Episode Transcript
Introduction: For entrepreneurs, getting a valuation done or doing an exit readiness assessment usually seems like the last thing on the priority list. But doing it earlier, getting that insight well ahead of any intention to sell or raise capital, that can be the difference between success and failure. The sooner you understand the value drivers in your business, the sooner you can focus on them and plan accordingly. And for those who have entrepreneurs as clients, whether you're an exit planner, financial advisor, accounting firm or attorney, giving your clients access to our expertise alongside yours will create a better outcome. Visit bizvalglobal.com for more.
The Finance Ghost: Welcome to this episode of the bizval podcast. We have a guest today from London, where I travelled to a few weeks ago myself and really, really enjoyed it. Apparently, I certainly got the best time of year in terms of the weather, so I guess I'll have to go back when it's a bit rainy and maybe inject some balance into my experience. But I certainly really enjoyed visiting your home city, John. And that leads me into introducing you on this podcast, of course. So today we've got John Sweeney, who is the founder of the Business Exit Academy.
Your ears should be pricking up already if you own your own company and you've thought about exiting it or selling it one day.
John, you've got a really interesting background. It's across sales, business coaching, growth consulting, M&A and selling your own business. And I think you refer to yourself as a business sales specialist. All really valuable stuff for anyone who owns their own business to be listening to. John, thank you to you for bringing your insights to the show. I really look forward to this discussion with you.
John Sweeney: Thank you, Finance Ghost - looking forward to the conversation.
The Finance Ghost: Absolutely. So I think let's just jump straight into the core issue here, which is that selling your business is not easy. Right? I do think it's a little bit easier in a market like the UK than somewhere like South Africa, where I am. I think just the depth of the market and the amount of participants and the capital pools and everything else plays a role. But even on that side, how common is it for entrepreneurs to actually achieve a successful exit? Is it unusual?
John Sweeney: I think it is unusual. I think what is a successful exit, if we define that? I've been to a couple of conferences in the last couple of weeks where you're in the audience and keynote speakers get up. They're almost like rock stars, business rock stars. And they have great stories to tell about how they built the business and it took them many years. And, you know, I was in Ireland speaking at an event, and there was someone from Cork who'd sold their business to Zoom for $250 million. There was someone at an event in London last week that I was at, created this huge thing called Coffee Nation, which is all these coffee machines around the country, and I can't remember the number that they sold that for, but Whitbread bought it. Costa Coffee bought it from Whitbread. These folks are rock stars, and I think they are.
When we talk about a successful business exit, yes, if you're selling it for multiple millions to large organizations, that's very successful. But I deal in a different space, which is more owner-founders coming to the end of their time, the universe is telling them to go on and do something else. And those people who have a business, and it's referred to a small business, and in the UK, we call that say five million turnover, sometimes ten million turnover, can be smaller, making around half a million profit, operating profit, and above to three or four million. Those are the people that I'm working with. And I think a lot of those businesses do not have a successful exit for all sorts of reasons.
The Finance Ghost: Yeah, I love that. It really does come down to defining a successful exit. It's like defining liquidity for a financial instrument, which is not just can you sell it, it's can you sell it at a reasonable price? Because technically, you can sell anything if you are willing to give the thing away. So that's the idea, right? A successful exit is not just did you sell it, but rather did you sell it on reasonable terms at a fair price and actually consider it a win, or at least a fair outcome for all involved.
John Sweeney: Exactly. And the longer I've been doing this, and I've been helping business owners exit, sell their business, because the world I live in, people don't really talk about business exit. They're selling their business because they're going to go do something else. I try and just mirror that language. But a lot of what happens, this is their legacy. This is something that they have built. It's a child, it's part of them. So when they sell it, they're also thinking about the staff that they're leaving behind, the customers, the suppliers, and it's a legacy thing as well.
You know, success is being able to walk down your local high street and look your former staff in the eye and knowing that they still have a job and that you've done right by them. These are things that don't get talked about much, but I know that in the people I deal with, those factors come into play for a successful exit.
The Finance Ghost: It's a fascinating thing to bring up. So, let's talk a bit more about it, because we have the same conversations with founders. I've certainly had those conversations in my career as well, and I take a slightly, I don't know, maybe I've just been too damaged by deals I've seen and how they end up playing out. But I guess the cynical view is once you sold a business, you need to accept that it is no longer in your hands and something may happen to it that you don't like and you can't beat yourself up about that in years to come. And as I say, I guess maybe that just comes from me having seen so many examples of this, where a founder sells a business and best intentions, but at the end of the day, when the buyer comes in, if things underperform and they have to let people go, that's what they're going to do. So how do you address that with founders? How do you get them to understand that yes, you can do this on a best endeavours basis, but you've got to also accept it's not your asset anymore?
