If you own a service based business, what’s the best way to sell it? It’s tricky because in a lot of ways, you yourself are the business if you’re proving a service.
In episode 73, hosts Elizabeth Larkin and Gene Marks answer the following question:
“I run a pretty successful marketing agency. No, I don’t sell advice on how to start a marketing consulting business like the guy in that previous episode. Although I do see those ads too and yes, they are annoying. My question though is whether or not it’s possible for me to sell my business for a big payday? I’ve been running my business for 15 years. We bring in a huge amount of revenue and I profit about $200K a year for my own salary. When I first started out, I was insanely hungry. I worked 80 hours a week and loved it. I’m getting tired now and wanna do something different or just work less. But I don’t want my business to crumble. I still work about 60-80 hours a week. I would love to sell it and hopefully get a decent payday, take some time off, and then start up a new venture. But I don’t know if that’s possible with an agency. Can you provide some guidance on this or just your thoughts on it in general?”
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Elizabeth: Welcome back to the Small Biz Ahead Podcast. Gene, I have a question for you that I want to start the show with today.
Gene: Have you been thinking about this ahead cause you were coming in this morning and like, “I’ve got some questions, I’m writing them down”.
Elizabeth: I do. I have a Gene folder in my Evernote and it’s like-
Gene: “Whatever pops into my mind”, you’re gonna put it in-
Elizabeth: Yeah. What should I ask Gene on the podcast?
Elizabeth: So my question today is when do you get your best thinking done? We always talk about how business owners spend so much time in the business rather than thinking about the business.
Elizabeth: When do you think about your business? Is there a certain time of day, a certain time of year?
Gene: That’s a really good question. I know my most productive time of the day is first thing in the morning. I know that. I mean I get up every morning at five and I rock for like three hours.
Elizabeth: Do you really hop out of bed at 5:00-
Elizabeth: Or do you like oh God…
Gene: I’m usually, if I know I’m gonna be writing cause I know I always write something, cause that’s when I get my writing done. So if I’ve got something good to write about, I’m pretty psyched to get up and jump into it and it’s the best time of day.
Elizabeth: What time do you go to bed?
Gene: About 10:00.
Elizabeth: Oh alright so you’re getting-
Gene: It’s between 10:00 and 11:00 I’m-
Elizabeth: You’re getting a solid six hours.
Gene: Yeah, six-seven hours. When you’re getting out of bed, for everybody it’s tough the first minute, but once you’re up and around it’s like the best time of day. And so, but there’s a difference. That time of day, I’m productive, so I’m getting stuff just done, done, done. I’m writing, I’m thinking of course, but I’m writing whatever. But as for as long term and strategically about the business, which I don’t do enough and I know a lot of people do, probably more than me, I have to say there’s no one regular time. It’s usually when I travel. I’m on my own and I’m walking around and from walking in the city to someplace I know I’m gonna be walking for 20 minutes, I’ll do my best not to listen to anything in my ear buds. Instead, I just think about stuff just going on with the business. So it’s sporadic and it’s regular.
I was thinking about an interview with Bill Gates recently and he was saying that he’s always, since he was a kid, has taken time out of the day to think, just to think.
Elizabeth: And does he walk or what does he do?
Gene: He like, it depends on where he is in the day, but he clears basically all the things that he’s doing and sometimes he’ll walk, sometimes he’ll just be hanging around. But he thinks a lot like this is what, you know. And he said people used to make fun of him when he was a little kid cause he would be spending, his parents would come and say, “Why aren’t you mowing the lawn,” or whatever and his response would be, “You know well I’m thinking right now”. And you just think, what are you possibly thinking about but clearly it’s Bill Gates, he was thinking about a lot.
Gene: So there’s no, for me, there’s no set time where I would be going around thinking about what about you, what do you think about?
Elizabeth: Same thing. When I’m traveling, I have the best ideas about my life when I’m on an airplane there’s absolutely nothing I can do about those things at the time. I don’t know, I feel like there’s something about taking yourself away out of your current day-to-day that just makes you step back and think, “That’s not a good thing for me to be pursuing-”
Elizabeth: “I should be doing this.”
