(upbeat music) - Hey there, I'm Helen Ornellis and I've been a life insurance long-term care and Medicare broker for over 20 years, helping thousands of clients during this time. I've come across all types of cases, questions and calls from people who are in planning or in crisis and provided solutions. So welcome to the online podcast with Helen Ornellis. Listen, you know as well as I do that taking care of important things in life is motivating and powering and even inspirational. You're thinking what does this look like? If you're a business owner, executive is someone who wants to know, what do I need to know about life events, how to prepare, where can I get help? You're in the right place. These life events will be coming your way and you will receive these phone calls from your family, siblings, in-laws, grandparents, business partners and friends. What calls do you think are coming my way? Let's find out. I'll be sharing stories, solutions from me, my clients, providers of service, and others that can help you now or in the future. We have the toolbox here on life, so if you're ready, let's get your toolbox loaded up. All right, here we are, another episode of On Life with Helen. I have a really interesting guest today. I have Randy Hendershot and he focuses on working with business owners and preparing for a succession planning, mostly for selling their businesses and in some cases maybe acquiring. So, Randy, I'd really like you to introduce yourself and maybe share about how you got into this interesting line of business. - Hi, Helen, great to be here and thank you for the opportunity to chat with you. Yes, it's my 11th year doing what I'm doing. My previous life, I worked for enterprise manufacturers with them for 24 years. The last 11 of that, I was a regional vice president overseeing about 45 locations and about 350 employees here in Northern California. - Yeah. - Yeah, they retired me back in 2011. We had two regions that pulled up into one, so I ended up getting out, started my own business, decided it couldn't scale like I thought it could. It was a personal driver business. And then, it was actually the same time that Uber started, so I think they won that contest. - Yeah, they had a good idea of it. It was a little difficult to launch. - A little different in the way it worked, by the way. They won. But like, ended up looking to maybe buy a business and started talking to CPA identities, attorneys, you know, centers of influence for business owners and also started talking to business brokers. And got a long story short, I wasn't super impressed with the business broker community when I was chatting with them. And I met a gentleman who I was very impressed with. - Oh, nice. - And ended up being kind of working with him. He became my mentor as I got started. Learned from him. He started my own company doing business brokerage. So we help, you know, for the primarily business owners when they're, when they're ready to sell, go through the whole selling process. - Nice. Yeah, it's funny how when you meet that one person, they can kind of ignite you. And one conversation can change your life sometimes, right? - 100%. Yeah. It was interesting, like, you know, having been in the business world for, you know, 24 years before I get to this, I had never heard of a business broker. So I was like, it was real all new. So I was like, and it's funny. I've talked to a lot of my peers and folks and they had not either. So it's interesting thing in the street for sure. - Yeah. So why don't you share it with me? 'Cause I know there's a process in doing this. And you and I have spoken many times about how you prepare in doing this. And that's why you're on the podcast is to kind of share that journey. So when should a business owner start planning to sell their business? - You know, that's a great question. Am I, my pet answer to that is at least three to five years would be best. Have a good runway. Unfortunately, I've had a number of conversations with folks that haven't planned. You know, they might have a health issue or something that pops up. The trigger is a sale. - Right. - And then we start the process. And then how do we learn that, you know, if we do a violation, we learn that maybe it's not quite what they thought us were. I mean, they're kind of behind the eight balls. So three to five years is the minimum to start thinking about it for sure. - What does that process look like? Do you kind of meet with them and have an intake? What does it discovery meeting? And just kind of like really spread that journey out and help them just thoroughly understand what the steps might look like? - Yeah, they could. Many times, I actually most of the time, the owners that we work with are retiring. You know, so this is the one time event. They haven't done it, you know, over and over and over again. So it's really an education process. What I've learned is, you know, kind of educating them on the process, but also really digging in 'cause all it really matters is what their goals are. So we really kind of dig into, you know, what are your goals? You know, have you thought about your succession? A couple of things in our industry. One of them is that, you know, 100% of all owners will access at some time. - Right, yeah, right. (laughing) - So how do you want to act on your own or at someone else? So have you thought about, you know, a son or daughter that, you know, might wanna, you know, take over or a key employee? Sometimes those conversations