John Sweeney: The way that we approach it really is the same as the model at Transworld, which is the company that I work with to sell businesses, we don't charge any upfront fees, which is unusual in the UK market because people are looking for retainers and various other kind of financial arrangements upfront, which doesn't make sense to us because we know how hard it is to sell. Most businesses and most businesses that are on the market do not sell. So taking money when you know the odds are very slim isn't our model. It is a model for other people. But the questions really are around mindset. I think, first of all, for me, I want to really understand, are you ready to sell or are you ready to sell if someone comes along and makes you a really ridiculous offer that you can't refuse? And those are two very, very different things. So I'm really looking and talking to the clients I work with. Is this now your time to go? Are you ready to go? And I think when they're ready to go, they are more accepting of some of these changes. They will lose control, things will be different. The new owner will have a different way of doing things, but the new owner, often, if they're the right fit, they have good intentions and they will look after the staff and the legacy and the customers. And I know it doesn't always work out, but often it does as well in my experience.
The Finance Ghost: Yeah that's good to hear. I mean, yes, there are some really lovely examples and look, someone buying the business is buying the business. Chances are they're not going to walk in and throw everyone out and do crazy things. It does happen though, so I guess that's the challenge. Emotionally you've got to accept you are letting go. You know, I always use the example. I recently sold a classic car that I'd had for years and it's a big decision to let it go, but once you let it go, you've got to accept the new owner's going to do what they think is right with that car.
John Sweeney: As I say, I think most of the people that I'm working with in the UK can be called entrepreneurs, but I like to call them business owners. They're very humble, they're very normal, they don't have airs and graces. I think sometimes they've watched a few movies and they think that people will come along and buy their business and do a version of asset stripping or, you know, laying lots of people off and that horrifies them generally speaking. And there's always a few exceptions and there are buyers out there who are looking to do that. Especially, you know, with private equity, when the business has more value, when it's larger, you can do that. But in and around the sector that we're talking about, the lower mid-market, to some extent, you're restricted from doing that because it's such a small business that if you start doing things too quickly, you will destroy that business. Most of the buyers that I deal with, they know that they're not looking to disrupt the business, shut things down, move things around. What they're looking to do generally is to take what's there and just make it better in some way. More marketing or more investment, that's what they're doing.
The Finance Ghost: It makes absolute sense. And yes, a lot of those deals you've referenced are your typical private equity buys a big retail chain and closes half the stores. But you're right, it's generally big transactions where you can do what by all accounts is something damaging, but it's also not damaging because that business became huge and inefficient, whereas the businesses you're selling aren't there. The little “growth” businesses, they're not inefficient because they haven't been able to be, otherwise they wouldn't have survived in the first place. They don't have that corporate virus all over them.
John Sweeney: Yeah, and as a general rule of thumb, I think the biggest challenge is if you are a business owner in the UK, generally, as a rule of thumb, private equity is looking for a business with 1.5 million plus adjusted EBITDA. Anything below that, they're generally not interested, unless it's a strategic fit for something that they're already doing. And then they'll introduce one of the companies that they own to perhaps do a transaction in which they'll partially fund. Now for most people selling their businesses, they won't be attractive to private equity.
Most people selling their businesses have great businesses, but private equity won't be interested in it, it's just a size thing. So therefore they need to know where they are and who will buy them. I think a lot of the noise out there is looking at things around what private equity would do or what large strategic buyers would do. A software company paying millions and millions of pounds for another software company that hasn't ever made a profit - that's its own world; It's not Main Street.
The world that I live in and the world that the people I deal with dealing lift, maintenance companies, bakeries, all sorts of things that we end up working on. Bus companies, logistics businesses, fantastic businesses that have generated a great lifestyle for the owners and their families and people working in them. But when it comes to that owner moving on, that's the real challenge, is that somehow that's one of the most difficult things that they will do, is finding a good home for the baby they've created.