Gene: Correct. So 100% right there is… I can’t tell you how often, sometimes I get nervous when employees of mine take vacations and then I’m waiting for them to come back and I’m waiting for somebody to give me and go, “You know Gene, I’ve been thinking, you know I’m thinking of doing something.” Because when people go on vacations, this happens. It’s just I don’t know, you get out from your normal routine and you start seeing the whole world and life around it.
Elizabeth: You can step back a little bit-
Gene: You do.
Elizabeth: You know, a little distance.
Gene: You do and then you stop taking yourself so seriously cause you see that you’re one little peon in a giant way. And then you start rethinking about, well that happens a lot. So you know, and I do that when I go away, if I’m on vacation or whatever. That’s when I use that time to think.
Elizabeth: And then after two days back you’re like-
Gene: You’re back and then-
Elizabeth: Oh, that was a dumb idea.
Gene: Yeah you’re back. That’s exactly what happens.
Elizabeth: Okay, we’ll be right back with our question after we hear from our sponsor.
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QUESTION: Can I Sell a Business That’s an Agency?
Elizabeth: Today’s question is from Gabe. He doesn’t tell us what kind of business, well he does tell us what kind of business he runs but he doesn’t tell us where he’s from-
Elizabeth: So we’re just gonna say he’s from-
Gene: He’s a citizen of the world.
Elizabeth: He’s a citizen of the world.
Elizabeth: Okay, so Gabe writes,
“I run a pretty successful marketing agency. No, I don’t sell advice on how to start a marketing consulting business like the guy in that previous episode.”
“Although I do see those ads too and yes, they are annoying.”
Okay, so what he’s talking about is in a previous episode, someone wrote in saying they’re constantly barraged with Facebook ads, with-
Gene: The marketing gurus.
Gene: “You spend $10,000 with me and I’ll make your business grow ten times”.
Elizabeth: So Gabe continues,
“My question though is whether or not it’s possible for me to sell my business for a big payday? I’ve been running my business for 15 years. We bring in a huge amount of revenue and I profit about 200k a year for my own salary”.
Elizabeth: Well, go on Gabe.
Gene: Yeah, that a way Gabe.
“When I first started out, I was insanely hungry. I worked 80 hours a week and loved it. I’m getting tired now and wanna do something different or just work less. But I don’t want my business to crumble. I still work about 60-80 hours a week. I would love to sell it and hopefully get a decent payday, take some time off, and then start up a new venture. But I don’t know if that’s possible with an agency. Can you provide some guidance on this or just your thoughts on it in general?”
So I think what he’s asking is can you sell an agency?
Gene: Yeah, or a service business right? I mean that’s really what it is so-
Elizabeth: When you are the business.
Elizabeth: Like your time and he’s saying “we” so I’m assuming he does have some employees.
Gene: So it’s funny, I forget if I said this on the show before but, so I run a service business like Gabe’s. It’s not a marketing agency but it’s a technology consulting firm and my business is worth nothing. I mean I couldn’t sell my business. All these years I’ve worked building it as it is and the main-
Elizabeth: Really, why not?
Gene: Because I have no assets. I mean I have cash. I have receivables.
Elizabeth: Wait, you have your clients. You have your contacts.
Gene: Do I? Do I really have my clients and my contacts. I mean what is keeping them with me? What if I, if I were to sell my business to somebody else, there’s no commitment, there’s no contract.
Elizabeth: Well, it’s Cory that’s keeping your clients.
Gene: Yeah, it is I mean it’s Cory and other people in my company that have that relationship with the clients but there’s no guarantee that those clients are going to continue on with our business and that’s gets back to Gabe’s issue. So if Gabe is running a business as a marketing agency, if I went to Gabe and Gabe is like, “I’ve got these 100 clients or 500 clients and they’re all under contract for the next three years for these ongoing marketing services they’re providing”, I’d be like, dude okay, I’ll pay you something for that. I mean you’re telling me there’s three years of cashflow in the future, it’s contracted, there’s right-
Elizabeth: How many marketing agencies do that?
Gene: That’s what I’m concerned about. I mean I really don’t know. If Gabe’s business is anything like mine, and I kinda suspect that it is, he’s probably going from project to project and you know-
Elizabeth: Because you’re serving other small businesses.
Elizabeth: If you were serving a big corporation, then they would sign a two or three year contract.