haven't happened. And then they may be a little too long and then have the conversation and find out maybe they aren't interested. So just having that discussion ahead of time, they kind of determine what you want to do. So, and for our farm, you know, we can involve when it's time to sell, but I really enjoy having these conversations ahead of time and kind of helping folks kind of figure out what their plan might be and kind of get it started. And then, you know, connect them with other professionals that they need it to kind of, you know, attorney's CPAs, you know, folks like yourself. - Right. - You know, other professionals that could help them kind of go through the process until they're ready to go. - Yeah, and I know that sometimes some mediation is required, right? Because you have, especially when you're dealing with families and stuff. Sometimes you kind of have to get somebody with a neutral position in there to kind of help navigate where they really wanna go and how that's gonna happen. - Yeah, I would agree. But again, it's really just starting those conversations so I'm just really kind of getting them started. It's interesting, like I said before, a lot of times they assume that maybe a third of a member might want, and they're not, and they'll suddenly go, "I don't really want to do it." - Right, now what do I do? - I know, it's like, and that's usually what we get the calls. Like, well, I thought my, you know, my children might want to take over, but they don't, and that's what we get started. But, yeah. - It's really just kind of, having, getting it started, just kind of getting them back and the answer and questions and kind of getting them started, putting together their team. You know, they really should have a good CPA that understands that transactions side, and then a good transaction attorney, you know, a good intermediary like, I'm like myself that can help me process. So, it's like kind of just, kind of get your team, kind of get your goals set up. - So, you know, I'm a business owner, and I know you are, and you had brought up an interesting point, and that is really learning the true value of your business, because we all have like, this fantasy number in our head, right? Because we work so hard, right? And it's like, we think it's worth $10 million, and you know, maybe it's worth 500, who knows? But, the question being is, how do you help them really find the value of their company? - And that's it. I was in very, very important step. And you're right, Ellen, many times, you know, I hear, well, my friend, you know, he or she sold it. - Right. - Or whatever, and that's nice, but it usually doesn't parlay into their business. So, that's the first step that we do, is, you know, help them go through a valuation process. And we've got a few third parties how we do. We have a cute third party, our appraisers, that we use in their official appraisers. This is what they do for a living, or they appraised business system. And we help them go through the process. We don't, I don't charge a fee for that. I really want to help out. My goal is to, you know, I'll just kind of, my goal is to give them as much information from my seat to kind of help them figure out what's best. They want to sell now fine if it's three, five plus years on the road fine, whatever that might be, but go through the valuation process. And we quarterback the whole process to help them do it. But there's really two big things that come out of that. And the first one is the most obvious. You know, they're going to learn what the most likely listing price is or the value is. But to me, hell, and number two is the most important, they're going to learn why. Right. Why is it worth when it's worth? And we can talk about that if you'd like, but why? And there's so many different levers that do create value that they really need to kind of start understanding, other than just the bottom line. So the white piece is huge. Yeah. So I do want to dig into that. But I just want to make, you know, one kind of obvious statement. And that is when a company is held privately, there's a lot of what I call lifestyle stuff that's kind of ends up being co-mingled in a business. And that's always something that needs to kind of be pulled out as you're going through that evaluation experiment. I'm thinking, correct? 100%. Yeah. Every owner's a little different, but most will do, you know, spouse, car, whatever those things might be. And those are called addbacks. And so we want to add those back in to determine what the true bottom line result is. You know, what's the total owner benefit? And there's a lot of background for that. But we want to determine, it's sellers' discretionary earnings that we want to determine. But we need to add those back in. But kind of a key point, too, Alan, is that we will add those back in to determine the value. The best practices, though, if you're doing a lot of that, and you're doing, you have your three to five-year plan, stop doing. Exactly. Yeah, so you can have a nice, clean set of financials. I think that's where you're going, right? Yes, exactly, yes. Financial. Because that makes it much easier for the buyers looking in to understand if there's some bank financing that's going to be a super important piece for them to not see a lot of, you know, on personal items in there. So back to that three to five-year plan, right? Start ahead. So I want to stay focused on the value, because I mean, that is really when a buyer is looking, that's