouts too, where we see them be unsuccessful is when there's not a clear direction of how that earnout is gonna be won. How is it gonna be met? There has to be a contribution by the buyer and the seller to make that And so what commitments does the buyer make to help you get there?
So for example, if we've been doing an average EBITDA of a million dollars and they want the EBITDA to be two million dollars within five years, then there has to be a really clear direction from all parties of what it's going to take to get us there. There's going to have to be additional resources purchased maybe, maybe there's additional technologies, things like that.
So where we see earnouts not be met is when it's not clear how the numbers are even going to be met going into it in the first place. It's just kind of a hope and a dream that because we're all banded together, we're going to win more work. Now there has to be a real strategy behind what kind of work do you want to win? How do you want to develop this? And there has to be, I always like to have a five year plan, a strategic plan specifically for the acquisition.
And that would be tied to the targets if there's an earn out. And so if everyone does their part, the only thing that would keep us from making that earn out is an economic event or something. And so typically, how long do you work with a client post -sale? So how involved do you get with the integration side of things when you're acting for the seller? When we're acting for the seller, typically once we hit close, anything we've done to that point, we're finished.
so unless the buyer, and this has happened to us quite a few times because of our managed services team, many times the buyer will ask us to continue to help with the accounting side for some period of time after to help with integration of their accounting system or something like that. But otherwise we're not very engaged on the seller side. On the buyer side, we will be maybe up to the first year.
On the seller side, it all has to be documented and really becomes the responsibility of our seller, of our client, to kind of make sure it's happening. And if not, reach out to us later because we don't really, we're kind of finished at the closing. So, okay, so what advice would you have for business owners to help prepare their business for sale? I think the first thing is get clear about why you're selling it. What do you want from the sale? Be very clear with, want to work this long.
I would like this much in value. Just get all of that down in your mind and then check your business for where you are and do a gap analysis. If this is what you want and this is where you are, now you have to figure out how to bridge that gap or you'll find that there is no gap and you can go ahead and begin the process now. For most, there's a Right? What we want, where we are is different.
But I think to me as an entrepreneur, one of the most important things is just to understand what you're wanting and why you want it. And that clarity can help guide you as to whether or not this is in the best interest of your team and of you. think that is such good advice because the number of people that I talk to who don't really know what they want is quite surprising.
It is amazing you start asking questions and you know I feel like sometimes the questions I ask are way, way more helpful to my clients than the advice I give them. Because sometimes I'll ask a question and it's like they have an aha moment. These are really smart people and all of a sudden someone just gave them permission to care about that.
Value is a great example or their compensation or who you know how long do I want to Sometimes it's hard for us to even see part of the reason we want to sell it is we're working too much, right? And so our why isn't what we thought it was when you really get down to it. Our why is I'm exhausted. I don't want to do this anymore. So I'm running away from my business instead of running it. And so when that happens, then you have to really assess what do you really want?
Like if we could change your dynamic day to day, would that change what you want to do with this? And the answers vary. Some people it doesn't, some people it does. So when did you sell your business, your CPA business? Actually, I'm the luckiest person on the planet, Barnaby. I always have been very fortunate to just when when I sold my firm was February 2008. And at that time, that was right at the top of the market as the economy was starting to slide.
And so I felt like I hit the mother load because navigating that economy as a small business owner would have been a real challenge. Interestingly enough, though, navigating it in a large company because a 32 ,000 person company bought my firm. So it was very different than the seven people we had in the CPA firm that, you know, seven CPAs that went over. So I think that at the end of the day, I don't know that I did anything different.
working for the client that I would have done with my small business, but it was awfully nice to have all those people around me that can help me think through it that I would not have had. And so I was very lucky when I made that transition, but I learned a lot about &A from the other side by selling my firm. We weren't open very long. We were only open five years. Right. And is that what made you then go into &A after It is. It is. It is.
At the same time that I was selling my firm, one of my best friends who was also a client was selling her architectural firm. And her experience with her broker and my experience of me not realizing some of the components I should have been prepared for were really the things like, wow, somebody needs to be out there helping the seller understand these things. They're only going to probably do this one time. They don't know. So by the time you learn, it's too late.
And so that was really the impetus that put the seed of think strategy in my head. Good. Well, that's what this podcast is for as well. thank you. Thanks very much for coming on. mean, yeah, I think a lot of people would do well to have you as an advisor for them. So yeah, thanks very much for your it's my pleasure, Barnaby. I can't wait to hear more of your podcast. Thank you so much. Alright.