Gene: Possibly. Possibly. I mean some do and some don’t, but yeah, you’re right. So it really kinda depends on, and by the way, if you work with a big corporation, they might even have a contract, so if there’s change in ownership, the contract is null. So you gotta look at that as well. So, when Gabe is like, “can I sell my business”, well the only way, and he’s not gonna enjoy this answer, but Gabe, you’re working 60-80 hour weeks now. If I were to buy your business, I would expect you to continue to work for me over the next two to three years while you transition that business over to new ownership. So it’s not like you get a check and then wipe your hands clean and walk away. I could sell my business to somebody else if I just became an employee of the business-
Gene: With paid out based on I guess profits of the business or something amenable to my buyer-
Elizabeth: Would that drive you crazy though?
Gene: Probably. But then again, if there’s a light at the end of the tunnel, that depends. So if somebody were to say to me “Gene, I’ll give you X dollars for your business but you’re gonna earn it over the next three years because we’re gonna need you to be here and continue to interact with your clients, you’ll be the brand and the face for your company, while we transition on as the new owners”. That’s the only scenario that service businesses can really be sold unless you’ve got a guarantee stream of income.
Elizabeth: Now what about, if you don’t wanna talk about this, just say and the editor can cut it out, but you also have another business which is yourself. Like you go around-
Gene: Yup, that’s correct. I speak a lot. I get paid to speak.
Elizabeth: You speak. You write books. You write articles.
Elizabeth: So you could actually, I mean could you sustain that business without owning your first business?
Gene: Right and that’s a really good question. So the speaking and the writing that I do, I have some contract, like the heart for that I work with when I do this podcast right? To me, I could probably sustain that business, but it would be a harder sell because I think one of the values that I bring when I do that stuff is I’m a business owner.
Elizabeth: You’re in the trenches.
Gene: I’m really in the trenches so, whenever I do podcast like this we’re talking about, well this is what was getting on my nerves this week you know, as a business owner. So I think it takes away some of my credibility, could definitely hurt me. So I do think they really intertwined.
Elizabeth: So what else could service, so what is the best scenario for Gabe then?
Gene: So Gabe’s best scenario is well that number one is if he, I don’t know how old Gabe is, but if he’s like, “Hey listen, I’ll sell this business in five years or ten years down”. He has the luxury of doing that. He should do his very, very best to try and change the model where he’s contracting in with clients for a multiple-year period of time right, so that he can present cash flow to a perspective buyer. And see that’s why accounting firms, they get sold based on a multiple of their revenues because when you’re an accounting firm, you’ve got engagement letters with clients, sometimes operate multiple years. And in accounting firm business, a lot of times people don’t change accountants. They just stick with them.
Gene: So it’s a residual income. So with Gabe, that’s the best scenario for him, is to have that sort of long term contract with clients. He can get perspective buyer realize, they’ll be getting that. If he can’t do that, then what he’s got, the only thing he can sell is himself. And if he says, “If I’m gonna sell my business, I’ll be part of that, I’m the asset, so you’re already buying me basically and over the next two to three-year payout, I will be working hard to transition this business to you”.
Elizabeth: So yeah but that’s the next question though, he wants to cut his hours. Could he go down to 40 hour weeks?
Gene: It depends on what deal he decides to cut with the person that’s gonna buy him out.
Elizabeth: Could you say, “I’ll work 40 hours a week”?
Gene: Yeah, I mean, you could and however a potential buyer might be well “I’m actually gonna need you to continue to do 60 hours a week at least for the next year or two”. So it depends on the deal that he cuts. But hopefully it’ll be great to do that it’s just that, a lot of business owners, they feel like they can just… first of all, everybody feels their business is more valuable then it really is, everybody. And secondly, everybody does think if they’re gonna sell their business, they’re just gonna wipe their hands clean and walk away. And very few businesses, particularly small companies, have the processes and organization and infrastructure, where they can just hand over the reigns to somebody else. So, in Gabe’s situation that doesn’t seem to be the case so, he’s gonna need to be really involved, whether it’s 60 hours a week or 40 hours a week. That’s gonna have to determine that.
Elizabeth: Alright, sorry Gabe.
Gene: Sorry, but Gabe, hopefully if you’ve built this up and you’re the asset, then you can exit, it just might take a little bit longer.