The Finance Ghost: Yeah, those businesses lend themselves very well to a financial buyer who also wants to go in and replace what the founder is doing. An investor who wants to get more involved or has a professional manager waiting to be substituted in. Whereas to your point, the strategic buyers are generally looking for a specific piece of technology. Although you will sometimes find market consolidation strategies, that’s just one example of a strategic buyer. If someone’s busy consolidating bakeries in the UK market, you can have a business that already owns five bakeries and wants to be in a new area and comes and acquires one and they benefit from all the supply chain that’s been built out. How often do you see those more strategic deals as opposed to pure financial deals? Or would you say that in this sector of the market, it really is a financial buyer who's looking to buy a business and really get stuck in on it.
John Sweeney: I think over the last few years, when I've been doing this for six years now, and I think there's been two phases, pre-pandemic and various, let's say global events and interest rates rising. There were quite a lot of investor buyers swimming around looking for businesses to acquire, but since then, a lot of those have disappeared or are waiting to come back.
Here in the UK, we're waiting for some interest rate falls and things like that. What I see mostly now is, yes, the roll-ups. They come in waves. There was a whole taxi business, one going on a couple of years ago. Pest control is happening, racking and warehouse maintenance. There's one of those going on at the moment. The guy who bought 40 hairdressers is someone I'm working with at the moment. So they come in waves. But what I think is most common right now, when I talk about strategic, I think often it's a trade buyer. So a version of yourself that is maybe larger or in another geographic location and looking to expand. In terms of strategic buyers, you could be the missing piece of a jigsaw puzzle that is unlocking millions and millions of pounds to their existing clients and your clients. And then they will pay a premium on that.
But also sometimes we use as a shorthand for trade buyers, strategic buyers. Oh, “we do that” or “you would complement my existing customer base”. We're not talking about unlocking millions, but it's a nice addition for someone. Again, at an entrepreneurs’ conference, the one that was at last week that I referred to a room full of 140 business owners, and generally speaking their businesses are in the range of between 3 to 10 million. And they are trying to grow their business. Acquisition is another route to growth for them, rather than maybe just doing incremental sales. They are skilling up to learn how to do acquisitions. And I think that world will grow, of fast growing, ambitious businesses looking to add on retiring owners businesses. And I think those are really good fits, actually, because if I'm somewhat critical of investor buyers, the big failing that they have, they may have money, they may have access to finance, but they don't understand the business that they're trying to acquire. And often that falls over the size of these businesses are of, you know, 2030 people, a husband and a wife running it. So, you know, they need a leader. And if the leader isn't in the company, then the leader has to be the acquirer. And sometimes if you don't just know that the sector, you're not able to lead it.
The Finance Ghost: Those roll ups are really interesting trades because, you know, the UK is a very services-based economy these days. And the principle there is I go and buy a whole lot of, you know, hairdressers and I pay, whatever it is, a three times earnings multiple. And by the time there are 50 hairdressers loaded together, somehow the finished product is worth a five times multiple. And then look how clever I was. I created a whole lot of value along the way. And then I exit the 40 or 50 hairdressers either via a listing which is less common these days, or selling it to some kind of private equity player, because now I’ve created a business that is big enough for a private equity house to buy it. So, yeah, very well-trodden path, the sort of roll-ups. I’m aware that in the UK that is quite a, quite a focus area. At one point in South Africa as well, we saw some of that playing out. A lot of it was then listed companies on the Johannesburg stock Exchange. They didn’t end well, for what it’s worth. But I think that’s maybe a South African economic challenge in and of itself, rather than a UK comment. But I guess that’s the point is when you are selling a business, you need to understand what’s going on out there. Is there a roll up in my sector? Because if there is, that’s definitely an option. You’ve then got the ability to go and have that conversation. If there’s no roll up and you’re a bit light on trade buyers, now you’re selling to a financial investor and often that comes with a more difficult kind of handover. Because that financial investor is not necessarily looking to step in tomorrow and run the thing. What do you see in that regard? Are entrepreneurs quite well prepared for the level of handover that’s generally required in these transactions?
John Sweeney: To be honest, no. And I think this is the reason why I've created the Business exit Academy, because my average working week, we have very established brand, we're well known, and people are contacting us or following up from our marketing. And I say that one in ten of the business owners that I speak to, I'm able to help. And when I say I'm able to help them, they do not have a sellable business or one that can be put on the market right now. And I can think about all the different types of buyers, private equity will get first go at business if they want it, then you move down the chain if you like. The only people then who might be interested in those businesses are, if we call them investor buyers. A lot of these investor buyers, at least in the UK, it's a phenomenon. They don't have any money, so they've got nothing to invest, so they're now trying to buy your business and using your business to leverage loads of debt. Now that's a worst-case scenario if those are the only sorts of buyers who are interested in your business. And so the challenge then becomes for a business owner is to just understand the rules of the game.