all they really care about. And so what kind of determines and drives the value of a company? Can you kind of share with us maybe about two to three points that you see are like top tier drivers in that area? Yeah, so that's a great question. As you can imagine, most sellers kind of-- or business owners kind of gravitate towards the profit, right? That's-- which is-- which is-- it's a huge piece. And it's a big part of it. And like you said, the buyer is looking in. They want to know, hey, if I do the same thing that Alan is doing for her business, you know, what am I going to make? That's what they're looking at. But by the biggest ones that we see that have the biggest impact, one of them is customer concentration. So I mean, if you had, for example, 100 customers, and you had, you know, doing, pick the number, $5 million a year, one customer that's responsible for half your revenue. That's a big deal. It's all about risk. So when a buyer is looking in, they're looking at risk points. And the lower the risk, the higher the offers, and the more sellable a company is. So naturally, if you got one customer's half your revenue-- Right. --they're going to be concerned. You know, gotcha that one customer goes, bye-bye. That's a big hit to the revenue. So that's one big one. And again, that ties back into planning ahead. So super easy for someone like you, you might say, hey, you know, diversify your business. But if least if you're planning three to five years in advance, you could work on it. Right. So maybe you can bring some other customers in, or could you create some stickiness with that one big, large client that might help from a buyer's perspective looking in. So that customer comes in. And that happens quite often. We do see that quite often. It can be sold, but we had a business over the summer. We sold at one client, same scenario. And we got a buyer. We got a sold. But we had to structure it a little bit different to make it make sense for the buyer. So we did get it done, but it doesn't can't have an impact on the value. The other one, one where a big one is when the owner is the business, and they all have the face of the business. That's a big one, too. I'm naturally most businesses start out that way, right? You start out as the, that's you. You've got to get it going and all that. So again, best of that, back to that risk point. If a buyer looks in and says, OK, Mr. and Mrs. owner, when you are out, what's going to happen? Are their customers tied to you? Are the employees tied to you? So what is going to happen once you're out of the picture? So again, back to that, real easy to say, hey, work more on it than it is. And that's really key. It's kind of counterintuitive. When you're exiting, the less you're doing in the business and working more on it, the better. It's more sellable and the value comes to go up. So then it goes back to, again, if you've got those three to five-year plan, can you bring a GM? And can you put systems and processes in that maybe allow you to step away and do more working on it than actually in it on a day-to-day? Super easy to talk about, hard to talk about. Yeah, I mean, if you think about it, if you have long-term employees and you've been running it, I mean, you probably don't have a lot written down. And Harry in the corner over there has been doing XYZ for 20 years and has never written anything down and so you're a little vulnerable there. So yeah, that's that three to five years of getting your business to be a true business, right? Yeah, you know, that's a great point, Helen, on the what's in Harry's mind or the owner's mind. Right. Then where you can data dump that down and get it in systems and processes and procedures. But that company we sold over the summer that had the large company and they did an awesome job of that. So they're in their admin office. They had procedures written down for all the positions. So when someone was out on vacation or whatever, someone else could jump in and read right through and know what to do. So that's a great point, Helen, that's again, that takes time. But if you can get those down, again, it's less of a risk point, right? Because it's not just stuff that's in your head. And you know, with AI these days, I mean, they can, you know, you can kind of get a framework and just modify it for your particular industry or your particular situation. What else drives the value? So we talked about a couple things. Do you have another nugget for our folks? Yeah, this is a big nugget. And probably the most common is organized, clean financial. So they add back, but just having financials that are up to date and consistent and clean. Many times we'll work with a seller and they're not quite in order. So what kind of a pause button and get a new CPA or a other CPA who's going to work or whatever. But the key part, I guess kind of the fun part of that is, the first two topics we talked about requires a lot of effort from the seller, right? On the CPA accounting side, it doesn't. It's going to cost you some nickels and dollars to get that done. But you as an owner don't have to do it. Right. You have the right team. I think what's super common is you see owners work with their CPA once a year when it's tax time. The best plan would be to be meeting with a CPA, you know, or accounting team, you know, four times a year at a minimum. You know, once a quarter, understanding where you are, making sure your financials are all at the day, putting together at KPIs, keep performance