Elizabeth: I mean he sounds like a crazy work horse so-
Gene: Yeah, sounds like he’s doing good, sounds like he’s doing good.
Elizabeth: Okay, we’ll be right back with Gene’s Word of Brilliance.
WORD OF BRILLIANCE: Man Tax
Elizabeth: And we’re back with Gene’s Word of Brilliance.
Gene: So Elizabeth, it’s been in the news very recently and I just wrote about this for one of the news organizations that I write for about, look I have to ask you what you think of this. The Word of Brilliance is man tax, two words. You heard this story?
Gene: So a café owner, she owns a café. Her name, or her last name is O’Brien, and she owns a café in Melbourne, Australia.
Gene: And she’s very, very upset at the gender pay differences in Australia, where an often case is studies have shown that men get paid up to 20% more than women in a lot of different jobs.
Elizabeth: The same as the U.S.
Gene: Of course. So she’s very upset about that so in her café, which is like a restaurant café, she is now charging men 18% more.
If you’re a guy, and you wanna use her café, there is 18% man tax. And not only that, if there are people waiting to get in to get a seat at the café, women get priority seating over men. Now she has said that she is taking whatever proceeds that she’s raised and she’s giving it to a woman’s welfare organization. So it’s not like she’s putting it into her pocket, but she’s doing it to obviously raise awareness about this gender and equality. What do you think about that?
Elizabeth: So, how is her business doing?
Gene: She only started this within the past week as we’re talking about this now. She claims that it’s fine. She claims that she’s getting a lot of support from both men and women. There’s been a lot of reaction to it on Facebook and also on social media because a lot of people are very offended by it. Some people say it creates even more diversity and more gender inequality. I guess it’s not helping to solve the problem. It’s just basically making people angry. Others are very like, “You go girl, we like that.”
Elizabeth: Well in terms of a business idea, I kinda like it because you’re getting a lot of free publicity, which we’ve talked about-
Gene: She’s gotten a lot.
Elizabeth: Doesn’t bring in customers usually but I feel like something like this, it will.
Elizabeth: And I bet she actually has a lot of men go who are like, “This is great, I’m happy to support this.”
Gene: She does as a matter of fact. And as wrote in the article, one person, one customer came in, a guy and gave her more money actually. “Well, that’ll just go to charity, here’s an extra $20 to put to that charity, I fully support you”.
Elizabeth: It’s kind of a brilliant business idea.
Gene: It’s a pretty good thing. The downside is with business owners that take stands against stuff. She’s taking a stand on an issue, gender and equality, and now she’s involving her livelihood in that. So she’s kinda sticking her neck out. I mean for all she knows, it really upsets so many. Last time I checked, men make up 50% of the population approximately, so theoretically she really could be excluding that, but if enough get angry where it hurts her business as well.
Elizabeth: You know but I think there’s also a group of men out there, younger men especially, who would go out of their way to support that-
Gene: Right, sympathize with her.
Elizabeth: She might be alienating women who think it’s dumb, who knows. She definitely is alienating some people, but I think she’s also gonna get a lot of goodwill out of that. I think it’s kinda cool.
Gene: I think it’s cool. It’s gotten her a good amount of attention. I just, I mean my advice to anybody who wants to, and this goes on all over the place, where people do stuff with their businesses to make an incision, and by the way, the millennial generation, survey after survey says that they are attracted to employers that are more socially conscious and get involved essentially.
Elizabeth: Oh, big time.
Gene: Way more so than ever before. So that’s okay, you wanna attract good people and also good customers to your business but when you start doing stuff like that, you are just taking a risk that it could impact your revenues and your profitability. And she’s putting herself out there, so there have been plenty of people on social media that have been writing nasty things about her cause they don’t think it’s good.
Elizabeth: I don’t know, she sounds like a tough lady-
Gene: She is seems like a very tough lady and I agree. So look, I think we’re seeing more of it now and I think we’re gonna continue to see more business owners around the world get more involved in sort of politically, political issues and kind of stick their necks out there and the question is whether or not that is a good thing or not. I’ve got another Word of Brilliance which I’ll share in another podcast that’s a similar issue.
Gene: But I think is another interesting thing to talk about.
Elizabeth: Okay, well good thing we have another podcast coming up in a couple days.
Gene: Coming up, you’ll hear it.
Elizabeth: Stay tuned.