I think, unfortunately, what's happening is people are so focused on the day to day or the year to year and growing the business, and when they're the switch in their heart says, now, I need to stop doing this, I'm going to sell it. They'll come to talk to someone like me and I'll say, well, your business isn't sellable. And then they have a problem, because the only way they might sell it, if they really want to go is to look at some of these investor buyers who don't have any money. And the way they structure the deal is, well, I'll tell you what, here's the thing. We'll use your business, we'll leverage it with debt, you'll get some money, but you need to stay in the business for the next three years working for me, and then I'll pay you the rest of the money over time. And that's very unappealing.
The Finance Ghost: I'll pay you a three times earnings multiple over three years. Yeah. That is your profits for the next three years that you would have gotten anyway. If you're lucky, I'll pay them to you. And if you're unlucky, well, I guess, “sorry, the business didn't perform”.
John Sweeney: Yeah, and quite rightly, that's unappealing. People don't take it, but the work to fix that and get a better quality of buyer needs to begin much sooner. And it's not the case of, yes, your business is successfully for you, yes, your business is paying you a handsome income, but that doesn't mean that someone else will want to buy it for all sorts of reasons.
The Finance Ghost: So I think let's bring the podcast to a close, because time really does fly when we're learning a lot. I nearly said earning a lot. That's also what people want to be doing. But right now, we've been learning a lot and I've really enjoyed this engagement with you. And where I want to finish is basically for those listening to this podcast who are, you know, entrepreneurs or owners in their own right. What would be your top two or three tips for any owner who is embarking on this exit planning journey?
John Sweeney: I would say to any business owner out there listening, wherever you are in your, your business life cycle, start running your business so that you can sell it one day. It doesn't mean that you have to sell it now or five years’ time.
You need to think, I'm going to sell this one day because then you have freedom then to go on your own terms and when you want. So that's the first thing. Now in order to do that is the second thing is you need to learn the rules of the game. Finance Ghost, I think you're very familiar with the rules of the game as I am learning all the time. But most business owners have no idea what it takes to sell a business and they're learning about it too late. And that means that they either won't sell or they'll be trapped in a business that they no longer want to do. They want to get on for the rest of their life. They could be sick. There's all sorts of reasons that they do that. So get help and check out what we offer on the Business Exit Academy to do that, because I'm on a mission to tell every business owner, here are the things you need to know, and I don't care if you don't need them for another five or ten years, you just need to know that stuff now. And I think the third thing really is start to get a team together that will help you with this kind of endgame. And the sooner you start, the less challenging it will be. And there are different phases.
You need a team, you may need to grow your business, so you need some kind of scale up support so that it's a profitable enough business that people want to buy it. But then you have other challenges. And I know we're short of time, but let's just take a key person issue, key man issue. The fundamental, most common reason when people look at a business and decide whether they want to sell it is who's going to run this business after the owner leaves. And if there is no answer to that internally, you know, so you haven't brought a team along, then no one will be interested in it or you'll get less, less value for it. So, and those are just what there's, you know, I can give you a list of ten other things you need to be doing, but those are the sorts of things that you can work on. And when you've done all of those things, you have a sellable business.
The Finance Ghost: A lot of really great advice in there, John, so thank you so much for making the time for this. I really enjoyed the engagement. I've learned some stuff. Anyone listening has hopefully learned some stuff. I think let's end off with just how people can find you, not just your business, but yourself on LinkedIn as well. How should people engage with you? For those who do want to reach out.
John Sweeney: If you connect with me on LinkedIn, John Sweeney, business sales specialist on LinkedIn, let's connect. I'm shortly launching a program, the Business Exit Academy training program, which will kind of be a portal where business owners can educate and learn all the things they need to know about that. So I'll share that on email. If people just want to connect with me on LinkedIn, that's probably the easiest for them.
The Finance Ghost: Absolutely. And you know, for those checking this out, you'll find in the show notes all the links to reach out to John. So John, thank you so much for your time. Really enjoyed it. And I'm sure we will do another one of these. I think we've barely even scratched the surface of exit planning, obviously, but we try to keep the podcast to a reasonable length. So thank you for your time, and we'll do this again.