indicators. You know, if you can create a dashboard for your success points, those are all things that buyers looking in are going to want would like to see. If the financials are messy and not organized, they're going to just move on to another. Right. And most of them are looking at multiple businesses, not just one. So right. And that's probably the most common one that we see is the financials aren't quite where they should be. OK. Under this particular topic, anything else that you want to share about driving the value? Understanding it, I think knowing the value of your company is huge. And many folks don't quite do that. That's what I first started to have an estimate or a guess. Right. Having having a professional appraiser do it is big. Again, we go back to you, you learn. But I've had, you know, like we closed on a really nice food processing company earlier this year. My first conversation with him was that July of 17. Wow. He had a valuation then, and then every year or every other year, he had another valuation done until he was ready to go. But he was listening and learning along the way and kind of worked on some things we talked about. So having that true understanding of what your value is, but more importantly, why and then understanding all those risk points, that's a big step. I think it's worth, you know, every dollar there is spent to get that done. So out of curiosity, him going from 2017 to 2024, had the value of his company increased by taking your recommendations and doing the things that you asked them to do? Yeah. And one cool thing that he did, he had a wholesale aspect to his company where he had a lot of wholesale customers. And we talked about the customer concentration. And the kind of the flag tick is, you know, not more than 10 to 15%. So if you could have, you know, all your customers below that 10 to 15% of revenue mark, that'd be ideal. Well, he paid attention to that. And there wasn't one customer over 10. Oh, wow. I wouldn't let him do it. So when we got to the table, the buyer, yeah, the buyer was like, great. Now, I know that you're diversified. So, yes, he listened and executed on it and it made a difference, it made a difference. Nice. Yeah, I mean, that must speed up the transaction too, right? When you clean it all up and you present it. And, and then you have confidence in knowing when you get an offer that it's, that it's a good offer, right? You're just not trying to figure out, oh my getting ripped off or, you know, you just kind of really understand the value of your company. Can you share with me just kind of a couple of success stories and maybe one that didn't go all that well because they want, they were not prepared? Yeah, the one I just talked about is probably one of the, a recent one that was pretty fun. I'll give you a scenario of an order that we worked with a little over a year ago and she had a company, still has it, but 40 years in business. Wow. Yeah. And she had a appraisal done about 10 years ago, but it wasn't through an official appraisal appraiser. It was with someone that kind of dabbles in it. So, this person gave them a number that she had in her mind for the last 10 years. Right. And this is part of her retirement plan, right? Well, when we did appraisal with her, we had an appraisal, you know, appraisal to it. And it came in about 25% of what she was expecting. Oh my gosh. 25%? Yeah. It was a knock on the knees. I mean, that was just tough, a little swallow. So, she had to make a decision, you know why? And she's at the 40-year mark. So, I got, I just can't do this anymore. So, I went forward. But different story didn't quite sell because soon her accounting wasn't quite where it needed to be. But that was a tough one because she had gotten advice from the rank series. Sure. And it's really, again, back to that, not a really fun conversation because she was counting on a certain number 10 years. And it wasn't, it wasn't where it needed to be. So, this is all about that, you know, back to being proactive. You know, and getting it all done, so you kind of understand, it's really kind of, really kind of being a student of this process. You know, the more owner understands how the process works, that is a big piece. You know, like I said, nine or 10, do it one time. You know, this is not a repeatable event. It's a one-time deal. So, I know that you spoke about this manufacturing company that was a big success. How about another sale that you've had in the last couple of years that you might want to share and how they prepared for it? I got another one, was a contracting business. And this is kind of a, we taught for probably a year and a half, maybe more. And we really got on the conversation, the owner not being in the business, and they had two project managers and two estimators, and he was one of them. So, he was one estimator, had another one. And he kind of kept his hands tight on it, because for control, you know, and not for the wrong reasons, you know, it was one of my choices. Sure. He made this step and he brought on two more estimators. And this has kind of pulled himself out. And kind of crazy, his stress level went down. He's a share, because he wasn't tied into it. But his revenue started going up. Yeah. Because he was able to turn him around quicker. So, once he was ready to sell, we were able to show a really nice growth on trajectory in the business. And a lot of it was just kind of letting go. Which is hard. Right. When you started a business, and he was in this is another 40-year business. You started it from scratch. You know, it's hard to do that. It's hard to let go, but you got to have the right people. But he did make that step and it did. It was amazing. In fact, he's like, he was Randy Fyte had done this like five years ago. You and I might not be talking, because I would just keep going. But I'm done. I'm burned. I can't do it anymore. My God, 40 years, I mean, I get it. Yeah, there's a time to really start thinking about it. Yeah. The reflection was this. Like if he had bought on the two estimators, you know, maybe five years ago, maybe his lifestyle would have been a little different. Got it. Yeah, so that's kind of what he's like. I've waited too long. It's good now, but I'm ready to go. You know, I understand that. My first career, I ended it with having 3,000 employees and I swore whatever I did next. I would not have any employees, right? And so I kind of hung on onto that and dug my teeth in. But about two, three years ago, I actually hired somebody. My stress level went down. My income went up. They're successful. And I've added two more people in 2024. And exponentially, my revenue has gone up. And my, you know, you get the stress of training, right? But when I go to sleep, now at night, I have the comfort knowing that I'm more diversified and that it's going to be an easier road. And so for the solopreneurs that are out there, you know, letting go and just kind of figuring out that piece, I think is totally worth it. I would agree 100%. Yeah, I've been in the last couple years on MyUp team too. And it's made a big difference. Yeah. To me, it's all about the systems and princesses. Right. I'm making sure that we're all kind of, you know, working with the same sheet of music there. So it's a big step, Ellen. You're right. Yeah. You got to find the right people. I mean, that, I would say the-- Oh, 100%. Yeah. How to do that? So one of the questions that I have is, how do you vet buyers and present them to your clients? Because obviously, you need to do your due diligence when you're bringing somebody to the table that they're the right fit as much as you can, you know, figure that piece out. So how does that piece work? Yeah. That's an interesting process. And it is that it's a process. And we've got an old system for this. So our intake for buyers is all automated. Well, it's where they find a listing site. I mean, a business for sale site. Or we've reached out to them via direct mail or telemarketing. We're bringing them in the same funnel. We haven't complete a-- and, again, this is all automated. Sure. And I'll just go to the agreement. So I got to sign that. And then we haven't complete a buyer registration on which it's a simple one-page form. But it's just more background on them, where they are. If it's an individual, if it's a company, it has their background. It also has a little financial statement on their cash available, any other investments, you know, and it's worth all that. And then what I do, once they intake all that, we'll share a little bit more information with them. But as you can imagine, all this, we really need to be confidential. Right. We don't want the buyers or other folks to learn who a business is. My little joke is, you know, we don't go put a big boom up on your building and say, hey, you sell. Yeah, that could create havoc for sure. Yeah, you don't want to do that. You don't want sure if you're folks to find out or a customer or something like that. So what's they do that? What I do is I line up a about a 15-minute phone call with each buyer. And they still don't know who the company is. It's for sale. And I want to learn why this seems like it's a good fit, what their interests are, and all that. And then I take some notes down. And sometimes we determine on that call that maybe it's not the right fit, which is right. But if it is, then what I do is I share all the information with the seller, with the business owner. And say, and here's, I share with them the NBA, the buyer profile, the registration form, and then some notes from my call. Say, here's who they are, here's their background. Here's why they think it's a good fit. And then I basically get permission from the seller to send over what we call a confidential business review. You see about 25, 30 pages or so to that buyer. So the seller has that, OK, or needs the approval to send that, to have a send that over to them. Right. So that's the process we do. Takes a little bit extra time. But I think it's the right thing to do. We want to share that information with the right, with the right buyers. You see why I make sure you got the right connection there. So in most businesses, when they're up for sale, on average, how many potential buyers are out there? Like how many buyers do you have to kind of interview and walk them through that particular process? It really depends on the business. So if there's some that are more popular than others, the average time to sell a business is about six to 12 months, that's about 12 months. I don't know, six to 12 months. So it's a process. So we could go through 50 to 100 buyers. But that doesn't mean we're talking to all of them. Right. It could be the ones that inquire. And not everyone fills out all the forms. Nor do they end up wanting to have a conversation with me. So that's kind of a little bit of a weed out process. That's right. If they're not willing to do all that, they're probably not a real buyer. We don't want to share information with Tyres. They're just kind of kicking the tires. But when we get the funnel down to some real serious fires, it could be a handful of the five to 10 real serious, where we could get some offerings such. But there's a whole fun process we've got to do to kind of get to that level. So it takes some time. So I know this is going to be kind of an interesting concept. But I'm thinking that you have to kind of have a cultural match in that their business philosophies are kind of similar. So there's not a huge disruption when there is a transfer. And that's part of your process. Yes, extremely important, Helen. In fact, so let's continue on to that process. So I talked to them, the sellers is great. They share the information. The buyer goes, this looks really good. And what's the next step? Well, we do a-- and there's more than this. But in this part, we do a 30 to 60 minute Zoom call video call with Fire and Cellar. And we do just that, Helen. We talk big picture. We're not negotiating anything. We want to say, do you guys get along? Is there an action there? My little, my little humor on this one, too, is that if you guys aren't getting along on the first call, kind of like a first date, right? First date, it's just going to get worse. Yeah, exactly. So just kind of keep that in mind. But as the conversations continue, that's a real big important piece that both buyer and seller need to really focus on, do they get along as we're a connection there? There is going to be a transition period. That could be months, that could be up to a year, whatever that is. So there is going to be some time together for that, then also that they get in culturalized with the company. Boy, boy. Nice. So yeah. So who is your ideal client? That to me is very important for you to kind of share with our clients. Like, what does a good client look like for you moving into 2025 and 2026? Yeah, Helen, thanks for asking. We work best with business owners where their company size is about a million dollars in revenue up to 30 million. We're size-wise. And we work with a variety of different companies, a manufacturing, distribution, service, with their retail, a little bit of everything. We're located in a Sacramento area, but we work all over California, mostly Northern California. But up to redding down to Fresno over the Bay area. So pretty much Northern California. OK. Well, we're kind of getting to the end of the show here. And I'm just curious if you have any closing questions or maybe something that I did not talk about and just kind of kind of turn it over to you for a few moments. Yeah. I think kind of recapping. I think, like we started, plan ahead. If you're going to access three to five years as key, at a minimum, plan ahead. I'm understanding the value of your company is extremely important. But I think also, which we tapped on, it's a little bit, is assembling your team. Start now with your team. It's going to be a CPA, again, that understands the transaction side. Not just a tax return, but they understand the transaction side. Where are the tax consequences? A transactional attorney. Someone understands that side of the thing. And also financial advisor. You're definitely going to have a cash windfall, right? So what are you going to do with that? How are they going to look out and do you have a team? So and also a big business intermediary, like someone like myself, that helps you do the whole process. We're kind of like that quarterback that kind of works with all the team members to kind of help push things down the line there. But starting early with your team is super important. Why not start now? Interview folks find out who you think you're the best fit for you. And then as you kind of move forward, and as you're moving forward, take their advice, listen to them. And figure out what angles they would suggest, too, to work on help you when you're ready to have a vote. All back here, that's planning part. All right. Same thing, Ellen, but it's all about the planning. If we have some listeners out there that are just curious, right? And they're just kind of floating in around in their head. And it's not even a reality yet. You're comfortable taking their call and just kind of starting the conversation, correct? 100%. Great. I just had a call life out this morning, where they're probably look at five tenders down the road. I want to help. And now I'm going to help. Maybe it's a kind of a paid-for thing. I don't charge any for that. I want to help. I just back to that. I just trying to avoid those lousy calls. Right. The calls are on so much fun. I'm going to have kind of set the tone, kind of help you out. So I'm more than happy to do that. Nice. Well, Randy, thank you so much for being my guest. And this is really, really interesting stuff. It fascinates me. And I've learned a lot being around you. And I'd love to have you on next year to get maybe some updates on a couple businesses and how those transactions went. So once again, thanks so much for joining. Awesome, Ellen. Thank you very much. Appreciate the opportunity. Have a nice chat with you. Absolutely. Hey, thank you for listening to this episode of On Life with Helen Ornellis Podcast. If you enjoyed what you heard, please share with a friend. 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[email protected], H-E-L-E-N, @ORN. N-E-L-L-A-S, insurance.com. In closing, this podcast is dedicated to all who believe in preparing for the future and beyond.
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